Invest Wisely, Spend Well

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A client came in, hat in hand, apologizing profusely for requesting the withdrawal of a few thousand dollars. He seemed sure the request would upset me.

I’m opposed to clients giving their hard-earned money away to scammers or nephews buying bars, so I inquired as to the use of the funds. It turns out that his home needed a modification to accommodate his wife’s changing health.

Of course, I told him that I would be upset if he didn’t use his wealth to make the home improvement. Relieved, he told me that his previous advisor would get agitated about any withdrawals from his investment accounts. It sounded as if that advisor forgot whose money it was.

We devote most of our time and attention and thoughts and words to our version of investing wisely. But what is it all for? There is no reason to be the richest person in the cemetery.

A more balanced view is captured in the short phrase, ‘invest wisely, spend well.’ We aren’t suggesting that you chop down the orchard to sell it as firewood. But it is OK to use the fruit crop to make life better for you and people you care about.

The same lesson was driven home by other friends. In their 70’s, this couple took their extended family on a vacation to a fabulous destination. In the telling, she raved about how great it was while he silently shook his head. I asked him if he had a different opinion. He said they should have started those trips twenty years before.

Many of us need to be diligent about saving and cautious about spending in our working years. Building toward financial independence in the face of everyday expenses can be a struggle. If we do it right, the struggle fades away as the years go by. At a certain point, we may need to warm up more to the idea of spending well.

Clients, we are always thinking about your long term financial position. Your situation seven or fourteen years from now matters—we plan on being here, and we plan on you being here too. But the idea isn’t to pile up the most money you can—it is to strive to have the resources to do what you want and need to do.

Invest wisely. Spend well. If you would like to discuss how this applies to you, please email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

A Share of What?

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Some people invest in common stock without even knowing what the company does. To them, a stock is price on a screen that can be bought and sold minute by minute—day-trading, they call it. Those people study price charts, not financial statements.

At the other end of the spectrum, investor Warren Buffett understands that a share of stock is a piece of a business—a share in an enterprise. He once said it would not bother him if they closed the stock market for ten years: he is happy to own percentages of businesses.

We suspect that many of you have an understanding that is somewhere in between these two views. We would like to offer you a little more perspective on what ownership is, and what it means.

Recently, in analyzing a company many of you own, we broke it down to what $1 invested represents. We’ll call it Company X, the leader in its industry, a blue chip company.

$1 invested today, whether you just bought in or paid half that amount some years ago, represents a certain amount of revenues—sales of goods by the company. It also represents a share of income and dividends (cash paid to shareholders).

Each dollar of ownership value in Company X represents 32 cents worth of revenues this year. After expenses, the company’s net income for the year will be between seven and eight cents per dollar of today’s stock value. If the Board of Directors continues to approve quarterly dividends at the recent rate, each dollar of stock value will get close to 3 cents in cash dividends.

For long term owners, this year’s results are of interest but the outlook for the future has a large impact on how the stock price will change. For this reason, we seek to understand the relative value today, but also the potential for the company to reap its share of future growth in the American or global economy—to increase its revenues, income, and dividends.

This work is totally captivating, if you are us. Clients, many of you have told us this is why you hire us—your interests lie elsewhere. They say it takes all kinds to make a world; we’re glad to know your kind. If you’d like to talk about this or anything else, please call or email us.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Stock investing involves risk including loss of principal.

The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.

The “Crash” of 1987: A Contrarian View

© Can Stock Photo / konradbak

The 30th anniversary of The Crash of 1987, the biggest one day drop in the stock market ever, recently passed. Mainstream commentary made much of the 20+% loss on the day, the panic, the shock, and whether such a drop could happen again.

People sometimes learn the wrong lesson from experience. (In our opinion, many investors learn the wrong lesson.) The so-called crash is another case in point.

First let’s put the event in context. The S&P 500 stock index went from 242 at the beginning of the year to 247 by the end of the year, with some commotion in between1. There was no apparent damage to long term investors when the dust had settled—provided one adopted sensible time horizons by which to judge it.

In fact, the next year saw a gain of 12% in the S&P 500, plus dividends1. The five years following 1987 notched a cumulative gain of 76%, plus dividends. This is why it might make more sense, in our opinion, to refer to The Great Buying Opportunity of 1987.

Those with unproductive perspectives measure the loss in the crash from the high peak the market reached earlier in the year. The S&P had jumped 39% in just a few months, even though interest rates were rising sharply and corporate earnings had stalled. From that frothy peak to the lowest closing price after the ‘crash’ was a drop of 36%1.

Clients, many of you were evidently born with the common sense to know that your perspective on events is a matter of choice. You choose productive, effective ways to consider things. Some of you weren’t born that way, but were able to learn how. Our work is intended for you who may benefit from it, not those who insist on counterproductive investing attitudes and behavior.

We believe the productive way to think about 1987 is as a year where the market saw a modest gain, before rising more significantly in subsequent years. The wealth-corroding way to think of 1987 is as a terrifying rollercoaster with damage so great no one could stay invested. You choose your perspective.

The true lesson of 1987 for effective investors: avoid stampedes in the market. Go placidly amid the noise and haste. That you are able to do this is why we believe you are the best clients in the whole world. Email us or call if you would like to discuss your situation in more detail.

1S&P Dow Jones Indices, http://us.spindices.com/indices/equity/sp-500


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Stock investing involves risk including loss of principal. The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

A Tender Proposition

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Investment owners sometimes receive confusing propositions in dense documents. We are talking about tender offers. Let’s cut through the fog.

A tender offer is when a buyer would like to purchase something you own for a specified price. There are three common types. Clients, many of you may be receiving tender offers now, of the first type:

1. Companies issue stocks and bonds to meet their needs at the time of issue. If the situation changes, they may want to buy those securities back from the public. For example, a company short of liquidity may issue bonds to raise cash. If they later have a more economical way to borrow, or simply want to pay down debt, they might try to buy those bonds back.

2. Sometimes an investment organization or hedge fund offers to buy shares in an unaffiliated public company.

3. Companies have obligations to each stockholder. Whether the stockholder owns a million shares or one share, the cost of providing annual reports and tracking proxy votes is the same. So companies sometimes offer to buy the shares of small holders, usually under 100 shares. These offers are called ‘odd-lot tenders.’

As a rule of thumb, be cautious when a stranger wants to buy something from you. A client once told me about an antique dealer wanting to buy one of her possessions. She said, “I knew one thing when he made that offer—it was worth more than that, or he wouldn’t have wanted it.” This could apply to the first two kinds of tenders.

If you own a small number of shares, you are under no obligation to sell them back in an odd-lot tender. You have the right to keep on owning your shares. The simple alternative is to just sell your shares any day if you no longer want them.

Tender offers may take away flexibility. Owners commit (‘tender’) their holdings. Then weeks or months later, they learn whether or not the tender will actually be completed. In the interim, the holding cannot be sold in the market and no money is received.

Clients, if you have questions about an offer you receive, please email us or call. We think it our job to understand those offers, and be available to talk about your situation.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Working Like a Dog

© Can Stock Photo / mikdam

I am happy as a clam, working like a dog. Where did those sayings come from?

Who knows whether clams are happy or not? “Working like a dog” does not actually seem to be too taxing. (My dog Bailey mainly sleeps, eats, goes on walks and plays—he spends very little time coaching effective investing behavior, his only real job.)

I am obsessed with my work. It gets a lot of my energy but in turn energizes me. My long-held goal of working to age 92 shapes my habits—I can’t work to age 92 unless I live to age 92. This has an impact on what I eat, physical activity, sleep habits, and everything else that bears on health and wellbeing.

This may have a key benefit for clients. At an age when some people are coasting toward retirement, we are striving to build for the decades ahead, focused on the future. Our widely recognized new media presence at http://www.228Main.com and related social media venues are examples of that focus.

Two key things over the past decade have forged our enterprise into what it is today. In the interest of sustainability (working to age 92), Cathy and I adopted a snowbird schedule in 2010—spending parts of the winter in a warmer place. A few years after that, family health issues began to impact my travel schedule.

The snowbirding led to a conscious process of figuring out our most important activities and paring back the extraneous. Talking to you, researching investments, and managing portfolios are those key activities.

The schedule challenges made a necessity of learning to delegate. An entrepreneur cannot build a reliable organization unless she or he is willing to find good people and entrust them with vital aspects of the business. This is difficult for many—but I had no choice.

Together, these factors enabled us to build a focused, effective organization to serve you and other wonderful people. By striving to invest only with those who are a good fit philosophically, we have the same story for everyone. The efficiencies of having everybody on the same page are enormous.

So yes, I am working like a dog. And swimming most days, walking every day, eating healthy, enjoying family (now including grandkids!), appreciating my surroundings, loving Beautiful Downtown Louisville, and of course, grateful to be trusted by you to help with your plans and planning.

Clients, if you would like to discuss this or any other topic, please email us or call.

Related reading:
1. About challenges making us stronger: https://228main.com/2016/12/12/kiln-fired-personalities
2. About focus: https://228main.com/2017/10/02/focus-people
3. About the investment philosophy we share: https://228main.com/2016/05/25/niche-market-of-the-mind


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Working? Here’s Some Basics.

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What has been the biggest factor in helping people end up financially sound in retirement?

In our opinion, it is the availability of retirement plans in the workplace. This article is a primer on the high points. If you are on the job, this may be key information for you.

Employer-sponsored retirement plans have a number of features that may help people build wealth. They go by different names (401k, SEP, SIMPLE, 457, TSA, 403b etc.) but generally share these features:

1. Once you sign up, you invest automatically every payday. It takes no effort or thought month to month—you put your asset-building on autopilot when you enroll.

2. The arithmetic of pre-tax retirement plans can be compelling. For some, for every $5 they contribute, their paychecks may only go down by $4. Taxable income goes down, so your income taxes go down. A potential tax break for the working person—imagine!

3. Some employers match your contributions to some extent. A fifty-cents on the dollar match means if you put in $5, your employer will add $2.50. That’s like a 50% return on Day One! (Employer contributions may be subject to vesting, so you might not keep the whole match unless you stay on the job for up to five years, for example.)

We are always happy to talk to you about your situation, and how you might use an employer plan to get you where you want to go. But here are a couple of rules of thumb. These are general pointers that may or may not fit you, but some have found them useful:

First, saving 10% of everything you ever make is a good way to start on a sound retirement. If you aren’t there and cannot contribute that much, ratchet up your savings rate by 1% a year if you can—every year. Some clients make a habit of putting raises (or half of them) into the plan, or increasing their contribution rate by 1% per year.

Second, if you are a long way from retirement, you can afford to take a long view with the investments you choose for the plan. Why take a short term view on money you probably won’t spend for many years, or even decades? But the choice is yours—most plans give you options.

Clients, call or email if you would like to talk about your situation or any other pertinent topic.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Higher Returns, or Minimize Taxes?

© Can Stock Photo / joebelanger

In the course of our research, we recently came across a survey of investors published by a large investment organization1. It contained an example of a technique that might be used to manipulate investors into a less-than-optimal path.

Would you rather minimize taxes, or achieve the highest investment returns? Many people might think that this is a straightforward question: the survey reported that 61% of baby boomers preferred to minimize taxes. In our opinion, it is indeed straightforward—just not in the way they think it is.

We pondered that question, and wondered why there was even a choice between minimizing taxes and going for higher returns. Generally, an investor comes out better off if she or he aims for the highest after-tax returns.

Peddlers of financial products know that if they can get a prospect to focus on taxes, then it doesn’t matter whether the investment is really any good or not. It merely needs to meet that very important objective of minimizing taxes. A tight focus on taxes takes the spotlight away from the actual investment and its performance.

We think a better approach is to include the potential impact of taxes in our investment decision-making. You may hate taxes, but it would make no sense to go for 1% tax free instead of 6% taxable (all other things being equal)—the higher rate would leave you better off even after you paid the tax.

Some of you are more concerned about income taxes than others. It doesn’t matter what your object is, we need to agree that seeking the highest after-tax returns is a more sensible goal than either minimizing taxes or achieving higher returns. In our reality-based approach, we can integrate both objectives to work towards a more sensible plan.

Each of you is free to make whatever decisions you would like to, with your money. (We never forget whose money it is.) If you bring it us, we are never going to focus on just minimizing taxes, or just focus on achieving high returns. That is a false choice, and a seller who presents that to you may be trying to manipulate you.

We seek to achieve the best after-tax returns—that is the path that potentially leaves you with the biggest bucket. No guarantees, of course. Clients, if you have questions about this or any other pertinent issue, please email us or call.

1 2016 U.S. Trust Insights on Wealth and Worth survey, U.S. Trust Bank of America Private Wealth Management


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific situation with a qualified tax advisor.

This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

I Was Wrong, and I Apologize

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Thirty-some years since I first became registered to work with securities, we have been doing business with some people for decades. Some of those, I knew before that—friends, people I admire. I disappointed at least one of those recently. I hate that it happened and I am sorry.

This essay is an attempt to minimize the chance of this happening again. Let me explain.

For many years, my practice included aspects that were like a debating society. I would propose the purchase or sale of an investment to a client, we would discuss it back and forth, and the client would make a decision to take action, or not. This is the old brokerage model of investing.

In recent years, there has been a lot less time for debate as more and more people have engaged me to manage investments as their fiduciary advisor. (This is in my capacity as an investment advisor representative of LPL Financial, a registered investment advisor.) The advisors of Leibman Financial Services collectively serve more than 200 accounts with over $50 million assets through LPL Financial, and the majority of our time needs to be devoted there.

The issue is that these investment advisory accounts hold us to a higher standard. We have all the obligations of the old brokerage arrangements, plus we are obligated to put your best interests first, monitor the investments and your situation over time, and manage everything to stay in line with your investment objective. We manage these accounts without prior debate before we take action to pursue your best interests.

The error I made was assuming a client was not suitable for the investment advisory arrangement. I did not think he would give me discretion to manage his account without debate. But I failed to do him the honor of describing it to him, and letting him make the decision. He was disappointed that he had not heard about the alternative sooner, when the subject came up. I had met our legal obligations, but not the higher standard to which we hold ourselves.

If you are a client with products at an insurance company or investment company outside of LPL, or pay commissions on brokerage transactions inside an LPL Financial account, our relationship is on the brokerage account model. There is nothing wrong with it if those products and that relationship addresses your needs. We are always happy to discuss your holdings and your situation—email us, or call.

If you wonder whether an advisory account might be right for you, please email us, or call. We want you to know the situation, and make an informed decision about the kind of relationship you would like to have going forward. We also need to assess whether we have a good fit with you philosophically—a requirement.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Focus, people!

© Can Stock Photo / JohnKwan

We recently wrote about the meaning of money. Spoiler alert: we believe it may be a symbol of being worthwhile to the rest of society.

So today we are writing about the differences between entrepreneurs of middle class status, and those who have done better. Understand we are very big on being of service to our fellow humans, not so big on the pursuit of money for its own sake. We each define success in our own lives for our own selves. But there is a worthwhile lesson about being effective in our endeavors lurking in this topic.

Peter Schiff, author of Business Brilliant, identified in that book seven behaviors of highly successful entrepreneurs. Later he realized that just one trait dominated all the others. Its importance became apparent when he compared the behavior of less financially successful entrepreneurs to more successful entrepreneurs.

It turns out that, according to him, 45% of less successful entrepreneurs have no answer for the question, “Do you know what you are exceptionally good at that makes you money?” They believe they are excellent at six different things, on average. And 58% of them work to get better at things they are NOT exceptional at.

Meanwhile, 100% of more successful entrepreneurs know what they are exceptionally good at that makes money. They believe they are excellent at only two things, on average. And NONE of them work on their weaknesses; they spend all their time working with those things at which they excel.

When you think about the meaning of these three parameters, doesn’t it boil down to ‘focus?’ The more successful spend their energy on the two things at which they excel, because they know exactly how they are valuable to the rest of society. The less successful scatter their efforts across six things at which they believe they excel, plus they also spend time on their weaknesses.

It is no wonder that the group that consciously focuses more of their time on a narrower number of key things produces notable results. The race is not always to the swift, nor the battle to the strong, but that is the way to bet.

Bringing this closer to home, we believe there are two things at which we excel. Communicating with you to understand your goals and devise plans of action to pursue those goals is one. Managing investments in accordance with those goals is the other. The two things work together and complement each other: your goals inform your investment strategy.

Furthermore, each member of our team has duties that mostly correspond to their personal areas of excellence. People working at tasks they enjoy and excel at are going to be happier than workers who go through the drudgery of work that they do not like. Life is too short to spend it doing things you do not enjoy!

We do not know if these insights are of use to you. At least they help explain what we are about. None of this guarantees anything to anyone. Clients, if you would like to talk about this or any other pertinent topic, please email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.