Manager’s Letter 2015 Q2

January 25, 2016

Sargon Y. Zia, CFA

Chief Investment Officer, Portfolio Manager

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Managing one’s investments is challenging enough without the endless cacophony of fear that rains down from the financial media every minute of every day. Greece! China! Iran! Bond bubble! The Fed! It never ends. So, let’s instead focus on what really matters.

Consider this fundamental trend: since 2013 the S&P 500 Index’s uptrend has been increasingly more attributable to operating earnings (blue), and less to the price paid for each dollar of earnings, or P/E (yellow). This is typically a good thing, albeit sales growth has been anemic with margins running near record levels. The first chart below indicates this trend reversed after the third quarter of 2014, a factor which has been on my radar.

Sources: S&P Dow Jones Indices,, July 9, 2015.
Sources: S&P Dow Jones Indices,, July 9, 2015.

In my previous letter I suggested that the market was eyeing higher highs in the near term despite lower earnings outlook. It did so. Analysts now estimate that growth in second quarter sales and earnings will be negative for the first time since the third quarter of 2009. Now for the silver lining: earnings growth is expected to recover by year end followed by sales growth in the first quarter 2016. Meanwhile, the bar has been set so low that companies reporting earnings this quarter are expected to exceed estimates.

Warm Regards,
Sargon Zia, CFA
July 14, 2015

Note to reader: Published quarterly, the Manager’s Letter series primarily communicates the author and Chief Investment Officer’s personal opinion on the markets. This article was originally written in October of 2015 and is provided to offer continuity and context for future articles.


We look forward to discussing your unique financial goals and personal values!

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