January 4, 2010

Sailing into Calmer Waters

Dear Investor,

It was nearly the perfect storm. Prominent financial organizations found themselves ill-prepared for a vortex induced by too much risk compounded by too much leverage. Thankfully, not too many ships were lost and we now find ourselves in calmer waters as the storm subsides.

The most severe recession since the 1930s ended last summer. The recovery is progressing, but I must note that I have rarely witnessed the disparity of opinions regarding the future course of the economy. Some economists are predicting a rapid recovery while others are expecting a double dip. My economic crystal ball isn’t very clear, but I think it’s only a matter of time until money being hoarded by banks is eventually lent and record amounts of cash on corporate balance sheets are earmarked for expansion projects. So, in my mind, the degree may be uncertain but the direction is up.

The stock market has rebounded quite strongly and it may well continue. As I first stated last May, I still believe the Dow will reach 15000 by 2015. For the next year, however, the market may fluctuate within a relatively narrow range. A disappointing economy or a rise in interest rates could disrupt the longer term upward trend. In contrast to 2009, when a rising tide lifted virtually all boats, 2010 should be more of a stock-pickers market. That’s fine with us because that’s our specialty.

Within FIM, I’m very pleased with the progress of the Investment Committee. The interaction among the members and the sharing of ideas and information are proving quite valuable to our investment process. The contributions being made by Jonathan, Monica and Alan are benefiting us all.

Remarkably, the decade just completed is the first one ever during which the US stock market failed to achieve a positive return. It’s most gratifying to note, however, that the average portfolio being managed by FIM, whether growth, balanced or income oriented, more than doubled in value during that same period. I’m hopeful that we can repeat that performance during the decade ahead. And if we get some help from the general market, maybe we can do even better. That is our goal.

As you know, we decided to pass on a formal seminar this winter, substituting in its place a series of small, more intimate seminars and individual meetings. The first of our mini-seminars went well and we have enjoyed the individual meetings to date. So, if you haven’t already, please consider signing up for one or the other.

When the going got rough last year, I’m sure many of you had second thoughts about investing with us, or even about investing at all. A few of our investors did indeed abandon ship. But most of you stayed the course and we are very appreciative that you did. We will continue to do our best to justify your confidence in us as we look forward to a year of further progress.

Have a healthy and happy new year.

For the team at FIM,

Jeff Friedberg