Each year Barron’s Magazine — a weekly must read for investment professionals — makes a list of the world’s most respected companies. This ranking is conducted through interviews with institutional investors and some of the world’s top money managers.

Very unlike Rodney Dangerfield’s famous quote that he “didn’t get no respect,” we are proud to say that most of the stocks you own are on the list of the most respected companies in the world and 10 of your holdings are ranked within the top 15 of the most respected. As a global manager, investing here in the US and overseas, the results of this ranking serve as one more data point which supports our original and ongoing research. In a world of mutual funds, electronically traded funds and the rest of Wall Street’s pre-packaged and over priced products, our style of individual stock selection is becoming more valued and at the same time more rare. We hope you find these results comforting. If you would like, you may review the report by visiting www.barrons.com.

The Barron’s ranking reminds our team of a simple concept: for our stocks to go up, other investors must be buying the shares. Therefore, we must be continually checking that our companies are attractive and appealing to other investors, particularly institutional investors who have the deep pockets to really drive a stock’s price higher. Our stock research process, to a large degree, is based on this concept. In our effort to find attractive stocks, we look for companies that have certain characteristics that we feel are, or eventually will be, attractive to other investors. This includes an examination of a company’s percentage of debt — we would prefer that number to be very low and for most of your companies it is zero. We also favor companies that have a high level of Return on Equity (ROE). Most of your companies have ROE 50% higher than the average company. As you may know, we look for companies that are profitable, so we measure profit growth in search of the “high earners.” Lastly, we are always “on the lookout” for companies that dominate their business or are threatening the market share of the dominant players — usually due to price or technology advantages. This research process is employed to find companies for your portfolio, but is also used to review your companies once they have been placed in your portfolio. As you can imagine, this requires quite a bit of research, particularly since we are doing so not just for US companies, but those overseas as well. Fortunately, we find this work stimulating and rewarding — particularly when our companies are acknowledged by a respected source such as Barron’s.

As the bull market continues, we regularly look back and notice how well so many of our companies have performed, and often how they have done so during periods when market indexes were essentially flat. This behavior is unlike an index fund. Some of your stocks often move ahead more quickly than the market, while others “percolate” for a while before investors see what we see, and begin buying. This can make your performance different than indexes depending on the time period. However, over time our research process, coupled with your well respected companies, should continue to deliver quality results.

As you know we continue to be cautiously optimistic about the longevity of the current bull market and continue to use risk management tools to mitigate the risk of catastrophic loss. We do this through your portfolio’s asset allocation, sector management and the use of carefully placed stop loss orders on those positions that are economically sensitive.

We hope this update finds you well. Please let us know if your financial circumstances and/or investment objectives change or if you have questions about your portfolio.

Sincerely,

Your Team at Main Street Research