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To the Shareholders of Sequoia Fund, Inc.:
As of this writing, the Sequoia Fund is down 33.2% year-to-date versus a decline of 40.9%
decline for the
S&P 500.
The magnitude of these declines, both for Sequoia and the index, clearly caught us by
surprise. With benefit
of hindsight, we believe now that much of the decline is logical and reflects a decline in
the normalized
aggregate earnings power of American business from previously reported levels. In other
words, the earnings
power of U.S. companies appears to be less than investors, including ourselves, previously
thought.
What differentiates this current bear market from all of those we have experienced in our
38-year history
is the combination of rapidity and severity as well as the fact that it did not begin from a
visible excess of
speculation in equity prices on the whole or in significant sectors of the stock market.
Instead, the bear market
originated from excessive speculation in the housing market and in the derivative securities
investment banks
created from the mortgages that financed the housing bubble.
Fund Letters
