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Cadinha Blog



We have been studying the market performance of our client portfolios going back a couple of years to see how we can possibly enhance returns without taking unnecessary risk. Being aware of the fact that many of our clients may have similar questions, we have studied our specific buy/sell decisions in both stocks and bonds.

In bonds, we could have increased returns by staying in longer-term maturities rather than the eight-year range, but we would have had to sell earlier this year to avoid a significant drop as long-term rates finally began moving up. We definitely feel that guessing the direction of interest rates is still quite an “iffy” exercise and would not change our current bond strategy.

As you know, we favor large, high-quality companies when it comes to stock selection. We do on rare occasions use more aggressive ideas when the “story” is irresistible, but never to the extent that we jeopardize total portfolio safety. Yes, we have had some disappointments with specific stock selections, but that is par for the course when managing portfolios. When we compare our performance against the Standard and Poor’s 100 Index (S&P 100), our returns are quite favorable. (The S&P 100 represents the largest 100 companies in the Standard & Poor’s Index, while the S&P 500 is the entire index.) When compared to the S&P 500 Index, our performance lags. In reality, our concerns proved to be rooted in the recent stock market environment, where blue chips and large cap growth stocks have dramatically under performed smaller and lesser quality cyclical companies.

Where do we go from here? Frankly, this cycle of blue-chip underperformance appears near an end. Our companies continue to build cash, increase dividend payouts and represent distinct bargains at this point. The Christmas season is seeing some strength among retailers while the Dow Jones Industrials Average (DJIA) has technically reversed to the upside, making us more constructive on the stock market over the near term. Some form of tax reform will be taken up in the next Congressional session and if such reform comes to pass, large blue chips will probably outperform. We counsel staying the course…good valuations are on our side. Avoid the “siren song” of the many salesmen in the securities industry who advocate chasing yesterday’s winners and less liquid investment strategies. After all, we still have a volatile energy picture, an active Fed. and a questionable political situation in Washington.

We plan to be in touch with clients to review each specific situation in light of the market conditions near the turn of the year.

I hope this note is timely and the explanation clear. Our best regards for a happy holiday season…

About the Author

Harlan J. Cadinha
Founder, Chairman and Chief Strategist




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