CI Outlook - Archives

First Quarter 2005

April 5, 2005

Mr. and Mrs. Investor
123 Elm Street
Dallas, Texas 75200

Dear Mr. and Mrs. Investor

In December we wrote to you explaining the reasoning behind our subdued outlook for the markets in 2005.  It was that anticipation of a lower market that caused us to position your portfolio more conservatively.  Although we like to hold cash and buy income investments as a defense against declining markets, we also felt the necessity to purchase the Pimco Commodity Real return Fund as a defense against higher inflation.  In order to provide growth we have always invested in certain small company stocks whose earnings we believe will grow rapidly.  In the last quarter those types of securities were more volatile than normal and suffered sharp losses.

Although we expected a rough first quarter we did not anticipate the severity of the decline in technology stocks.  As a group NASDAQ stocks declined almost 9% in the quarter reflecting severe lack of confidence in the future earnings growth of that sector.  This was especially true for our wireless technology stock, Smith Micro Systems. ( Smith Micro Software ) Despite a debt free balance sheet and 30% plus expected earnings growth it sold off along with other tech stocks.  Our hope is that Smith will recover later in the year as investors search for companies whose earnings are growing rapidly.

On a happier note the airlines have raised fares four times in the last six weeks.  The group may well prove to be the surprise story of the year as Wall Street analysts are starting to pay attention to the improving fundamentals.  Our company, AirTran, ( AirTran Airways Investor Relations ) was recognized today as second only to Jet Blue in customer satisfaction.  With more people flying and many searching for low fares that recognition could prove very valuable.

Our other small cap growth stock Luby’s, ( Luby's Financial Filings ) reported sharply higher earnings in the last quarter.  The Pappas brothers have been very successful at increasing customer count and paying down Luby’s debt.  In addition same store sales grew for the fifth quarter in a row.  This is a feat not equaled by any other restaurant stock and these positive developments are beginning to bring analyst recognition to this well-established Texas Company.  As institutions accumulate their positions we hope the stock will continue to move higher.

As you know we are used to reporting investment performance well in excess of market returns.  We hope that this quarter was an anomaly and we are able to report better returns for the rest of 2005.  As always we thank you for your patronage and look forward to discussing your investment needs with you at your convenience.

CJ Brott                                                                           Karen Burns


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