Up in Smoke

There are sectors of speculation in every market that defy reasonable valuations. In the late 1990s, many Internet stocks with flimsy business models were bid up to stratospheric levels. One dozen years ago, speculation in the housing market reached historic proportions as the banks provided easy credit to risky borrowers. Housing prices in many markets are still way below the highs reached during the bubble. Last year, Bitcoin and other crypto currencies exploded higher only to deflate by 50% this year to date. The latest craze is the cannabis market.…

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Everything is Connected

The stock market continued to grind higher as an expanding economy and strong earnings growth outweighed concerns about trade wars and fragile politics both here and abroad. During the second quarter, the Gross Domestic Product in the US grew at a rate of 4% while corporate earnings surged by 25%. This economic expansion is predicted to continue for the remainder of the year. A significant factor driving economic growth is the tax cut passed earlier this year as most corporations are expected to owe roughly 40% less than 2017’s tax…

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Opportunity Funds: Great Tax Savings, but Caveat Emptor

The Tax Reform and Reconciliation Act that passed last year contains provisions that allow for significant tax benefits for targeted investments in certain economically distressed communities. The legislation incentivizes development in these areas by allowing deferral and/ or reduction of capital gains taxes regardless of the source of the gains. The goal of this program is to spur development and the law is a descendant of enterprise zones championed by the late Jack Kemp. An investor may invest the value of capital gains realized in a particular year into an…

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Auditors and Our Research Process

Our research process starts with a screen to narrow down our investable universe to a more manageable number of names. As the screen is reviewed, more names are removed from consideration due to unattractive qualitative factors, such as extreme cyclicality of revenues or earnings. A few names are targeted at a time for a deep qualitative dive, which includes a checklist of characteristics we want the company to demonstrate, such as sustainable margins and shareholder friendly management. One of the items we check is the auditor. The auditor’s role is…

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A Balancing Act

The second quarter has been in many respects a continuation of the first quarter wherein financial markets have provided investors with little or no return on their investments. Today’s markets appear bewildered and subject to relatively sharp moves based on news stories and political maneuvering. Rising interest rates, potential trade wars, geopolitical concerns (populism, EU difficulties, sanctions) and a growing fear that the end is near for the long, but weak, economic expansion in the US all bear some responsibility for the confusion. Markets are driven by fundamentals and by…

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