February 01, 2016

Dear Friends,
January ended with a sharp upturn in the market. During the last ten days of the month, the S&P rose
almost 3.5 percent. Two other important developments also took place during the past ten days. First,
our equity income strategy which concentrates on equities with a relatively high dividend yield rose by
more than 4.75 percent. Second, our small cap strategy, which has lagged the S&P index over the past
several months, turned around and beat the S&P market averages.
A ten day move is not a long term trend. But it does suggest that the market may be at a turning point.
Rather than stock prices being influenced by computer trading algorithms which follow extremely short
term price movements, more traditional valuation criteria may be returning to favor. These criteria
include buying and holding companies that have reasonable price earnings ratios, competitive dividend
yields, modest debt to equity ratios, and sensible growth expectations. These criteria have served us
well over the past thirty years, and were particularly successful in guiding our security choices in 2008,
the last time equities fell sharply.
We think we would be remiss if we did not mention the recent price drop in both oil and security prices.
In the past, a drop in the price of oil was typically demand-driven, and implicitly forecasted a
slowdown in economic activity. However, remember that correlation is not causation.
The current drop in the price of oil is supply driven, not demand driven. New technology, new shale
fields, and the continuous production of oil to generate cash by Middle East countries regardless of the
price have brought the price of oil down. The demand for oil continues to be high and Americas Gross
National Product is now at a record high. While the capital expenditures in the Oil and Minerals sector
of the economy have dropped, the falling capital outlays in this area are being replaced by increases in
consumer spending, increased truck and auto sales, and greater outlays in health services.
We take very seriously our goal to preserve and enhance your wealth. Our process includes examining
the financial attributes of every security you hold in your portfolio every two weeks. While the dollar
value of the various securities you hold is personal to you, we watch and review your portfolio as
carefully as if it were ours because we do in fact own virtually the same securities.
Please reach out to us if you have any questions.
Sincerely,

Eugene Lerner
Managing Director, Partner

JR Gondeck
Managing Director, Partner

500 Lake Cook Road | Suite 210 | Deerfield, IL 60015 TEL 847.282.4225 FAX 312.962.3899 hightoweradvisors.com
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