Fear and panic have taken over the capital markets in recent weeks. Investors are worried that they may be holding the next Enron or WorldCom in their portfolios. The economic recovery is in question and the summer doldrums are not helping matters. Selling pressure has intensified and buying interest has disappeared. The markets sell off and suddenly bounce back. Share price volatility is extreme and is further compounding investor concern and indecision. As the major indices revisit and rebound from post-September 11th lows, we would like to share some of our thoughts in an effort to help individuals cope with such difficult conditions and alleviate some concerns.

When investors, both retail and professional, are bailing out of investments for emotional as opposed to fundamental reasons, it is essential to remain disciplined. There is simply no use in following minute-by-minute market moves when irrational decisions are driving stock prices. We believe that it is best to get away from the noise and turmoil in the market and the media, to roll up one's sleeves, to sharpen one's pencil and to plot an investment strategy designed to take advantage of the situation.

Our first step is to carefully comb through our portfolios and reassess each of our holdings. Any stock that is close to our target price is earmarked as a candidate that could be sold to take profits and raise cash for a more attractive opportunity. The next step is to draw up a "wish list" of potential investments. We are looking for stocks that specifically fit our stringent guidelines, as defined by our Ten Commandments of Value Investing - for example a low price to earnings ratio, a discount to book or net asset value, free cash flow or a solid balance sheet. We then place a definite price target on each candidate, identifying the level where we would become a buyer of that particular security. Now is not the time to lose one's nerve. Should any stock on our "watch list" fall to our target price, as professional money managers we must act decisively in our client's interests and accumulate stock.

We are very comfortable with our investment focus and deep value philosophy. We are also confident with our present strategy. We believe that we will avoid a "double-dip" recession. Interest rates are at 40-year lows and the U.S. Federal Reserve is providing for easy money to buttress economic activity. Despite the stock market downturn, recent economic data has been quite positive. Although business activity, especially in the United States, may not be roaring back, at least we are seeing signs that a recovery is taking hold.

Some have discussed the "disconnect" between the economy and the markets. Again, we believe that the market downturn has more to do with emotional rather than fundamental reasons. This creates a fantastic opportunity, as stocks are arguably more attractive than ever. The keys to success remain, as always, fundamental analysis, investment discipline and a long-term outlook. Remember, the bottom of the market is not the time for panic selling; it is the most opportune time to purchase quality companies at historically attractive multiples.

Irwin A. Michael, CFA