January 2005 Letter
All of us at Covington Capital Management hope that you and your family had a wonderful holiday season and that the New Year will be filled with good health and prosperity.
We are pleased to let you know that since opening our doors in mid-September, we now have 70 new client relationships representing over $300 million in assets. This, more than anything else, reflects both the personal service nature of our business as well as the reputation and investment experience of our staff.
We very much appreciate your confidence in our firm and will work hard to keep it by providing outstanding personal service, creating a superior investment product, and achieving your investment goals.
In looking back at 2004, it was a good year for the financial markets. Worries about the dollar, oil prices, monetary policy, and the election turned out to be excessive. The stock market paid attention to excellent earnings growth and the low level of interest rates resulting in the Standard & Poor’s 500 stock average increasing 9%, following up on a 28% increase in 2003.
The stock market balance sheet for 2005 suggests a continuation of the positive trend, but at a more muted pace. Factors of importance include:
Positives: continued but slower economic and profit growth; relatively accommodative Federal Reserve policy; fiscal policy that taxes dividends and capital gains at the lowest levels since 1941; unusual corporate balance sheet strength.
Negatives: trade and fiscal deficits; dollar weakness; terrorism; valuations that are not on the bargain counter.
Given the volatile nature of the financial markets, we continue to emphasize to our clients the importance of asset allocation (bonds, stocks, and cash equivalents) and broad diversification within these asset categories. We strongly believe in a blended approach to investing that allows selective concentration in areas that we feel show exceptional promise.
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