Download “The U.S. economy seems to be firming up as more people are

Second Quarter, 2015
Dear client:
single digits from one year ago, many itself is rather insignificant economically
of the highest quality, solid dividend but China is an entirely different story.
Summer is upon payers (think IBM, Exxon, Johnson & Troubles overseas may lead to the first
us and the stock Johnson) are actually down from a year “correction” in the U.S. stock market,
market is doing ago, and some significantly. At ARIA we defined as a drop of 10% from the highs,
what it usually does own many of these blue chip dividend in the past several years.
at this time of year, payers; hence some of our portfolios
namely
backing are flattish from a year ago even as the From a portfolio standpoint, ARIA was
and filling and not market has made a modest advance. fairly quiet in the 2nd quarter of 2015,
making much forward progress. Stocks This often happens
making no major
in particular have slowed down from the in the late innings “The U.S. economy seems to across the board
torrid performance logged in 2013 and of a bull market
purchases or sales.
good performance last year. The market as fewer and fewer be firming up as more people We exited most of
recovery from the depths of 2009 has stocks participate in
positions in
are entering the work force our
been strong. The gains in the market the advance. Many
health
insurance
have outpaced the underlying earnings of the stocks that are and many companies are companies
as
growth of the companies within, which doing the best are
merger
activity
has resulted in individual stock prices some of the initial now giving their employees banter pushed the
becoming more expensive.
As an public
offerings
valuations of most of
example, Pepsico stock was selling at $44 that came to market reasonable annual raises.”
the players beyond
per share at its March 2009 low. Pepsi in the past year or
what we felt was
earned $3.77 per share in 2009 so a $44 two. Although these are real companies fair value. We will keep an eye on the
stock price divided by $3.77 = 11.7. and most of them are actually turning sector as valuations may become more
This is known as the “price/earnings a profit, their stock prices seem to have attractive again once all of this hubbub
ratio” and is one of the primary formulas gotten way ahead of reality, at least as our dies down.
Wall Street uses to determine if a stock eyes see it. The last time this happened
is cheap or expensive, or somewhere in was in 1999 when the internet craze was A final point to make note of is that
between. Fast forward to today. Pepsi is in full bloom. We don’t feel that today’s many of our clients have both IRA’s
selling at $95 per share and is expected to market speculation is anywhere near with us as well as regular taxable
earn $4.60 per share when 2015 is said what we witnessed in 1999, but is again portfolios (known as “INDV” accounts
and done. $95/$4.60 = a price earnings a trend worth watching.
at Fidelity). In many cases we take
ratio of 20.6, much higher than the 11.7
the IRA’s management fee out of the
witnessed at the lows in 2009. So while On the positive side, the U.S. economy INDV account to allow the IRA to grow
Pepsi’s earning have grown by 22% over seems to be firming up as more people faster tax-deferred. This in many cases
the period, the stock has appreciated by are entering the work force and many distorts the performance results in the
106%. This is the conundrum facing companies are now giving their employees INDV account. An example would be a
investors today. Stocks have outpaced reasonable annual raises. Interest rates $5,000 management fee for a large IRA
earnings
growth
have been trending taken out of a smaller INDV account
since 2009 resulting “The gains in the market have up this year but are of $100,000 market value. The INDV
in higher valuations
still nowhere near account hence would show a return of
and a paucity of outpaced the underlying “normal”
levels 5% less than normal since it is absorbing
o p p o r t u n i t i e s earnings growth of the and are in fact not the management fee for the IRA.
presenting what we
appreciably higher
feel to be good value. companies within, which then where we were We are also pleased to welcome Susan
one year ago. The Schroeder to ARIA as Portfolio Manager
Another phenomenon has resulted in individual U.S.
economy, and Vice President. Susan joins us with
we are watching closely stock prices becoming more despite its slow 23 years of equity and fixed income
is what is known as “A
recovery from 2009, experience.
narrowing of market expensive.”
is still the envy of
leadership”, or how
many countries in Enclosed please find our latest quarterly
much of the market is
the world. We hear analysis attributable to your portfolio(s).
participating in the advance. Although daily about the troubles in Greece, Spain, As always we encourage you to contact us
the U.S. stock market is up in mid- and even China at times. Greece in should you have questions or concerns.