EVALUATING YOUR HOLDINGS, MAKING GOOD DECISIONS
We are frequently asked how long to hold a security or how long is “long term”. Sorry…there is no definitive answer to that question. We hope and like to hold investments a long time but each answer depends on related variables. You can be too impatient or too patient.
I was reminded of the time a woman brought me a cardboard box of an investment she owned; It had seemed a good investment and been purchased years previously from someone else. Having observed her income taxes for a number of years, it was noticeable that she was paying for many capital gains but the account had not grown substantially.
I went through her records, carefully adding up investments, reinvestments of dividends and capital gains and looking for sales and distributions from the account. I came up with a figure which clearly showed she had invested much more money than the account’s current value and it could be sold using the tax loss to save on current income taxes. The account had not consistently added value.
That principle is important to us; we provide much of that information in a form called Net Investment Income and while we know on occasion, current conditions will produce a loss, the loss should not always be taken, as we feel it is temporary. But, accounts should continue to grow greater than basis.
Historical investment information is not always available. For many years it was the investors responsibility to maintain the information, but since 2012, custodians have been required to retain and provide the information. This helps us significantly, but many people own accounts purchased earlier than 2012 and have not understood the requirements.
We use “basis” as one of the factors in the analysis of your accounts. The media provides many numbers and opinions but with no knowledge or application to your personal situation.
A few companies and mutual funds will have complete performance information of their accounts. One can learn about the management’s competence over many years, but many managers do not provide the numbers.
One company we have recommended for many years will remain nameless in this article but the following is valuable information. (Contact us for additional information and more disclosure.) The following account has been managed since 1934 by this group and invests in growth and income stocks, largely in the United States. It has paid dividends consistently since 1936 and paid them each quarter. Clients have come to rely on those quarterly dividends and they have grown over time. Our example reinvests the dividends.
If you had invested $10,000 in this account back in 1934 and reinvested all dividends and capital gains distributions, it would have been worth $227,259,236 on 12-31-22! Really! That is 88 years and in this example you would not have withdrawn money out, so not a likely story, but for anyone using it carefully with a withdrawal program, it would have provided them and their beneficiaries a LOT OF MONEY! The costs of purchasing could have been as simple as paying $850 out of the initial $10,000 investment. Each investor would have paid income tax fees according to his personal situation.
There is more; the investor put in $10,000; he held on to the account and over the following 88 years, 53,601,837 dividends were paid and reinvested in the account buying more shares, with an additional 118,887,893 dollars earned in capital gains and reinvested. That turned into an account worth $227,259,236, but it also produced unrealized capital gains of $50,759,506, showing the power of good management. There were 17 years that the account value was lower than a year previously; yet it has averaged 11.93% over all the years.
I LOVE the stock market. It has done wonders for people…if they will only try to understand. It does not demand huge investments to get started and where else are double digit or high single digit returns available year after year? Where else can the hard working person wanting to gain independence in life gain it like this? Of course, it works equally well for people needing to roll their 401k accounts into suitable investments or those receiving inheritances or anyone with more money. But the more people we can help understand and gain money independence, the better off we believe we will all be. We have enjoyed seeing investors become millionaires and multi-millionaires, all for the purpose of simplicity, not grandeur.
We welcome the opportunity to work with you and anyone you can refer to us.
Michael Googins, Administrator
Kim Rankin, Accountant
Richard Martin, Investment Advisor
Lynne Goldsmith, Investment Advisor
Dayton Hoffmann, UW-Madison Intern
Andrew Spengler, UW-Madison Intern