What do we expect for the economy in 2012? Continued gradual improvement. Not enough that people will be getting excited, maybe not enough to catch people’s attention, but enough that progress will be made. Similarly, we expect the companies we follow to show growth in sales and earnings, not at a rapid rate in most cases but enough to demonstrate progress.

Stock prices, in our view, are extremely appealing, whether compared to prospective earnings, book value or other types of investments such as bonds. While we acknowledge that stocks can look cheap and stay that way for an extended period, we believe it is important to consider the potential investment benefit of getting money in place at a time of attractive valuations. Stock prices would need to appreciate considerably for valuation levels to return to levels more in line with long-term averages.

With a gradually improving economy and low stock prices, we believe the opportunity is great for investors willing to look beyond headline-driven fluctuations.

— January 2012