I E I Owe
The coming of Spring tends to bring mixed emotions. For those of us up in the colder states who have managed to get through yet another frigid winter, the appearance of the first robins and yellow buds of forsythia signal the onset of a more comfortable time of year. The flipside, however, is the discomfort that may be in store when Uncle Sam awaits the annual income tax payments.
Sending a check to the IRS may not be the most pleasant task, but the reality is that taxes due are based upon income. Generally speaking, the greater the income, the greater the tax bite. With the exception of income that is exclusively provided by tax-free investments, the prospect of no taxes due may well raise the thought of a difficult situation.
With that said, proper investing necessarily involves a long-term view for at least two reasons. First, regardless of the expertise brought to bear in the analysis of possible holdings, the impact of interim events on short-term prices of those holdings will be largely exposed to important events that take place along the way. Obvious recent examples were the start of the pandemic in early 2020 and the current war in Ukraine. The list is lengthy, but the result is the same.
In the short term, emotions rule the day. In the long term, well-conceived analysis of the underlying fundamentals of investment possibilities will usually be well rewarded. What must be ignored is the media bombardment about “Stocks of the Day”, “10 Funds to Buy Now”, and a host of schemes to bamboozle investors. Equally dangerous are the opinions of folks we meet at social gatherings. Serious investors need serious advice from qualified professionals, not cherry-picked boasting about occasional good luck.
The textbook rules have not changed and it’s essential to remember that there is no perfect approach. Bill Miller of Legg Mason, one of the best-known professional investors, posted one of the lengthiest records of beating the market and then his results hit the skids. Investors who were short-sighted deserted his fund. Surprise, surprise, Miller’s returns then rose again.
The Dogs of the Dow approach offers a similar lesson. That approach is straightforward. Buy the 10 highest-yielding stocks in the Dow Jones average and rebalance similarly at the beginning of each year. Over time, the results have been impressive, but there have been periods when the numbers lagged.
Patience pays off. We endure Winter to get to Summer. We pay taxes because we’ve made money. Not a bad deal.
N. Russell Wayne, CFP®
Sound Asset Management Inc.
Weston, CT 06883
Any questions? Please contact me at email@example.com