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Streetwise for Friday, May 22, 2020









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Streetwise for Sunday, May 24, 2020, 2020

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 once 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. 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 ever deeper into the dark recesses of their minds.

Since the Afghanistan war began in the wake of the Sept. 11, 2001, attacks, more than three-quarters of a million Americans have deployed to Afghanistan, and more than 2,300 U.S. troops have died.

The jarring impact of young soldiers with missing limbs or suffering from PTSD should act as an interminable reminder of the never-ending violence that takes place across the globe in the name of peace…oh and yes religion.

Likewise, the horrors played out in schools and synagogues across the country make it abundantly clear that 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, ìNot what your country can do for you but what you can do for your country.î 

That would be excellent advice for Wall Street. Unfortunately, the Streets 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 the more germane topic of 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, ìSell in May and go away.î

Deciding when and what to sell is an investors 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 for at least 10-years and has an intrinsic value using a discounted cash flow methodology that hopefully is still above the market price, although you need to make some allowance for the problems created by Covid-19.

Last year I expressed disappointment in IBM. You might consider why Warren Buffett sold his shares in the company. 

Meanwhile, Exxon recently froze its dividend for the first time in 13 years as the decline in oil prices strained the companies financial underpinnings. 

In addition, Covid-19 and the oil trade war between Russia and Saudi Arabia forced Exxon to reduce its 2020 capital budget by $10 billion. Moreover, the continuing deterioration in energy markets may not be over.

Next up would be bonds and bond funds. Right now, unusually low interest rates have pushed bond prices higher, as bond interest rates and prices are inversely proportional. 

As I have pointed out on numerous occasions, bond owners or bond fund owners do not participate in corporate growth and are subject to the pain of inflation with no offset.

My final sell idea stems from 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.

The late John Bogle, who founded Vanguard, was given to point out that a mutual funds expense ratio understates the total costs investors pay. You need to add in transaction fees, sales charges and the “drag” of a fund manager who holds cash.

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.RuddReport.com.

Poignant
 

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