November 2023

To Our Business Partners


Short-termism has been a significant issue for several years now, but we think it has reached new heights in the last few years.  Short-termisim is defined as a focus on short term results at the expense of long-term interests.  This is manifested in the marketplace’s current obsession over revenue and earnings “beats,” – the reporting of quarterly financial results compared to the estimates made by Wall Street analysts. The epitome of this exercise seems to be the “double beat,” – bettering the estimates of BOTH revenes and earnings, no matter how insignificant.  This is often accompanied by a frenzy in trading and sometimes sharp price advances in a company’s stock in response on the day of the report.

After a short period, things settle down and the real long-term fundamentals eventually reemerge.  Sadly, many companies have fallen into this practice, knowing full well that if they can “guide” analysts to low-ball their estimates, the companies can easily beat them. An optimistic money manager recently declared that over 80% of the companies reporting earnings had beaten the “Street” estimates.  This occurred despite the fact that many of these same companies are reporting anemic revenue and earnings growth.

(One pines for the Good Old Days when company managements highlighted their year-over-year financial comparisons and current financial condition, instead of the current practices of “adjusting” earnings and bending over backward to guide almost-always-wrong Street analysts in their quarterly financial projections.  One asks, rhetorically, “Why do stocks get punished for missing sales and earnings estimates, instead of the “analysts” getting deservedly punished for being wrong?”)

Quite often any serious discussion about long-term capital deployment, returns on capital, dividend policy or, importantly, valuation, are lacking in quarterly corporate reporting.  With such an emphasis on these short-term comparisons, it is no wonder that portfolio turnover rates have ballooned in recent years.  For example, many mutual funds now have turnover rates of over 100% and many much higher.  This means that the average holding period of a security is less than a year.  In most cases this frenzied activity due to short-termism has a negative effect on performance as costs rise in a vain attempt to outdo the market.

We think a much better way to create satisfactory LONG-TERM results is to pay attention to LONG-TERM fundamentals like yearly trends in income, average profitability, financial strength and, most importantly, VALUATION (stock prices compared to underlying intrinsic worth).  Over time these factors ALWAYS prevail.


The price to value of our group of widely-held stocks* is unchanged at 85% versus last month – still too high to yield an abundance of bargains.  We need more markdowns in prices.


Stock market indexes declined in October for the third consecutive month, in a range of 3-5% across all sizes of companies.  However, many of the indexes, mostly in the small and mid-cap category, are virtually unchanged or even slightly negative for the year to date.  Only the NASDAQ Composite and the S&P 500 are up year to date, driven by just eight out of the index’s 500 components.  The “equal-weighted” S&P 500 has declined by close to 4% through October 2023.  Over the last twelve months, most indexes remain in negative territory, anywhere from down 2% to down 10%, with small caps suffering the largest declines. As with the shorter time periods, the S&P 500 and NASDAQ are the only indexes showing trailing-12-month positive returns of 9% and 17%, respectively.  Our group* of portfolio stocks compares favorably to the indexes in all three time periods, and has produced POSITIVE results during the year-to-date and trailing year.

Steve Nichols, CFA • Bill Warnke, CFA •  Andy Ramer, CFA

*The group of “portfolio stocks” — our Equity Composite for the purpose of evaluating investment performance — consists of 19 stocks that are held in our clients’ accounts. Portfolios might hold some or all of these stocks, depending on investment guidelines unique to each client, the timing of purchases and sales, and start dates of accounts. The performance of this group of stocks is a good proxy for our equity performance but might vary widely among accounts. Of course, past performance is not necessarily indicative of future results.

We hereby offer to deliver to you without charge a copy of our current Form ADV Part 2, in accordance with the U.S. Securities and Exchange Commission’s “Brochure Rule.” Please contact us if you would like us to send you a copy.