We’ve all heard stories of individuals (e.g. lottery winners, professional athletes) who have come into sudden wealth and, within a few years, have seen their fortunes disappear. This is often due to the fact that these individuals have little practical experience or training in financial matters. Sadly, this is not an uncommon problem.
Although consumers are undoubtedly enjoying the 30% decline in gas prices that has accompanied crude oil’s 45% collapse since June, investors in oil stocks are feeling some pain with the S&P Oil & Gas Exploration & Production ETF (XOP) down more than 40% versus a 5%+ gain for the S&P 500 over that same time. Given the volatility these stocks have displayed, many clients have asked us about the causes, our outlook, and potential portfolio implications.
By any measure financial markets have been calm over the last several years. The recent price volatility has many investors concerned. As is the case when markets get bumpier, this worry is fanned by the media. Headlines like “Market Plunges 100 Points!” helps sell newspapers but doesn’t do much to add helpful context! 100-point market moves sure sound scary, but historically fluctuations such as this are common. This note briefly examines historical volatility and attempts to put recent market fluctuations into context. We think it’s important to remind our clients to keep their eyes on the horizon. Long-term profit growth and dividends have and will continue to see investors through market turbulence.
Tax inversion mergers have been prominent in the financial headlines this year. A tax inversion occurs when a U.S. company uses a cross border merger to re-incorporate in a more tax-friendly country. These mergers create unique tax consequences in portfolios, most notably; shareholders of both the target company and the acquiring company will potentially realize capital gains. In this note, we explain the benefits of these mergers, why these mergers create taxable events, and discuss how charitable giving may reduce or eliminate negative tax consequences for the taxable investor.
The downside of bull markets is that our expected future returns decline as prices rise. Today, our expected returns suggest investors confront a low return landscape across most asset classes. As expected future returns fall, investors look for ways to boost returns in their portfolios. To this end, many are asking questions about the return-enhancing potential of “alternative” asset classes.
The equity bull market picked up pace last year. The S&P 500 returned nearly 33%, its best year since 1997. While business fundamentals did improve over the course of the year, the majority of stock market returns resulted from expanding valuations.
Recent indications that the Federal Reserve Bank has plans to “taper” its quantitative easing program in the coming twelve months has given bond investors good reason to bid interest rates meaningfully higher.
Coal stocks are easily among the most hated and worst performing equities in the market today. The basic fundamentals of the commodity’s supply and demand, however, suggest that now is the perfect time to buy these stocks at bargain prices.
Last year proved a tough performance comparison in many of our client portfolios. While we realized strong absolute performance, portfolio returns lagged the S&P 500, generally (as we shall describe in this note).
Apple, Inc. is a unique phenomenon, both as a company and as a stock. In the wake of a 38% decline since last September’s high, speculation is rampant that the growth fueling an historic rise in Apple stock is at an end. Valuing the stock of a company in transition from hyper-growth to something less is a challenging exercise. We are quite certain, however, that the violent selloff in Apple shares is just as overdone as the abject adoration they had been awarded for the last several years.
