Market View
By George Shipp

Spring 2008

At the turn of each calendar year, most clients are bombarded with “Investment Outlook” stock market forecast pieces. Some are 200-pagers penned by erudite strategists armed with Ivy League pedigrees, designed to impress via detail. Others are mere summaries rehashed by a fawning media that has distilled the global geo-economic-political milieu into that perfect synthesizing sound-bite.

Investors quite naturally seek some degree of certainty in an uncertain world, so we understand why many rely upon such prognostications, despite zero evidence of historical accuracy. Where else to get “expert” advice than from the good folks on Wall Street, the same selfless crowd who brought us Internet IPOs and, more recently, “AAA-rated” securities backed by mortgages of highly dubious quality?

We confess that we don't know where the Dow Jones Industrials will end in 2008. We do not try to predict the unpredictable. We think it is silly that our industry wastes so much brainpower doing so. Knowing that we cannot eliminate risk from our equity portfolios actually helps us to manage it. Without a preconceived and inherently flawed prediction of what should transpire in the marketplace, we liberate ourselves to react to price discrepancies that arise from inevitable surprises.

In not trying to divine whether the Federal Reserve might cut rates by ¼% or ½% at its next meeting, for example, we have managed a degree of long-term success, at least as measured by portfolios that have outperformed the S&P 500 benchmark, even while demonstrating lower volatility.

We know that stocks have tended to rise in approximately seven of every ten years, at a compound annual rate above 10% through 100 years of wars, business cycles, and presidents. We know that less expensive stocks tend to outperform more expensive stocks over time (but not always!) and that companies able to grow their earnings at above-average rates tend to have stocks that appreciate at above-average rates. That's why we focus so hard on owning companies that have demonstrated above-average growth rates in the past are well-financed so that they have staying power, yet are being valued in the marketplace at “average” or even below-average valuations.

Use discipline and common sense. Buy proven-successful companies at reasonable prices. Have some patience. It's a simple formula, but it’s time-tested. We believe it will continue to serve our clients well in 2008 and beyond.

About the Author:
George Shipp, CFA, is the manager of the CHOICE portfolios and the Chief Investment Officer at Scott & Stringfellow, Inc. Scott & Stringfellow, Inc., is a wholly owned nonbank subsidiary of BB&T Corporation, member NYSE, SIPC.

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