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Muhlenkamp : 2007 2nd Quarter Letter
Submitted on 04/17/2007
A shareholder recently asked, “In light of last year’s performance, do you intend to take any action to modify the current investments in the Fund?†My response was (is) “Do you really want me to change a philosophy and discipline that’s worked well for 40 years because we could have done better in a transition year like 2006?†Folks, we’ve looked dumb before: the years 1994 (soft landing); 1998-99 (bubble); and 2002 (recession aftermath) are the most recent precursors to 2006. Each time we found that monitoring the economy and relying on the values of companies was the proper response.
Since my goals are good, reliable, longterm returns, I decided to study the philosophies of the people with good long-term records. I found that they all own corporate stocks, but their approach is to look at companies as businesses. And I learned that, over time, stock prices do reflect the values of the underlying businesses.I also learned that these values and the resulting stock prices have increased by 9%–10% per year, indicating that if a person just buys good companies and holds them long enough, their returns would be 9%–10%.
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