I am writing this report
at 9.00 am on Tuesday October 21.
In the last six weeks
we have experienced unprecedented volatility on a scale that suggests wholesale
involuntary liquidation of positions, manipulation and, above all, panic
and confusion. The landscape has been completely transformed on a worldwide
scale with massive nationalizations and quasi-nationalizations in the banking
system. The list of causalities is long and the names, and amounts involved,
are truly astonishing.
The financial crisis,
thus far, has had three stages. The initial tremors with the collapse of
some hedge funds last year, the collapse of Bear Stearns in the spring
and the full scale crisis that has enveloped the world in the last two
months. The bad news was that it was devastating financially and economically,
but the good news is that, maybe, it is abating. There are some promising
signs that some of the more extreme distortions are easing and that the
money markets are, slightly, thawing. We are very very far from being back
to normal but, at least, we are heading in that direction. As has been
true throughout the entire crisis, we are still in an extremely precarious
position and a successful escape from the crisis is not a foregone conclusion.
One thing that is certain,
irrespective of the course of the financial crisis, is that we are in a
recession and to some participants this might feel like a depression. Many
fortunes have, or will, be lost. It is my job to steer us away from most
of the carnage while remaining open, as we always are, to much of the general
broad upward sweep in economic activity.
This is also the mandate,
with variations, for most of the world class value investors. This year
has been brutal to the usual suspects (the neophytes, the fools, the charlatans,
the over leveraged and the merely mediocre), but it has also swept away
some of the best minds in the business (the managers of Third Avenue, Longleaf
and Oakmark).
The data for 2008 is as follows:
| U.S Indices |
-32%
|
| World Indices |
-38%
|
| Third Avenue |
-40%
|
| Longleaf |
-44%
|
| Oakmark |
-28%
|
| Our portfolio |
-8.5%
|
The figures since the market
high in October 2007 are -38% for the U.S. market and -8.0% for our portfolio.
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I dislike negative returns,
but I also recognize they are an inevitable part of any sensible investment
program. Minimal risk guarantees minimal, and inadequate, returns. Although
I am never happy with any negative year I am, thus far, delighted with
how well we have weathered this perfect storm. For detailed descriptions
of our current portfolio I strongly recommend you reread my email dated
October 9th. It is also available on our web site at www.oakwoodgroup.com.
As I said I am, and will
remain, calm. Please contact us with any questions.