It's Been A Horrific Year

Fundamanetals were sliding already before the events of September 11th.  What chances we had of escaping a recession vanished.  Besides announced layoffs in varied industries and a material decline in consumer confidence, increased risk was added to the investment equation.  Equity performance reflected those new changes: the S&P 500 index's techs were down -34% for the quarter and the discretionary consumer sector lost -22%.  Not surprizingly, safer havens, such as healthcare and consumer staples, posted modest gains.  All returns are after dividends.

Gold Leaf is a lower risk investment firm that buys stocks when they are out of favor at lower multiples. On September 31st, portfolio attributes were:

Despite the quarter's downdraft, we had several good performers.  Wintrust Financial, a smaller niche Chicago bank, was up +25%; our banks in general (Union Planters and KeyCorp) posted only small declines thereby outpacing the S&P 500 on a relative basis.  On the other hand, our steel stocks reversed the year's earlier gains reflecting fears that a recession would greatly erode near term profitability.  Our largest holding is still cash, now at 7.5% of the portfolio, followed by Waste Management and MedImmune.  All returns are after dividends.

We started the Q with a 12.0% cash position which allowed us to make some opportunistic purchases.  Before 9/11, we bought Cedar Fair as a total return play given that the stock yields 8.4%.  We bought Mercantile Bank, another small niche player, and Noble Drilling, owner of the deep water rigs in demand by the large oil and gas exploration companies.  Finally, we bought Home Depot both before and after 9/11.  Gold Leaf continues to search for undervalued companies with sustainable competitive advantages and free cash flows that generate long term value for our clients.

Gold Leaf expresses its condolences to all families affected by September 11th.