Streetwise for Friday, January 11, 2019

The rather extreme volatility that has been an integral part of the markets over the past year has brought forth a series of questions, such as do you continue to hold stocks despite a reduction of unrealized gains? 

Or do you take your reduced profits and maybe invest companies that are lagging the market. Or sell and remain in cash because you believe the market retrenchment will continue. Do not lose sight of Uncle Sam. Gains on non-tax deferred accounts are subject to being taxed as soon as you sell. The Uncle does not care whether the market is up or down.

There are no single pat answers although I certainly would refrain from throwing in the towel, thereby converting unrealized gains into taxable profits and enabling Uncle to immediately lay claim to his share.

From my perspective, there is a strong probability that the markets will reconstitute its upward climb in 2019, (with an occasional minor correction or two along the way). If that occurs and you continue to remain on the sidelines, you will be asking yourself why; why you did not take advantage of Wall Street when investments were on sale. 

Security prices go through cycles of strength and weakness and the fluctuations may or may not coincide with various economic or market trends. To be a proficient at investing, you need to always be aware of companies whose share prices are facing temporary difficulties resulting from exogenous events that are beyond a company’s control.

While the more aggressive stance by the Fed in 2018 should have come as no surprise, that stance will likely ease in 2019 with maybe one increase in interest rates in the second half of 2019, if inflation remains relatively benign. 

While companies such as Church & Dwight and Clorox appeared to defy the volatility and turn in annual gains of 30 and 10 percent respectively, Apple became the poster child of companies punished by the Street for not meeting its expectations…despite its first quarter projection of $83 billion in sales.

Benjamin Graham, legendary investor and author, extolled the virtues of a simple portfolio policy…the purchase of high-grade bonds plus a diversified list of leading common stocks. A policy that most anyone could carry out with little difficulty. 

Unfortunately, the bond portion of that statement is not applicable in today’s investment climate, due to rising interest rates and rising inflation. The former will mean declining bond prices and the latter a reduced real (after inflation) return.

Those who study Graham will come to realize that the art of investing has an unappreciated characteristic of producing a creditable but unspectacular return, while requiring only minimum effort and capability.

To improve upon this easily attainable return requires substantial effort and more than a trace of wisdom. Bringing a little extra knowledge and cleverness to bear upon your investment decisions is unlikely to produce the expected increase in performance.

No, financial prophets do not exist. No one is going to lead you to the land of safety and high returns. You must find your own way and there are no sure and easy paths to financial success. 

Yet, all too often people tell me how they were unable to resist the temptation to act because of what they heard at some free lunch or dinner, or on television, or read in the news media. 

It will never fail to amaze me how otherwise intelligent people seem to disconnect their brain because someone whom they have never met, never will meet, somehow convinces them to take a specific action with their portfolio or face dire consequences. And when they see the result, it is too late.

Note to Readers:

My 9th annual talk sponsored by the non-profit American Association of Individual Investors (AAII), titled: “Tactics for Tough Times – Deciphering Wall Street in 2019”, will be on Thursday, January 24, at the Hyatt Regency, 1000 Blvd. of the Arts. Registration/Social/Refreshments 3:30 P.M., Program 4:00 to 5:30, Q&A 5:30. Please call 941-706-3449 to register. $15 per person at the door.

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