greg leibman

Portfolio Themes: Spring 2022 Updates

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In our portfolio management, we try to pick and choose our spots. We’re investing for the long term, after all. We are not indexers; we invest in individual companies for their unique characteristics and the potential behind their story. We avoid knee-jerk reactions to any day-to-day news.  

Sometimes, though, the daily news covers an issue that’s big enough to linger. Much of the news cycle lately has been dedicated to the war in Ukraine. The implications for the global economy are profound and have a direct impact on our work. 

The war may be accelerating trends that were already there, but now they are more pressing. 

OIL, ENERGY, FOOD, & BEYOND 

Maybe you’ve noticed at the gas station, but one of the big impacts is the price of oil. In the short term, we foresee great profits for oil companies, but skyrocketing oil prices and energy uncertainty have also renewed interest in the next energy revolution. Solar power and electric vehicles have been on their way for a long time, but the world needs them more urgently than ever before. 

These issues are interconnected with trends in agriculture. Ukraine and Russia are not only both food producers: they’re even bigger producers of fertilizers, supplies, and equipment. Agricultural commodities were already on the rise before war broke out, so food producers around the world were already investing heavily in new planting. The journey ahead will be interesting for even “boring” food production and distribution companies, but greater profits may be rapidly approaching. 

THE IMPACT OF INTEREST RATES 

Those rising prices have energized more interest in durable commodities such as copper and gold, which we’ve been following in our shop for a long time

But the double whammy of rising interest rates and rising materials costs has a cooling effect on the housing industry, which we have been easing out of by steps. The shortage in the nation’s housing supply persists—and probably will for a spell. For now, homebuilders are a longer-term, lower-priority investment for us. 

WHAT THE PANDEMIC MEANS FOR TECH 

In times of strife, investors tend to seek comfort and safety, so more volatile sectors such as technology are starting to come back down to earth. We believe this may create buying opportunities in software and internet companies, which are less vulnerable to high interest rates and commodity prices. (They are often light on debt and low on material costs.) 

Even as COVID-19 continues across the globe, some areas of life have become more manageable. The air is clearing a little for airlines and travel stocks, although we are more interested in another area of potential: biotech and pharmaceutical companies. While pharmacy stocks may be easing as the pandemic rally subsides, we are looking forward to new breakthroughs in the years ahead. The advances made in the pandemic, we believe, will prove to offer even more applications elsewhere in the future. 

TAKING STOCK 

The world is a complex place. As always, our thinking evolves on a weekly basis through our research process. Our vision, however, stays trained on these longer-term trends—and what they mean for our longer-term plans and planning. 

Clients, want to know what this means for your portfolio? Please email us or call. 


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.  

Stock investing includes risks, including fluctuating prices and loss of principal. 

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. 


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The Sun Will Come Out

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March 13, 2020: The novel coronavirus COVID-19 is declared a national emergency in the U.S.

In the weeks that followed, schools and businesses closed across the country as one state after another issued stay-at-home policies to curb the spread of the virus. It has been rough since then, full of ups and downs.

It’s not the end of the road yet, but an end is closer all the time, nearly in view.

Many of the routine activities we once took for granted will come back: shopping, movies, sports, travel. Some of the changes we have gone through may stick around: perhaps people will be more inclined to get takeout than sit in a restaurant, and maybe folks will consider the occasional mask during flu season. But people will likely have fresh goals and new energy.

With this, we can expect a flurry of economic activity as people go out and do all the things they have been holding off on. After the shutdown started, many households responded by saving money and paying down lines of credit. There is plenty of pent-up demand waiting to be fulfilled.

We have written before about the Roaring Twenties that followed on the heels of the deadly 1918 influenza pandemic: if things line up, we may be poised for this century’s own version.

There are no guarantees. It is possible that the market has already priced in a robust recovery following the pandemic, leaving less potential for further gains.

Still, we have reason to be optimistic. Markets aside, we all have a lot to look forward to in our personal lives. Time with friends and relatives, at favorite restaurants and vacation spots. Many of us have suffered, and not everything we lost will come back.

But as the old song goes, the sun will come out—tomorrow.

If you would like to talk about your and planning, please call or email us.


The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.


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On Having a Seasonal Bout of Whiplash

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Trying to make sense of stock moves during earnings season might make you sympathize with Elmer Fudd.

Maybe you’ve seen the classic cartoon that goes like this: Bugs Bunny and Daffy Duck, chased by the hunter Emler Fudd, start arguing over which animal Elmer is supposed to be hunting.

“Duck season!” Bugs yells.

“Rabbit season!” Daffy insists. They continue this way until Bugs seamlessly switches his response to “Rabbit season!” At this point Daffy Duck counters with the only logical response… “Duck season!”

Elmer promptly shoots his foolish prey.

And now everyone’s shouting, “Earnings season!” Each company that issues publicly-traded stock must report about its financial wellbeing quarterly. In theory, the effects of this process should be simple for investors: a company that posts a good performance should see stock gains, and a company that posts a poor performance should see stock losses. Right?

But many folks view earnings reports through the lens of their expectations. A company that does well might still seem like a disappointment to those who expected even more from it. And when a company beats consensus expectations, some investors may second-guess the showing and bet on an even bigger blowout.

Stock prices can swing wildly up and down in response to earnings reports, with less logic than the duck season, rabbit season debate. If you listen to market commentary you may hear many different (even contradictory) explanations for why a company dropped on seemingly good earnings or rose on seemingly bad earnings.

Zoom out: ten years from now, do you think you will remember what one of your stock holdings did in response to one earnings report those many years ago?

The big investment news stories worth remembering will be about bigger issues than a quarterly earnings report.

We already know stock investing involves volatility—and some of it comes around like clockwork every three months. Clients, if you are ever wondering about sudden market moves, give us a call before anybody goes daffy.


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What the IRS Knows: Getting Down to Brass “Tax”

photo shows a light letter box with the word "TAXES" sitting on top of various cash bills

While paying taxes is generally a good sign that you are making money, it seems most people want to avoid paying more tax than they need to. It’s a common enough question we field, and one worth considering.

How do we handle the tax impacts of our choices?

For smaller investors with tax-deferred vehicles like IRAs or 401(k) plans, tax considerations are simpler. Only deposits and withdrawals have any tax implications (and for Roth IRAs, rarely even then.)

Things get more complicated for investors with substantial balances outside of retirement accounts: most trading activity has tax impacts. You pay taxes on interest and dividend payments; you also become subject to capital gains tax when selling investments.

The principle of capital gains is straightforward enough. For instance, if you buy stock for $100 and later sell it for $100, you made no money and owe no tax. If you were to sell it for $110, you would have to pay some percentage of the $10 profit in tax (but not the rest of the $100: that was money you had in the first place.) And if you sold it at $90, you would have a loss of $10 that you could use to offset taxable gains elsewhere.

The important thing here is that the IRS generally only cares about the value of investments when they are bought or sold. If your $100 stock position balloons up to $1,000 one year and then collapses back down to $100 the next, the IRS has no interest in the round trip. They only see the difference from your original purchase, regardless of how high or low the price got in the meantime.

It is easy to despair when an investment is underperforming, but according to the IRS, those losses do not exist until you decide to sell. And if a high-flying investment should pull back from its highs, the IRS would give you a very funny look if you tried to claim it as a loss.

So if the IRS does not care about your gains or losses “on paper,” why should you? A drop is not a loss, and value at inception is a great anchor to come back to when you need a jolt of perspective.

And if after all this you find yourself with more resources than you would need in your lifetime, there are estate planning opportunities to consider. If you are sitting on long-term investment gains that you do not think you will be spending, there is little reason for you to sell those holdings and pay taxes on your gains yourself.

If those assets are passed down to your heirs, however, they would generally only need to worry about gains made after they inherited them, so whatever gains you accumulated during your lifetime can pass to them tax-free.

Lots to think about! It’s an important topic for many investors. Clients, when you need to talk about your tax considerations, please reach out.


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.


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What the IRS Knows: Getting Down to Brass "Tax" 228Main.com Presents: The Best of Leibman Financial Services

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Where Did the Decade Go?

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We experience life as a series of moments. The future approaches, then becomes the present for a moment, and passes into history.

The dawn of the third decade of the 21st century is upon us; the current decade is nearly history. The moments we had!

In the first days of 2010, my wife Cathy flew to Florida to furnish and outfit a newly purchased condo; I joined her after a couple weeks. We began our life as snowbirds, skipping some cold weather weeks in Nebraska. (Planning to work to age 92, we had to figure out how to have some fun along the way.)

Our Office Manager Greg Leibman agreed to help in the office here at 228 Main during my absence, January 2010. It did not take long for me to get a glimmer of the potential of that association for the business.

Our planning, disruptions, and adaptations led to surprising growth and development. We focused more tightly on investment advisory business, performed under the auspices of LPL Financial’s RIA (registered investment advisor). That side of the business now accounts for over 70% of assets, $70 million now. That structure elevates our desire to serve your best interests to a binding obligation upon us, the way we like it.

The family health challenges we worked with for most of the decade brought us to a revolution in communications, forced me to learn how to delegate effectively and figure out how to build a team to serve you. The lesson I learned from my life with Cathy, make the most of what you have, enabled us to keep things running so we had the health insurance and resources she needed in her illness.

We had more than full measures of pain and joy in the decade. That is what life is made of.

And now a new decade looms. We hope to be able to make an interesting report to you about it, ten years hence.

Clients, if you would like to talk about this or anything else, please email us or call.