Tuesday, September 30, 2008

How We See Things

We were very surprised and disappointed that the Paulson plan did not pass the House of Representatives on Monday. The markets’ reaction was not unexpected and, while we did not expect this to happen, we were prepared for it. Here is where we stand:

  • We have approximately 20% cash in all of our accounts, which is securely invested in U.S. Treasury money market accounts. This is the result of consistently taking profits off the table for the last several months.

  • Last week we invested approximately 2.0% of our portfolios in Goldman Sachs’ AA3/AA- rated senior notes, yielding 8.5% to maturity in January 2011. We saw this as an opportunity to position ourselves two steps ahead of Warren Buffett on the Goldman balance sheet, after Berkshire Hathaway invested $5 billion in Goldman preferred stock, yielding 10%, and Goldman simultaneously raised another $5 billion in the public equity market.

  • The balance of our portfolios are invested in strong, undervalued companies, many of which have been relatively unaffected by the market downturn, while some, particularly those in oil, metals and infrastructure, are being affected by a now well-documented world recessionary scenario. Many of our companies present compelling values, but we are being patient in committing additional capital, while waiting for stability to return to the markets.

  • Our year-to-date performance, while in negative territory, continues to track well ahead of the S&P 500 Index benchmark.

We are paying very close attention to everything that is happening in the markets and it is our opinion, at the moment, that we will still see some form of bailout plan in the next week or so.

As always, we are happy hear from you.

Jack and Peter Falker

Note: Both Jack and Peter Falker, and the clients of FalkerInvestments Inc., are long both the common stock and bonds of Goldman Sachs, as well as the common stock of Berkshire Hathaway.

No comments: