2017 Fourth Quarter commentary

Why invest in individual stocks and bonds when most every financial adviser seems to be recommending passive mutual funds?

The other day, I bought for clients Florida municipal bonds that finance land preservation in that state, protecting the Everglades.

The bonds were odd lots (considered any amount less than $100,000). A buyer of odd lots benefits, purchasing at a sizeable discount — the dealer is motivated to move these bonds off its own balance sheet.  This isn’t a problem for us since our intention is typically to hold bonds to maturity.  By buying at lower prices, we capture a performance advantage versus the investor who invests regardless of price.

And isn’t that what investing is all about, investing to conserve what’s important while also earning a profit?

Another example, we bought stocks this past quarter that had fallen in price for no good reason.   Why?  At the end of the year, investors sell losing stocks to realize their losses. They reduce their tax bills.  This selling further depresses prices in these stocks.  By buying some of them, we begin 2018 with a head start when it comes to value — these stocks were often penalized too much in relation to their merits.

Good businesses may or may not make for good stocks.  Much depends on their purchase price.

In contrast, another rule of thumb must be mentioned.  Bad businesses make for poor investments — these we avoid.

Smart investing is about figuring out the difference, one from the other.