The Market Sell Off - Our Take

1. MARKET ADVISORY
In July we issued a warning advisory letter suggesting that an equity market sell-off was likely, as
U.S. large cap stocks were displaying signs of euphoria while global risks (e.g. China, Puerto Rico,
etc.) were increasing.
Unlike many permanent doomsayers (aka “perma-bears”) who: (i) have been consistently wrong
since 2009, and (ii) who have missed the greatest bull market of all time, this was our first broad
market cautionary advisory, ever.
In fact, as stock pickers we focus mainly on finding great companies and assessing their ability to
execute and outperform their competitors, based on the thesis that the best long-term defense to
market corrections is to hold great companies, both before, during and after the market event.
To address our concerns of the impending Market Volatility, we suggested investors consider
moving to a hedged equity strategy that buys attractive companies and shorts overheated stocks that
are poised to decline with the following objectives:
a. Provide return in all markets
b. Avoid significant losses during market sell-offs
This as it turns out was a fortuitous move for investors who chose this course of action and utilized
a manager who executed during this recent market turbulence.
OUR MARKET OBSERVATIONS
The recent sell-off is a trading induced event and will pass rather quickly.
Global economic growth remains intact.
The impact of reduced energy prices has not been fully felt by consumers. The negative effects,
which will be devastating to certain energy industries, will be more than offset by the stimulative
impact on consumer industries.
Certain momentum and speculative stocks, however, have taken a long-term devaluation and will
take a much longer time to recover.
The devaluation of the Yuan will stimulate Chinese exports; also, expect more expansionary
measures.
WHERE TO GO FROM HERE
Now is a good time for investors to assess their portfolios and cull those companies that are broken,
facing a difficult road to recovery.
Consider adding great businesses which have the track record, management team, products and
services to gain market share, support dividends, and grow earnings (which can now be acquired at
attractive price levels).

2. If you have not left index funds or ETFs, consider doing so now and replacing these broad holdings
with high quality, well-priced companies.
However, even great companies must be sold when values become over-heated and unsustainable.
(A case in point is Microsoft, which still has not regained its all-time high price of $58.81 set on
Dec. 30, 1999)
Bonds continue to be unattractive despite the probability that the Fed will delay raising interest
rates, due to the fact that bonds are currently being priced with a “safe haven premium”. To this
end, it is a good time to rotate out of bonds that are not required for income and deploy proceeds
into select equities as discussed above.
Investors who cannot tolerate the inevitable volatility of the equity markets should consider a
Hedged Equity strategy.
The following represents the opinions and views of The Stanley-Laman Group, Ltd. and is not intended to
be an investment recommendation or an offer to buy or sell securities.