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OUR MISSION

To deploy client capital in a way best suited to meet the client's financial needs and then constantly keep watch over that capital to respond to the opportunities and pitfalls inherent in today's financial markets.

market commentary

A Tricky Year Draws to a Close — Q4 2015 Investment Update

Posted by on November 20, 2015

Nearly eleven months into 2015 the Dow Jones Industrial Average is unchanged for the year and the S&P 500 index is barely positive.  Does that mean all the ups and downs, the emotional swings caused by August’s abrupt market correction (a more than 10% decline) and autumn’s swift recovery were all meaningless?  Not exactly.  The volatility, the hand wringing, the apparent global pessimism, are all part of a process of pricing in expectations as well as justifying the historical outperformance of stocks over the long term.  The volatility of August and September is the price we pay for long term positive returns that beat inflation.  For a value investor such as Arrival Capital, moreover, the extreme pessimism that accompanies stock market declines creates the opportunities that can lead to long term outperformance with a lower level of risk.

Over the past few months, general market downturns have combined with certain industry-specific overreactions to create particularly intriguing opportunities.  For example, a summer warning by Disney (DIS) about ESPN cable subscriptions led to a huge sell-off in major media stocks.  Some of the these stocks have invaluable media franchises as well as production and distribution assets that represent terrific long term value at the right price.  In healthcare, and particularly pharmaceuticals, a couple of high profile drug company missteps cast a pall over the entire industry that may provide attractive entry points for long term investors.

Of course, value investing is not always easy.  Energy, for example, is an industry facing hard times and low prices.  But is it really time to step up for a long term investment?  The jury is still out but we continue to believe there may be a place for energy pipeline and infrastructure businesses in many investors’ portfolios.

The upshot of all this is that even if 2015’s returns may not rank in comparison with the stand out returns of the past few years, the summer sell-off of 2015 and general market malaise throughout the year presented value investors with a chance to accumulate positions in investments promising a chance at strong returns and yet have the requisite margin of safety all value investors should seek.  Finding good companies at great prices or great companies at good prices, value investors can use years like 2015 to set up a portfolio for years of strong returns with hopefully a lower level of risk than the market as a whole.  That really is the name of the game in a nutshell.

Finally, as we head into the week of Thanksgiving, let us take a moment to be thankful for those in our lives, whether family or friends, clients or co-workers, that provide the joy and purpose to our lives, as well the humor and camaraderie.  Have a happy and healthy Thanksgiving.

Summer 2015 Mid-Year Market Update

Posted by on July 20, 2015

Even as New York experiences its first heat wave in a couple of years, the temperature of financial markets has cooled with the settlement (for now) of the Greek financial crisis and the tamping down of wild volatility in the Chinese stock market.  As nervousness about potential disasters abates, investors can more easily focus on company and industry trends in order to identify promising targets for further research and, if warranted, investment as part of a diversified portfolio of stocks.  We as investors are fortunate to live and work in a time where so many sectors are available to invest in, from biotech, transportation, and technology to agriculture, industrials and healthcare.  We can put portions of our life savings into these business sectors, as well as our children’s college savings and the makings of a comfortable retirement.  The stakes are high, but so are the opportunities, as we can place bits of our future in the hands of skilled business managers who can guide promising enterprises to profitable and valuable futures.

The trick, if it can be called that, is how to fashion a portfolio that makes sense for ourselves from the thousands of investment opportunities.  The approach of Arrival Capital can be summed up in one word — value.  There maybe ways to trade back and forth from hour to hour or day to day.  There may be success buying a high flying, fast moving speculative stock as it moves higher with the hopes of selling even higher to the next contestant in the momentum investing game.  But with short term trading dominated by computer driven algorithms, and no really repeatable method to know when to get out of ridiculously priced stocks, we are left with long term, value investing as the best way to create wealth.

Value is a state of mind as well as an investing method.  It seeks to balance optimism with common sense, and pessimism with a look at whether things are really so bad for a company or a sector.  Value is contrarian at times.  Value is a detective looking to spot the overlooked or mispriced.  Value is a psychiatrist trying to understand people’s motivations for buying or selling in irrational ways.  Value is a toolkit used to unlock the best opportunities as weighed by potential profit vs. risk.

Using the tools of value investing can yield some surprising investment opportunities and insights.  For example, certain technology and biotech companies can be so predictably profitable and producing so much cash, that they are still good opportunities for investment even as these companies may be the most talked about in the popular or business press.  Call it the reluctance of racetrack bettors to place money on the odds on favorite that, ironically, makes the favorite a better bet for those that do.  At the same time, certain unloved energy and industrial companies, still smarting over a slowdown in Asia, or a lack of belief in a real European recovery, are glaringly cheap, even as they may pay solid dividends and still generate plenty of cash for investors, as the wait continues for times and attitudes to change, and the gloom to lift.  Other industries, such as healthcare, retail and financials, also lend themselves to a value analysis, which can yield investment opportunities in many different areas, which, as an added benefit, are often loosely correlated to one another, increasing a portfolio’s diversification.

As the summer continues and degrees go higher, Arrival Capital continues to focus on driving our clients’ wealth up as well.  But instead of the inevitable ups and downs in the temperature, Arrival seeks to move investor wealth steadily higher into the fall and winter, and beyond.  Yes, there may always be certain global or “macro” factors that inhibit stock values no matter the care with which portfolios are together.  But our view is that it is almost better to store wealth in the best values our economy has to offer.  Along with all the analysis, we remain optimists, because that is what it has paid to be, in the past, and, we believe, on into the future.

Once again, to all our clients and friends, have a terrific summer; and, if you or a friend or acquaintance can benefit from having Arrival Capital manage your portfolio in a prudent but opportunistic way, please feel free to reach out to us at (212) 369-1700 or jay@arrivalcapital.com.

 

2015 Market Update

Posted by on February 23, 2015

Hedging our bets a little for 2015 predictions, we decided to wait till the end of February to post. Seriously, though, 2015 began with rapidly declining oil prices and energy related stocks. January ended down for markets, sometimes seen as a harbinger for the year ahead. But then the underlying themes of 2014 re-emerged, the US as a safer haven for financial assets than Europe, Asia, or emerging markets, bolstered by improving US economic data that may finally, one day, but not too soon, lead the Federal Reserve to slowly, barely, hardly at all, raise interest rates; such a small rise more an encouraging symbol of a return to more normal economic times after the financial crisis than an actual impediment to a stronger economy and rising asset values.

Looking at individual sectors, energy stocks, commodities, and certain industrials remain under some pressure and well off 52 week highs, providing tempting opportunities if you can get the underlying values right and not just make an outright gamble on higher oil prices. Lately, Arrival Capital has been adding engineering, aviation and agricultural stocks to client portfolios. All of these areas have in the past few months been treated akin to energy stocks, even as their specific fundamentals are tied to other drivers, such as infrastructure, rising demand for food, and the increasing use of aviation by emerging middle classes the world over.

Technology and healthcare, on the other hand, have been market darlings, as the NASDAQ climbs toward the 5000 level for the first time in fifteen years. Again, Arrival Capital has been content to pick our spots and “wait for the good pitch” in these areas, identifying themes like increased outsourcing of pharma research, professional networking, and the coming internet of everything to find promising positions.

In all these areas, as well as finance, retail, and real estate, any theme, idea or special situation must continue to meet our value criteria. We only want to buy stocks where the price paid is lower than a reasonable estimate of current value, either based on current assets, current value of future cash flows, or some combination of the two. We simply cannot and will not buy shares just with the hope that someone else will take us out at a higher price based on momentum or fantastic speculation about the future.

Arrival Capital Management continues to strive to create the kind of prudent yet opportunistic and forward thinking portfolios for our clients that we have been providing to clients for over twelve years now. Through good times and tough times, this approach has continued to build wealth and financial independence for clients. Give us a call today at (212) 369-1700, or refer us to a friend, family member or acquaintance, that could benefit from a steady hand, sound approach, and optimistic view as to what investment management can accomplish.

Stay warm!

2014 Second Half — An Investment Analysis

Posted by on July 23, 2014

The US stock market is up over 7% thus far this year, building on last year’s almost 30% rise. You would think that markets performing this well and this consistently would signal a domestic and world economy running on all cylinders and a global political situation of peace and prosperity. Of course, such a benign environment is missing. Underemployment and political gridlock still persist in the US, the European and Chinese economy still have big question marks, and outright war exists in parts of the Middle East, Ukraine, and Africa. How then to account for the stock market’s resilient rise?

The conventional wisdom is a variation of “where else can investors put their money?” Record low interest rates, as well as a safe haven status, make US stocks the safest choice to protect principal and achieve meaningful gains. As long as the US does not dip back into recession, this school of thought goes, US stocks will continue to grind upward, at least until the Federal Reserve allows interest rates to rise once again.

Although the above theory has a ring of truth to it, we prefer to look at the last fifteen years or so, and view it from the perspective of the incredible strides in technology, management, and innovation that businesses the world over have made and juxtapose this to the fact that, on an inflation adjusted basis, the stock market, or at least the S&P 500, has still not exceeded its record high back in 1999. That means, at least according to this one metric, that the value of US companies has not increased at all despite the incredible progress made over the past fifteen years. No extra value for smart phones, the incredible revolution in energy, just in time logistics, biotech discoveries, and the list goes on and on. That doesn’t mean most stocks are necessarily cheap, but that talk of “new market highs” as well as political and economic adversity, which has always been with us, should not put off investors from continuing to reap the benefits of holding shares in the great companies of the current age now and in the years to come.

At Arrival Capital, we’ve tried to keep our focus on finding those companies that can prosper in the years ahead and that have the added investment benefit of being currently undervalued because of either company specific short-term issues, the failure of the market to fully appreciate the potential of new products and services, or bigger picture market disturbances that can create buying opportunities for long term investors. It is this consistent strategy of seeking great companies at good prices (or good companies at great prices) that has allowed us to identify long term winning companies in a host of industries, such as Gilead in Biotech, Praxair in industrial gases, FedEx in transportation, VFC in clothing, just to name a few. The Arrival Capital process remains the same in good markets or bad, as long as we have a good understanding of a client’s risk profile, cash needs, and investment horizon.

With less than six months to go, 2014 has been a less volatile but challenging investment environment. The crowd has been largely wrong about interest rates rising rapidly along with inflation. The US economy chugs along, without really breaking out or breaking down. But if there has been one constant, it is that well-positioned companies continue to move higher, and therefore finding a good entry point, after a bout of market-wide panic, or a short term company hiccup, is a way to take a long term position that can generate meaningful gains in wealth while minimizing possible short-term pain. Mix in this opportunistic investing with the search for special situations that arise from time to time, and you have Arrival Capital’s strategy for the rest of 2014 in a nutshell. As always, give us a call if you would like to discuss your investment needs in greater detail and have a great remainder of the summer.

2014 Beckons — Our Investment Preview

Posted by on December 27, 2013

As an amazing year for stocks winds down, it would be nice for investors to take a few minutes and savor the results. This is what wealth creation feels like. Over 20% gains, explosive rallies and fundamental re-valuations of name brand companies up huge for the year and often some multiple off crisis lows a few years ago. But for investors and investment managers like Arrival Capital, you can never rest on your laurels. Let the winners run, yes, but never let over confidence or inertia numb you to changing times and circumstances. The winners of 2013 or the whole period of 2009-13, may not be the best places to keep wealth in the years ahead. But great businesses and investments, which now have reaped large, unrealized capital gains, can continue to compound tax-deferred. This is worth 20% or so in the real world and is important to keep in mind as we put together a strategy for 2014. But most important is understanding an ever changing business landscape. Spotting trends and opportunities, taking advantage of emerging values and unappreciated business or financial potential; Arrival Capital continues to be our clients’ eyes and ears.

What do our eyes and ears tell us? Technology continues to transform the world, and create wealth if you get the time and place, as well as price, right. The hard stuff — materials, metals, industrials– as well as energy, continues to look undervalued if the global economy is really poised to shake off the last bits of crisis behaviors and truly grow anew. Healthcare will undoubtedly ride a demographic and innovative wave in the years ahead, creating new winners to rival the huge gains made in biotechs like Biogen and Gilead over the past year. The really unloved — REITs, financials, MLPs — will at some point bottom, generating opportunity for contrarians who can get the company and timing correct. As always, the hedge-fund driven, shoot first market will create opportunities for long term investors to use short term traders’ overreactions to establish valuable and bargain priced positions in all manner of businesses that will eclipse any bad news only months, if not weeks, after the traders have spoken and headed out the door together.

Each year the world changes, usually imperceptibly at first. It is only when we look back over time that we can see the changes that have occurred and how different certain things have become. It is easy to fool oneself into thinking that the coming year can lend itself to fortune telling and easy predictions about where to invest. The hard truth is that investing is not about predictions as much as process. Finding good values and maintaining a certain discipline will almost always best our faulty reading of the future. Know the playing field, identify the trends, learn the companies and businesses, and then you can be in a position to make informed decisions, allocate capital wisely and generate wealth not by reading tea leaves but by putting investment funds to work in a way that gives us the best chance to succeed in meeting our goals. Arrival Capital is here to lend our expertise in any way we can.

Happy New Year and Best Wishes for a healthy and productive 2014.

2013 Second Half Preview

Posted by on June 26, 2013

The first half of 2013 had, until recently, been a largely worry free one for investors, as stock values headed upward without a meaningful pause. Many of the worries of the past few years, such as Europe, double-dip recession, or a spike in inflation, were consigned to the back-burner. Central banks were accomodative the world over, joined most recently by Japan in late 2012. The economy slowly, fitfully was improving in the United States; maybe not enough to justify all of the advance in stocks, but certainly enough to put aside recessionary fears. The only fly in the ointment, from our perspective, was that the most economically sensitive stocks, in energy, materials and industrials, lagged behind many consumer based stocks, suggesting doubts about the economy’s underlying resiliency persisted. Still, who would not be satisfied with over 10% gains in stocks less than halfway through the year? The past few weeks, however, have been more volatile, driven by the increasing likelihood that the Fed will finally begin tapering it’s easy money policy, first through dialing down quantitative easing and eventually raising short term interest rates. As could be expected, markets did not take kindly to this talk of the end of easy money, as necessary as it is. Markets overreact, that is the norm, and that appears to have happened over the past couple of weeks, with recovery only in the past few days.

Where does that leave the average investor? At Arrival Capital, we believe this is the time to focus on broadening out an investment portfolio to include stocks that might thrive in a truly expansionary and perhaps inflationary period. That means exposure to technology and industrial stocks, along the lines of a Caterpillar, or energy and refiners, even agricultural stocks. But the key question is always about the price you pay and the return, in the form of dividends or capital gains, you can expect. We look for stocks selling at good values, and sometimes these can be firms with well-known brands, invaluable technology, or hard to replicate processes, that will continue to deliver formidable returns into the future even as there might be short term concerns about the industries they are in or the companies themselves.

The past few years we have used general market fears and episodes of panic to opportunistically invest in world class companies selling at great prices. Now, as general market panics abate, the process will again move toward finding opportunities caused not by the general economic climate but by changing circumstances of particular companies or industries giving rise to markets’ not recognizing long term value. The truth is it is nice to wake up most mornings now and not have to worry that some comment by an obscure government official in China or Europe is causing a market downdraft. That is what stability feels like, and it is a great platform on which to work building an opportunistic, dynamic, yet prudent investment portfolio to drive increases in wealth for our clients for many years to come. Have a great summer.

2013 — A New Investment Year Begins

Posted by on January 07, 2013

Last week marked a very good start of the year for investors, with the settlement of US tax rates leading to a strong rally in stocks and other risk assets. We’ll leave the politics to others, but the emergence of certainty on such a key feature of our financial lives, the taxes we pay, undoubtedly let investors focus on the slow but steady improvement in economic and business fundamentals, including in the housing sector, retail, and technology. Overseas, Europe has stabilized for the time being and China and the Far East have resumed growing, leading to increases in demand for raw materials, energy and the value of companies that produce these things.

We have long subscribed to the “muddle through” view of the world economy as the best picture of where we are and where we might be going. For investors, this has meant a slow grind upward in risk assets punctuated by sudden downdrafts when the macro-economic scenario take s a turn for the worse. As fear spikes upward in one of these episodes, the stock prices of solid and growing companies often take unwarranted hits, creating opportunities as values drop. Over the past year, we have snatched up stocks such as United Rentals (URI), Federal Express (FDX), and HCA (HCA), just to name a few, that represented compelling values given the company fundamentals and its vulnerability or lack thereof to global economic developments. Picking up stocks when they are valued cheaply compared to probable future profits, and compiling a diversified portfolio of such investments is the ongoing strategy that Arrival Capital has pursued. This strategy has consistently borne fruit, as 2012 was another market beating year for most Arrival Capital clients, taking into account individual needs and risk tolerance.

2013 also feels like a year when the now five-year old undercurrent of unnerving, persistent systemic risk will finally abate in a meaningful way. It doesn’t mean we, as investors, can get complacent or lose track of long-term global and national financial challenges and imbalances. But the people and businesses of the United States, and most of the industrialized world, appear to be back at the hard work of growing, generating profits, and creating wealth and less obsessed with surviving the economic tsunami we have collectively weathered since 2008 began. This is a good thing and the constructive start to the investment year should give us the confidence to vigorously pursue the kind of prudent yet opportunistic strategy that has served us so well even through the toughest economic times. Happy and Healthy New Year.

Q4 2012 Update — After the Politics

Posted by on November 12, 2012

As investors, we take the world as it is presented to us and make the best financial decisions possible given the information we have. This differs from our role as participants in the political process, in which we actively, to one degree or another, try to shape the political outcome by taking action, even as simply as by casting a vote. Now that the election is over, we must put our investor cap back on and survey the situation. Last week, one could almost hear the collective sigh of investors as markets sold off as pro-Romney bets were unwound and people geared for the coming negotiations over the fiscal cliff and future tax rates. There were winners (hospital stocks like HCA) and losers, (like coal and certain energy stocks), so now we must begin again the hard work of assessing valuations and opportunities.

First, let us see where we are. Stocks continue to have a good year and yet most valuations remain reasonable on a historical basis. Today’s action shows again that there is an underlying resilience in financial markets. There simply has been no follow through to the downside since early summer. If that continues then any sell-offs are likely to remain contained and will provide opportunities to add promising long term positions rather than raise cash. As to what areas to buy, employing some contrarian analysis lends support to buying energy, materials and tech names. Why these? All are valued quite cheaply even as a growing economy should provide ample demand. China will likely find a growth path again as new leadership takes over. Energy production in the US has accelerated dramatically and become part of the national conversation even as stock values continue to drag. Technology is worrying investors as stalwarts like Apple (AAPL) finally have some doubters and increased smartphone competition worries investors in the sector. But as with energy, technology is the future of US private sector efforts and we continue to believe will continue to reward investors who buy great companies for good prices.

With a scant seven weeks left in the year, stock prices are higher than many would have thought in January. But it is always more a question of where things are going rather than where they have been. Great companies at good prices, diversification, and a sensible contrarian, opportunistic mindset will take us as investors where we want to go no matter the politics. Arrival Capital is always ready to lend a hand. Please follow us on twitter at @jayarrival or stay tuned to our website for more market updates.

2012 Fourth Quarter Update

Posted by on October 12, 2012

Markets continue to act resilient in light of political uncertainty in the US, continued problems in Europe, now focused on Spain, and tension in the middle east. Now, as we embark on earnings season, it looks like the slow and steady business recovery continues. This morning major banks J.P. Morgan and Wells Fargo reported solid if unspectacular numbers. What a far cry from the free fall in finance of four years ago. Could we be embarking a return to relative calm in the financial markets? If so, stock prices of steady cash producers valued at reasonable levels today should provide meaningful appreciation to investors. Should the economy recover in a more fundamental way, say by the return of confidence and not just the absence of outright fear, then low multiple material and commodity stocks will also prove rewarding.

The watchword of Arrival Capital continues to be prudence, mixed with an unending search for opportunity. Although 2012 has so far been a good one for investors, it has not felt easy, which is probably for the best. So stay tuned with us as we move through still turbulent times.

Q3 2012 Investment Update

Posted by on October 03, 2012

It has been almost five years since the first stirrings of the financial crisis began. In that time financial markets have moved violently, first down, then up, though not back to the highest levels of 2007. Beyond market values something else changed five years ago — the faith investors had in the structure of markets and financial systems. Once this faith gets eroded, as it has, it is not easily rebuilt. Thus, even as economies and markets have stabilized, there is still an enduring fear of the abyss of a sudden collapse that has kept investors fearful and tentative, on the sidelines, or with a hair-trigger to pull out of stocks as soon as uncertainty hits.