Small-C October 2010 Letter

The portfolio gained 4.3% for the month of October, bringing our year to date return to 5.1%.* The S&P gained 3.7% over the month.  A lot of things went well this month.  Quite a few of our equities outperformed the market, especially our China-related portfolio.  Treasuries finally started to lose some value - even with all the talk of quantitative easing, rates are edged upwards.  We feel we will someday be vindicated in our negative view on rates, and when that adjustment comes it will be drastic and, obviously, unexpected by most.

This month, we passed our high water mark, set in late 2007.  That means for the last three years our investments have generated zero returns and only now stand a chance of making you money.  It has been a long road, and as depressing as a zero return sounds, we are feeling a bit self-congratulatory.

If you had invested in a money market fund over the same period, you would have made around 4%.  If you had the foresight to buy a 10-year treasury, you would now have a 26% return in your pocket.  On the other hand, if you had invested in the S&P, you would still be down over 14%. 



* We report the percentage gain or loss during a month in an additive sense for ease of comparison, however the year-to-date returns are reported as a chained series. As the total return become greater, and as inflows have an effect on the portfolio, the two will diverge. Adding up the monthly returns for the year may not give the precise total return.