Warren, Charlie, and Us: The Rights of Owners

The hallmark of our investment strategy is ownership of companies whose outlooks are favorable, in our view. A share of stock is a piece of the action: ownership of a fraction of an enterprise.

We own businesses in very old lines of work, like manufacturers of farm equipment. And companies in new lines of work, like cloud services. We are in airlines and autos, software and chipmakers, miners and medicine.

Owners have rights. We elect directors. We receive our share of dividends paid. We get annual reports, and have the right to attend shareholder meetings. Most of us pay little attention to the trappings of corporate governance, with one exception.

Warren Buffett holds one of the largest annual shareholder meetings on the planet, with tens of thousands of people descending on Omaha for the festivities.

On May 3 and May 4, information about Berkshire subsidiaries and products they offer is available at the meeting venue, the CHI Health Center. You can buy everything from GEICO insurance to treats from Dairy Queen and learn about companies as diverse as Burlington Northern and Clayton Homes. Did we mention? Shareholders also get discounts at Nebraska Furniture Mart and Borsheims.

On May 4, Buffett and other key people will entertain questions from shareholders for hours, before conducting the business of the shareholder meeting. Some say that Buffett is among the most successful investors in the history of the world; at 93 years of age, there are only so many more chances to witness him at this event. (Charlie Munger, vice chairman, passed away on November 28, 2023, at age 99.)

Clients, if you have an interest in being part of this, you’ll need shareholder credentials. A postcard to order those should be included in the Annual Report, or you can let us know if we can help you obtain them. Stay tuned for more details in the weeks ahead.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time. Companies mentioned are for informational purposes only, and this communication should not be considered a solicitation for the purchase or sale of their securities.

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The Comfort Zone: Overrated or Underrated?

There’s nothing wrong with wanting more… unless it clouds the beauty in what we already have. We can be grateful for what we’ve built and still be ambitious to make ourselves and the world around us better.

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The “Company” We Keep

A group of magnifying glass — **by Billy Garver, Data Analyst**

How many strangers do you know? This isn’t some Zen riddle, but this question is trickier than the gut answer of “zero.” At one point, wasn’t your best friend a stranger?

As we meet new people, we may decide to remove the “stranger” label in favor of “acquaintance.” We learn the basics of the person at that point—name, occupation, and so on. We may develop a closer relationship, learning more intimate details. How’d they get where they are? And how are things going now?

We take a similar approach when building portfolios. When an investment opportunity arises, we may or may not have any prior experience with the company. We start by getting to know the basics—what they do, why they do it, how long have they done it, and so on.

From there, we may opt to remove that “stranger” label and start going deeper. When getting to know a company, understanding the company’s management, cash flows, and debt loads gives us a clearer picture. Only then does a company have a chance to enter your portfolios—the real inner circle!

Our relationship with the company doesn’t end there. Quarterly, we review each holding—making sure their business hasn’t deviated too far from what we expected. We check whether our understanding of the fundamentals is playing out.

Why does all this matter? Well, especially in the bumpiest of economic times, you don’t want any strangers in your portfolio. A swift change at the macro level can completely upend a business model. One thing that helps us weather the storms is knowing how our crew might navigate their way through them.

Being friends with the companies you own—being familiar with the details of their operations—helps prevent some of those big surprises in the long run. (Of course, it never eliminates the possibility of a surprise; friends can change and friends can make mistakes).

But, in the long run, it may pay to be careful of the “company” you keep.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss.

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Catsup, Ketchup, or Catch-Up?

graphic shows a piggy bank looking on curiously at a bottle of ketchup

One of these is not about tomato-based condiments.

In the world of IRAs—Individual Retirement Accounts—we consider the beginning of January through tax filing day “catch-up season.” Whether Roth or traditional, if we are eligible to make contributions, then we can catch up on our 2023 contributions even though 2023 is over.

Those just learning about the power of Roth IRAs can use this season to make two years’ worth of contributions at once. The limit on contributions is $6,500 for 2023 plus $7,000 for 2024.

Another note to know: for people who turn 50 by year-end, there is an extra $1,000 per year that can go in—a “catch-up” contribution.

Imagine if you had $13,500 in a regular account (in which you pay tax on earnings) and were eligible to contribute to a Roth IRA for 2023 and 2024. If you won’t be spending that money in the next few years, the question comes down to whether you would like to never pay tax on earnings on that money, ever again, for the rest of your life.

If that value were to double over the years and double again, as sometimes happens with long-term investments, there might be $54,000 available later with zero tax. And if you didn’t spend it, your beneficiaries would receive it, free of income tax.

No guarantees, of course: the markets go up and down.

The way Roth IRAs work, after five years your contributions can be withdrawn without tax. At the later of five years or age 59½, the earnings may be withdrawn without tax. There is a maximum earnings limit on Roth contribution eligibility; we’d be happy to visit with you about your eligibility. Simply email us or call if you have an interest in learning more.

There is a whole world of other lifetime tax reduction strategies related to Roth conversions; we’ll talk about those another time.

For now, happy catch-up season, one and all!

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss.

This information is not intended to be a substitute for specific individualized tax or legal advice. Neither LPL Financial, nor its registered representatives, offer tax or legal advice. We recommend you discuss your specific situation with a qualified tax or legal advisor.

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Spare Time and Extra Money

Person looking out at the sunset. — **by Mark Leibman, President**

When we were a young family, two things seemed to belong in the the same mythical category as unicorns and leprechauns: spare time and extra money. These ideas sounded magical to us!

We usually had enough time and money to get by—usually—but life was often harried and hurried, and children have needs that sometimes require money to obtain. Then our children grew. The joys and pains of that chapter subsided over time, replaced by new circumstances and challenges.

There’s been an interesting theme to a few recent conversations with clients who are about my age—call it “sixty-something.” Reviewing their overall position, one person remarked they never planned on having so much money.

Another was trying to get perspective on the sense of buying a new vehicle to replace one with 100,000 miles. We came to the conclusion they had $600,000 more than they needed in their long-term portfolio.

And then there are folks scratching their itch to be more generous to causes and people than they ever imagined, with wealth they had never dreamed of.

It seems we caught the leprechaun. We saw the unicorn. There is such a thing as extra money. And the way compounding works, an extra half-million now might turn into an extra million, then two, if we live long enough. No guarantees, but in our opinion we’re liking the general trajectory.

This phenomenon brings deeper meaning to our refrain “invest wisely, spend well.” If you find yourself ahead of schedule on your goals, we’re more likely to put it this way: “Don’t pass up too many chances to have fun.”
Life is short, we’ve discovered.

Interestingly, the people we know with extra money now seem to have one thing in common: they invested 1) effectively 2) over a long period. They did not fall for the smoother ride to a poorer future; they knew that the ups and downs are an inherent part of striving for real investment market returns. In bad markets, they were not scrambling to sell out. They stayed the course—or added more!

No guarantees about the future, of course. Clients, if you would like to talk about whether or not you might be on track, please email us or call.

Oh, one more thing about spare time: it has remained elusive. Maybe it’s still out there, somewhere, with the leprechauns and unicorns.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss.

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Solid Ideas from an Absurd Sitcom

For a show where “nothing happens,” there’s still something captivating about Seinfeld! Maybe it’s how the characters show up for each other and keep at it, even when life is absurd. Is our own support system pointing us in the right direction?

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Three People in One

by Caitie Leibman, Director of Communications

We never make decisions alone.

No—we’re not talking about all the different people we might consult when making a decision. We’re not talking about the family members, loved ones, or trusted counselors in our lives that help us navigate the big stuff.

Instead, we’re talking about what happens in our own minds. We never make decisions alone because there are always at least three different versions of us in the mix! This idea has been explored by a number of researchers who study the psychology of happiness, and writer Laura Vanderkam has summarized it really nicely in her work.

Basically, our decisions are always happening by committee:

There is the “you” who looks forward to things, who plans or even worries about the future: that’s the anticipating self.
There is the “you” who is right here today, living life: that’s the experiencing self.
There is the “you” who gets to look back, reminisce, and savor memories: that’s the remembering self.

The challenge is that only one of these people has to live out the costs of each choice: the experiencing self. Consider an everyday example… Should I go for a walk this morning?

“Nah, too cold,” says the experiencing self. “I’m tired.”

“But think of how energized we’ll feel after we walk,” says the anticipating self.

“Yeah, that’s how we felt last time we didn’t want to take a walk but then we did,” says the remembering self.

“Yeah, but you bozos don’t have to find clean socks, or bundle up, or drag your behind out there, or clean the floor after we track our shoes inside. I do!”

And that darn experiencing self isn’t wrong. But it doesn’t mean she should get the final say every single time. Do you hear the good points the other two have to offer? They’re not wrong either.

The experiencing self—the one that lives here, does a lot of the lifting, and has to deal with discomfort—has a disproportionate impact on two other really important people: your anticipating self and your remembering self. It’s a huge opportunity.

That anticipating self is teeing up some good stuff for you. She’s planning for retirement, investing wisely so that you might spend well. Making the most of those chapters of life is something you can do to honor her effort.

The remembering self might be savoring your choices for decades. What kind of experiences do you want to give her to work with? How do you want her to look back on you?

It’s not about getting every little thing in life just right. Sometimes, a walk is just a walk. A sandwich is just a sandwich. A paycheck is just a paycheck.

But from time to time, it’s good to zoom out and see how these three people are getting along. When our plans, experiences, and memories are working together, life can feel very rich.

What are you savoring from the past, enjoying in the present, or looking forward to in the future?

No matter where you find yourself, we’re wishing (all three of) you some peace, comfort, and joy today.

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2024 Outlook: Opportunities and Threats?

The start of the New Year is a natural time to take stock—and appraise the opportunities and threats we investors may face.

Many Wall Street firms, market pundits, and fellow investment advisors like to weigh in on what lies ahead. Some are quite detailed about which sectors of the market may shine or fade, whether interest rates are going to go up or down, and what the economy or the markets or the Federal Reserve are likely to do.

Here at 228 Main, we have a slightly different approach. Because our time horizon extends beyond the months ahead, we are thinking about how the next seven, fourteen, or twenty-one years are going to play out.

Just a few of our Research Team’s theories about companies, industries, and society illustrate this expansive timeline:

The leading player in a growing, fragmented industry is likely to continue consolidating the industry, gaining market share, and exploiting its economies of scale in the decades ahead.
The cost of connectivity and computing power and data storage will continue to fall—as they have for decades past—for many years to come. More chips in more places connecting in more ways than ever before are going to have an impact on companies that facilitate or profit from these trends.
In the future, we humans will still need places to live, ways to move around, and food to eat. Enterprises that meet those human needs will continue to see demand.

You may note that none of these depend on any of the details that most “2024 Outlook” reports focus on. We’re not all tied up in knots about the possibility of recession because we already know that the next one is coming (and so is the recovery which will inevitably follow.) And what will the Federal Reserve do? It literally does not matter, over our time horizon and yours.

The opportunity in 2024 is the same as always: to employ a longer time horizon than others, to be more patient with fluctuating markets, and to focus on the fundamentals of specific opportunities—not the frenzy about things outside our control.

And the threat in 2024 is also the same: the risk of getting caught up in short-sighted ways of looking at things, of following the crowd, of letting persistent pessimism into our brains.

In our opinion, it’s more fun our way!

All of us here at 228 Main want you to know that in 2024 we are going to continue with the values and principles that brought us to this moment, always seeking to refine our strategy and tactics as the future unfolds. That’s our “2024 Outlook.”

Please email or call, if there are things on your radar for 2024 that we should know about.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance is not a guarantee of future results. This material contains forward looking statements and projections; there is no guarantee that any forecasts made will come to pass.

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Beginnings and Endings

As the end of the year draws near, it makes sense to look back on where we have been—and to look forward at the path ahead.

Our lives have threads; the life of our shared enterprise here at 228 Main does, too. One thread is talking with you, meeting you where you are, striving to connect your money to your life. Other threads pertain to finding worthy opportunities in which to invest, managing your portfolios to take advantage of that research, and communicating with you about what we are doing and why.

It’s been an interesting year! The markets have been challenging. Disruptions continue to affect some aspects of the economy.

Change brings opportunity, of course, and we are always thinking about opportunities. Our underlying theory is that we persist, some will innovate, and we end up sooner or later with record levels of GDP, income, and wealth. No guarantees, of course.

In other words, a lot happened in 2023, but the big story has not changed. We are looking forward with anticipation to 2024.

My sense is that we’re more capable than ever of taking care of business for you—with more time spent by more people searching for opportunities, managing portfolios, attending to the details of service, and communicating with you in more ways than ever.

Clients, what are your plans and planning for the New Year? Any parts you’d like to talk about with us? Email or call, any time.

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A Toast to William Roth

Approaching this season of holiday cheer, we are thinking about William Roth—and may even raise a glass in his honor.

Senator Roth was instrumental in creating something new. It appeared in the Tax Reform Act of 1997. And it has some wonderful features. It’s…

A retirement account, but after five years you may withdraw your deposits for any reason without tax or penalty.
A retirement account, but it may be used to educate your children or grandchildren without penalty or tax.
A retirement account, but there are no income taxes due on withdrawals during retirement.

The Roth IRA, as we know it, is a useful addition to the plans and planning of many people. Contributions may be made by those with earned income (but not too much earned income: there is an upper limit.) Conversions from traditional IRAs may be made by anyone willing to pay tax on the converted amount.

You may be eligible to put up to $6,500 into a Roth IRA for 2023, anytime until tax filing time in 2024. And the limit next year goes to $7,000. And those of us lucky enough to be 50 years old or older could contribute an extra $1,000 beyond that as a catch-up.

If you have traditional retirement accounts, you may be eligible to convert part to a Roth IRA. There are no income limits on conversions; if you believe tax rates may be higher for you in the future, it might make sense to do a conversion. These happen on a calendar year deadline, however, so 2023 conversions must actually be done in 2023.

Although a Roth IRA may not be right for everyone, the concept was and is right for me. I’m getting tax-free capital gains, tax-free dividends on blue chip stocks, and tax-free interest because I have investments inside a Roth IRA.

And I can take funds out and spend them (or give them away), any day, with zero tax.

If this might be right for you, please email us or call.

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News and Views from 228 Main

Warren, Charlie, and Us: The Rights of Owners