Streetwise for Friday, May 25, 2018

Memorial Day is upon us once again and for many it will simply be a day off from work and a time to drag out the barbeque grill. Yet, as I point out each year, and will do so again this year, the day should be a somber reminder of those who sacrificed their lives to ensure our freedom.

Unfortunately, as we age the devastating impact of armed conflict has a way of fading from memory. Very few are left who can recount the untold horrors of the Holocaust. A younger but graying generation pushes remembrances of the sickening sweet smell of Napalm and burning flesh, so often present during the Vietnam war, ever deeper into the dark recesses of their minds.

Nonetheless, the jarring impact of young soldiers with missing limbs or suffering from PTSD should not only unleash a torrent of emotion, but also act as a reminder of the never-ending violence that takes place across the globe in the name of peace…oh and yes religion. And as the recent horrors played out in various schools across the country showed, violence knows no limits.

You are probably wondering how those comments relate to investing on Wall Street. They do not…except to point out that Memorial Day is an excellent time to once again reflect on the phrase, “Not what your country can do for you but what you can do for your country.”

That would be excellent advice for Wall Street. Unfortunately, the Street’s supercilious attitude is only upended only by its unvarnished self-indulgence. Moreover, the financial largess that now floats freely within the Temples of Wall Street is unlikely to ever make its way to Main Street.

Which brings us to a more germane topic when and what to sell. Too often the subject is exploited with such erroneous terms as, “the market is going up, sell,” or “the market is going down, sell.” Or even worse, “Sell in May and go away.”

Deciding when and what to sell is an investor’s most vexing decision. Given that it is Memorial Day weekend, may I again suggest you contemplate the words penned over a century ago by Catherine Lee Bates in “America the Beautiful.” She wrote, “Confirm thy soul in self-control.”

One proven analytical approach is to ask yourself if you would buy the stock today. In answering that question consider whether the company has been increasing dividends and has an intrinsic value per share (using a program such as ValuePro.net) that is 10 to 15 percent above the market price.

For example, General Electric (GE) continues to be a sell candidate. GE has an intrinsic value, using the ValuePro’s discounted cash flow to the firm model, of about $3.95. The shares recently closed at $14.18, as compared to a year ago of $28.28. And this year I am going to add IBM to my list. A future column will describe in detail why, but for now just go along with the fact that Warren Buffett unloaded his shares.

Next on my sell list would be bonds and bond funds. Interest rates are going to continue to move higher with the next increases likely in June and again in September. The result will be a continuing decline in the price of bonds and bond funds, a decline that could be precipitous.

My final sell idea is my least favorite investment; all mutual funds (401k plans exempted). While most funds do not exceed the S&P 500, the nasty issue is fees and expenses.

According to the Investment Company Institute, the mutual fund trade group, mutual fund fees average 1.44 percent on equity funds, 1.02 percent on bond funds and 0.24 percent on money market funds. Fees for emerging-market funds or alternative-investment funds can be more than 2 percent.

Mr. John Bogle, who founded Vanguard, has pointed out that a mutual fund expense ratio understates the total costs investors pay. In addition to the expense ratio, investors need to look at transaction fees, sales charges and the “drag” of a fund manager who holds assets in cash.

If you feel you need professional assistance, select a fee-based manager that does not receive commissions on what he or she proposes. And no mutual funds unless you want to pay two management fees plus fund expenses and sales charges.

Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddInternational.com.