Value Investing in Crashing Markets

To our clients:

Over the past couple of years we have seen various stock market fads emerge and then come to grief, such as the manias and crashes in shares of unproven biotech and Internet companies. In the case of the leading, established, and profitable “growth” companies (especially in technology) there has been a rise in market price to a level that could be explained only by an implicit belief that no price was too high to pay for such companies. Throughout this period we at Cheviot Value Management have steadfastly adhered to the principles of value investing in our management (and protection) of your hard-earned investment dollars.

In a runaway bull market there is one little appreciated characteristic of value investing–the avoidance of large losses that take years to overcome. We believe that people with money concentrated in the stock market favorites that dominate the index funds are risking a drastic shrinkage in market value when the market corrects extreme over-valuations, as it always does.

While stock market crazes come and go and come again, we see the beginning of the market correction that we have expected for some time. Meanwhile value-oriented investing is reasserting itself. We are pleased to report the following returns* on investments under our management compared to the popular stock market indices for the year 2000:

Cheviot Value Management+14.1%
S&P 500– 9.1%
Dow Jones Industrial Average– 4.7%
NASDAQ Composite– 39.2%

Individual client’s account returns are typically not exactly the same as the average for all accounts, but could be more or less than the average due to a difference in asset allocation based on the particular needs and investment policy of each individual client.

Sincerely,

CHEVIOT VALUE MANAGEMENT


* Total returns including dividend and interest income for the aggregate accounts of all persons who were clients of Cheviot Value Management as of December 31, 2000. For the S&P 500, Dow Jones Industrial Average, and NASDAQ Composite the returns include all dividends.
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