February 12, 2002

Suncoast Equity Management (SEM) is now ranked in the top 6% for investment performance in this country since inception through the period ended December 31, 2001. This ranking is reported by Effron/PSN, a national performance reporting company, and is from a universe of over 2,500 domestic equity composites/funds.

The stock market recorded a second straight year of negative returns, impacted strongly by the terrible events of September 11th. Our satisfactory break-even performance for 2001 and long-term results are shown below versus the S&P 500:

A strong fourth quarter 2001 rebound demonstrated that time in the market is more important than timing the market, even when great uncertainties exist. For the period 1970 - 2000 the annualized return to investors for the S&P 500 was about 9%. However, if you moved in and out of the market and missed the 21 best days of the market in those 30 years, the return is cut nearly in half to 4.7%.

Time in the market is more important than timing the market goes hand in hand with another idea we have proposed over and over again…any attempt to predict the next moves in the stock market is pointless. Yet human nature being what it is, the temptation to make stock market predictions can trap even the best of us, including on more than one occasion, Mr. Warren Buffett and his partner Charlie Munger. As I have studied Mr. Buffett and Mr. Munger quite intensely, I have from 1982 evidence of their negative sentiments for the economy and their expectations of weak equity returns going forward. Of course, it turned out that they were dead wrong since 1982 - 2000 was one of the greatest bull market runs of all time.

Not satisfied with his earlier misses, Mr. Buffett entered the stock market prediction business again in recent television interviews and in Fortune magazine. His closing remarks in the December 10, 2001 Fortune articles are: "I would expect now to see long-term returns run somewhat higher in the neighborhood of 7% after costs."

Interestingly, these statements are from the same man who has consistently stated that the only meaningful value of a stock market or economic forecaster is that they make fortunetellers look good.

So in print, the best investor of our time if not all-time, violated his basic principle of sound investing. My point is nobody knows what the stock market will return next month, next week or even in the next ten years, not even Mr. Buffett. Furthermore, the rub here is that although Mr. Buffett seemed to have violated his principle of being against making market performance forecasts, he never let his gut feelings for the market environment creep into his actual investment decision process. His focus, like that of SEM, is on part ownership of fine businesses, not the ups and downs of the stock market. No matter what my gut feelings are about the market environment, in never corrodes the Suncoast Equity Management - Disciplined Investment System (SEM-DIS).

If Mr. Buffett had asked me how to close his well written article, I would have said, "the current environment strengthens our long term belief that investing in companies that have (1) a heavy emphasis on cash generating characteristics, (2) a strong balance sheet position, (3) a consistent operating track record and (4) a managerial reluctance towards unsuitable capital allocation decisions, are likely to enjoy increased recognition in future years by selectors of common stocks." End of story, and I would leave the stock market predictions to the fortunetellers on CNBC.

The SEM-DIS and its clients own a small collection of businesses that meet the above criteria. The SEM client portfolio recorded two back-to-back years of terrific relative returns versus a general market decline of 20% and much poorer returns for Nasdaq investors.

The SEM-DIS will continue to identify above average businesses and, I believe, will achieve better relative returns for investors. I ask that you review your investment returns for the last two years and beyond to determine if Suncoast Equity Management may be of better service to you. You can view the Effron-PSN independent ranking and additional information about the SEM-DIS at our web site, www.suncoastequity.com, or give me a call anytime at 813-963-0502.

Best wishes for the New Year and thank you for your continued interest.

Sincerely,

Donald R. Jowdy
President