I’ve said to clients and prospects many times not to expect a straight line with regards to equity investing, so after September’s outstanding returns it’s no surprise that October wasn’t as strong for the Peattie Capital Reasonable Price portfolio.

Carters (CRI), for example, has been a big winner the past two years, but the shares dropped 10% after the company’s earnings report last week. KVH Industries ((KVHI)), one of my favorite companies, is well positioned for growth, but parts of the business are lumpy, and the company didn’t offer guidance for 2014.

My advice to stay invested is still the right approach in my opinion. In the past, I have underperformed (relatively) in sharply rising markets, as I tended to keep a cash position, which was a drag on performance. This year I have kept pace in the strongest market in my 14 years as a portfolio manager.

Overall, I still think the conditions are good for U.S. equities and I reiterate that rather than awaiting a 10% to 20% correction before buying shares, potential investors may consider starting with a smaller amount instead of sitting out entirely.

US economy continues to improve, slowly but surely. At the risk of cherry picking, the ISM manufacturing index for October came in at 56.4, up sequentially from from 56.2. This compares favorably to the 12-month average of 52.7 and the YTD average of 53.3.

The Chicago Purchasing Manager’s Index just came in at 65.9, it’s highest level since April, 2011. Q3 retail sales grew 4.1% (annualized), the best quarterly performance of the year, which shows that, at least prior to the government shutdown, people were confident and spending. Prices at the gas pump continue to drop, with the average price hitting $3.28 on Nov. 2, the lowest level of the year.

True, the jobless rate remains high despite jobs growth and there has been a slowdown in home sales, possibly attributable to the rise in mortgage loan rates.  However, in my opinion, the U.S. macro data continues to improve, though investors are still obsessed with when the Fed will begin tapering its quantitative easing program.

Nuveen strategist Bob Doll has some interesting observations about the global economy in a recent interview in Barron’s.

Europe: “The European economy has shown signs of a broad-based bottom….and will likely return to positive growth early in 2014.”

Japan: “Abenomics is clearly having a positive impact….growth is showing fresh signs of revival. The Tankan survey of Japanese companies shows strength, business and consumer confidence are surging, and capital investment is making a turn for the better.”

China: “The Chinese government has quietly been easing monetary conditions, while continuing to pursue various supply side reforms. The economy has subsequently stabilized. Leading indicators have turned up. Capital spending and consumer demand also continue to expand at a very healthy pace.”

Back here in the U.S., the Fed continues to buy $85 billion of bonds monthly, as there is little inflation and according to James Bullard, head of the St. Louis Fed (and a voting FOMC member) believes it has more room to expand its balance sheet.

While I would like to see a little more fear (and arguably the market is somewhat overbought after broad inflows into equity funds) I am comfortable adding to my highest conviction ideas selectively. In addition to strong retail flows, underperforming hedge funds will likely buy any dips, in an effort to improve returns.

Regardless, I believe that paying the right prices to own the right stocks is a good approach to the market.

DISCLAIMER:  The investments discussed are held in client accounts as of October 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.