Investors like data and particularly the predictability of data. In fundamental investment analysis, company and economic data are the signal that is useful for modeling future expected economic growth rates, revenue, earnings, cash flows, etc. We use these to determine future values that can be discounted back to a fair value today. This helps us decide if something is currently cheap or expensive relative to future expectations, and importantly, what are we buying, holding or selling for our clients’ portfolios. Unplanned economic and political events can affect our economic decision making but they are mostly noise around a signal.
Wealth Taxes Are in the News
How does someone get a feel for our tax system? In business, running your own, smaller business is probably good preparation for running a larger one. A senior executive of a large firm who was pushed out to make way for another manager, started and ran his own firm before being hired back to run the larger firm.
Woodstock Quarterly Newsletter / Winter 2019
When constructing a new portfolio from cash our philosophy is to move expeditiously but use common sense. Initially, fully knowing that we cannot predict the market, the impetus is to invest a major portion of the funds in a diversified portfolio of stocks that both line up with the client’s circumstances and desires and meet Woodstock financial and quality criteria. Subsequently, depending upon market conditions, our strategy is to put the remaining resources to work over a period of several months.
Peter Hartzel, Senior Vice President and Portfolio Manager
Woodstock Quarterly Newsletter / Winter 2019
According to Company lore, Woodstock Corporation and its predecessor organizations were founded in October 1929. After the passing of the founder of Paine Webber, (the Boston based broker dealer and investment bank), William A. Paine, his estate and financial affairs were handled by an office called Paine Estates. Within a few years Paine Estates was incorporated as Woodstock Corporation, mostly handling tax and custody issues. In the late 1960s, Woodstock Corporation registered as an investment adviser, as we are today. William A. Paine died a few weeks before the Wall Street Crash of 1929. As with other estates, the valuation before the crash was much higher than the valuation post-crash. Company lore credits William A. Paine’s estate with helping to establish the alternate valuation date now available to all US taxable estates.
There is current interest in the effect of the new tax law changes on investment fees. Before discussing deductibility, investment fees have always had to be justified. For assets managed at a firm like Woodstock, the ownership of individual equities, not in a pooled investment structure, allows the investment manager to use asset allocation, tax considerations and turnover, in other words use the levers available, to effectively save as much as the management fee might be.
The S&P 500 Index returned +18.5% through the first six months of this year, following a -13.5% fourth quarter of 2018. On a year-over-year basis, the market has returned a still strong, but more modest +10.4%. The market hit a rough patch in May, down 6.4%, when trade negotiations between the US and China stalled. Also in May, the Trump Administration imposed more aggressive sanctions on China’s leading telecom equipment manufacturer, Huawei, and threatened to impose tariffs on Mexico.
Multi-Generational Tax Planning
How hard is it to do multi-generational tax planning with the 2020 national election run-up showing such diverse views of potential tax policy? We try to keep two rules of thumb in mind when planning. Don’t be “too smart by half” which we believe means don’t make what can be simple too complicated and, the best tax advice ever given, “don’t be greedy”.
Constructing a portfolio of 30-35 companies diversified across economic sectors and led by managements capable of managing in any economic environment can generate superb long term investment success. Diversification is one of the free lunches in the investment business.
So what is the good news about retirement plans and savings? On the private side, which by the way makes up two thirds of US GDP, there is good news. Seventy-five percent of retirees tell the Federal Reserve’s Survey of Consumer Finances that they have “at least enough to maintain their standard of living”. Eight of ten and six of ten of retiree households and of working age households, respectively, tell Gallup they have enough money to “live comfortably”. 
What should be the focus of an investment newsletter? We agree that imparting insights about what the next one to three-year period may bring is both interesting and useful. What if what an investor should be doing over the next 10 to 20 years is actually “set in stone”? Well, then, reinforce the 10 to 20-year strategy without being pedantic (page 1, we hope) and provide the one to three-year insights and tactical advice elsewhere in the newsletter.