Following are excerpts from letters to clients prior to 1999

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Following are excerpts from letters to clients prior to 1999:

October, 1998:

...What concerns me most...is the valuation of the companies in which I invest.

Take a look at the following list of companies:

IBM, American Home Products, Exxon, Dupont, Minnesota Mining and Manufacturing, Glaxo, Kellogg, Gillette, Colgate Palmolive, Hershey, Morton International, Pharmacia & Upjohn, Browning-Ferris, Reader's Digest, Amoco, Burlington Industries, Crompton & Knowles, Kimberly- Clark, Mobil, Nabisco, Arco Chemical, Corning, Rohm & Haas, Nike, Tupperware, Lockheed, Texaco, C.R. Bard, EG&G, Northwest Airlines, Texas Instruments, Consolidated Natural Gas, Friendly Ice Cream, Olin, Micron Technology, Thomas & Betts, Wendy's, Mirage Resorts, Value Line, Fila, Hasbro, Mattel, Georgia Pacific, FMC, Diebold, Goodyear Tire, Iomega, Black & Decker, Crown Cork & Seal, Polaroid, Fairchild, Reynolds Metals, Quantum, Reebok, US Steel (USX), Heinz, Dow Chemical, Chevron, International Flavors & Fragrances, Union Pacific, MGM Grand, Tricon Restaurants, Union Carbide, U.S. Can, Northeast Utilities, Columbia/HCA Healthcare, Harris Corp., American Greetings, Hercules, Campbell Soup.

All of the above businesses have one thing in common: for the second calendar quarter of 1998 they all reported lower sales. You may be excused if you want to review the list again.

July 1998:

...Rationality can and does desert us mortals from time to time. Back when dinosaurs ruled the earth, we would take the inverse of interest rates and try to buy stocks that sold at that P/E or less. (E.g., if rates were 8%, the inverse would be 12.5.) That gave way to the philosophy of growth investing and later to momentum investing. Now, to my eye, with P/E's at 40 and more, it looks like the hit-and-hope theory.

As our assets accumulate, we find we have less desire for risk. And less need. My belief is that protecting your assets is at least as important as making them grow.

April 1998:

It is only in the stock market that people want to buy something because it is priced higher today than it was yesterday. We would all certainly haggle over the price of a house or car, trying to buy at the lowest possible price. But in the stock market, when prices are marked down, people lose interest. It is only when prices are up that excitement is piqued.

In my view, far too many of today's participants play the stock market as if it was a video game. They are buying momentum. And they will pay the price.

Perhaps they have little to lose. As you get older and your assets grow, you find less desire to gamble. There is also less need to gamble. Thus, I find myself calculating a reasonable return for a reasonable risk and I shy away from the enormous risk needed to generate the maximum return.

Success in this business comes from buying good companies and holding them for extended periods of time. I own stocks in companies in which I have confidence. I expect to hold many of these stocks through any decline. They have good balance sheets and good prospects, and I believe that they will come through the other side of any correction in good stead.

January 1998:

Just where do you think the world puts its money in the face of doom? Why, in the bonds of the United States Government, and those of the strongest American companies. Ours is the currency of record, after all, and the most stable. Ours is the strongest and most diverse economy, and the most liquid market in the entire world....it is the preferred destination for all of the world's excess cash.

Interest rates are as low as I can remember in my more than 30 years observing these markets. In my view, it is a most propitious time to refinance any mortgage debt that you may have.

...We still have an excellent environment for domestic stocks and bonds.

Jim Pappas