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Tag Archives: investments

Spatchcocked

21st November, 2017 · Susanna Gibbons, CFA · Leave a comment
Susanna Gibbons, CFA

Always on the lookout for a better way to prepare a Thanksgiving dinner, I recently came across what I believe to be the latest and greatest method: Spatchcocking. By removing the backbone of the Turkey, you are able to lay the Turkey flat on a cookie sheet, and roast it in a little over an hour. According to my research, the bird will cook thoroughly & evenly, and the shortened roasting time (not to mention height in the oven) makes preparation incredibly efficient.

Interestingly, it appears that spatchcocking is also the rage on Capitol Hill. After a year with few achievements to show for it, there are many members of Congress who appear to have very little left in the way of a backbone. As a result, the current tax plan is being rushed through the legislative process at an incredible pace. Whether this level of efficiency is as desirable in re-writing the tax code as in cooking turkeys seems highly questionable.

As investment professionals, how can we make sense of this process, and incorporate the proposed changes into our analysis? I don’t think we can. There seems to be overwhelming agreement that the tax code is too complex, and needs to be simplified, and that taxes (especially corporate taxes) are too high, and need to come down. The headline grabbing number of reducing the statutory tax rate from 35% to 20% suggests that a lot more money will be dropping down to the bottom line, and this belief has fueled the continued rally in equities.

However, if you look at what corporations actually pay in cash taxes, the Companies in the S&P 500 are, in the aggregate, paying an effective tax rate of – you guessed it, 20%. If the deductions and tax breaks that currently riddle our system are eliminated at the same time, there shouldn’t be any drop in taxes paid. Instead, you will see a shift in the winners and losers. Some companies that currently pay next-to-nothing will have to start writing checks, and others will likely get some relief.

It is virtually impossible to anticipate all of the implications of such a significant structural shift in the tax system. The Commonwealth of Puerto Rico provides a cautionary tale as to the dangers of such dramatic shifts. In the 1970s, Congress passed Section 936 of the tax code to encourage manufacturing companies to locate on the island, which spurred growth. When the tax break was eliminated in the 1990s, it kicked of a long cycle of deterioration from which Puerto Rico has yet to extricate itself.

Now, I am not arguing that we ought to use the tax code to achieve such narrow policy objectives. In fact, I think it is a terrible idea. I mean – Section 936? That’s a lot of sections of code.  I do think that simplification is good idea. But unwinding this mess will be hard. Our entire economy has evolved alongside this current tax system over years, and companies have structured themselves, made investment decisions, and planned for a future based on that system. A complete and sudden shift will be economically jarring. There is enormous complexity to simplification, and the risk of unintended consequences will be high.  Before running off spatchcocked to push through this turkey of a bill, I really hope Congress slows down a little. Instead of ending up with a tasty roast, the long-term impact of hasty tax reform could be pretty foul.

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Posted in Hot Topic Commentary, Local Charterholders | Tags: Capitol Hill, Congress, investments, S&P 500, Section 936, Spatchcocked, Susanna Gibbons, tax changes, Tax code, tax reform, Thanksgiving |

It’s Time to Talk

2nd August, 2017 · Fred Martin, CFA · Leave a comment
Fred Martin, CFA

Two things have defined my adulthood – marriage and managing investments. My first marriage of 33 years ended in divorce and I count it as the greatest failure of my life. Today, I believe my industry – financial services – teeters on the same edge of failure.

Everywhere I look I see signs that my industry’s relationship with our clients is headed for a breakup every bit as profound as a divorce. The vast majority of investment management relationships are not productive. Both advisors and clients can sense the dysfunction but just do not know how to make things better. Just as a failing marriage is a shared responsibility of spouses, the alarming state of the financial services industry is the responsibility of both advisors and clients.

I believe it’s time to talk.

It’s time to have a candid conversation about active financial leadership and what standards we should have in place…as advisors…as clients…as leaders of businesses and leaders of homes. It’s time to identify and talk about the core truths of investing and financial relationships. It’s time to make the financial services industry a source of trust and stability and a place where client problems are solved. It’s time to identify the fundamental truths and unlearn the bad habits that harm investing and lead to unproductive, frustrating relationships.

It’s time to learn what active financial leadership really means.

On October 5, 2017, we are joining together outside of Minneapolis, at the Ames Center, for the first ever Objective Measure Conference. This conference is the start of this movement that we so desperately need to have. It can mark the beginning of healing between advisor and client. It can signify the beginning of a new season for the industry, unlearning those bad habits and setting new and better expectations. It can be the beginning of a bright and hopeful future.

If you’re skeptical that one conference will be able to achieve these goals, you’re not alone. I don’t believe it either. What I do believe, though, is that one conference can be the seed that triggers a catalytic reaction far beyond the Ames Center on a day in October. And we will follow this conference with at least 10 more annual conferences.

It’s the start of a conversation. It’s the start of a movement.

The future is unknown. Yet there is much we can do today to prepare for the questions of tomorrow. So let’s start now with rebuilding trust in the financial services industry.

Please join me on October 5th. All CFA members are invited to attend at a reduced rate, simply enter “cfa17” into the username and password.

To find out more about Fred Martin or The Objective Measure Conference, click here.

Read the Minneapolis Star Tribune’s Conversation with Fred Martin

 

Fred Martin, Founder, Lead Portfolio Manager, Disciplined Growth Investors

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Posted in Hot Topic Commentary, Local Charterholders | Tags: CFA, Disciplined Growth Investors, financial leadership, Fred Martin, investments, Objective Measure, Objective Measure Conference |

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