Author: Gerry Sparrow, Sparrow Capital
In October our Fundamental Growth model rose 12.3% while the benchmark S&P 500 rose 10.8%. Since inception on April 15, 2010, our model is up 11.6% while the benchmark is up 4.1%.
In the third quarter (6-8/11), equity markets declined in most parts of the world. The slow patch we are currently experiencing resulted from macroeconomic and political headwinds.
In particular, the downgrading of the United States’ sovereign debt by Standard and Poor’s, volatile European markets reacting to Greek sovereign debt downgrades and gridlock in Washington D.C. were some of the catalysts. These headwinds caused most markets to become inexpensive on an intrinsic value basis, according to our assessment.
I believe the best approach in this environment is to dollar cost average through this volatile period when good valuations present themselves. During these uncertain times, one can accumulate shares of well run businesses at low valuations and when better conditions develop on the economic and political fronts, one may be rewarded for the patience and discipline.
Our investment approach is to buy companies with consistent earning power and high return-on-equity that employ little or no long-term debt, and to purchase at reasonable prices with a high margin of safety.
As always, my family and I have almost all of our equity investments in the stocks that are in your portfolios. This does not guarantee a return, but it does focus my attention on the things that matter.
Thank you for your continued confidence.