Like a Bridge, Our Plans for You

We have great conversations in our office. This morning, we talked about the losers. No, not office gossip about people. Loser investments and why we love them!

Last week, for many of our clients, we harvested losses and gains for tax purposes, to potentially save our clients money. Without a few losers in our portfolio, we're stuck with a tax bill. But with just a few stocks that don't do well, we can sell them at a loss and offset the gains we report to the IRS. This "tax harvest" can save our clients thousands of dollars!

Still, our losers often cause our client conversations to sour. "Why do you own this 'loser'?" is a question we sometimes hear from a client. And our answer has at least three parts. First, the logical reasons we bought it are X, Y and Z: usually something to do with price, dividends, and our team's research. Sound familiar?

The deeper reasons might be best explained with the enduring image of a bridge.

Imagine I hire you to help me build a bridge; you are the expert. You come to me with your bridge-building plans. Your plans include emergencies like surviving a 10-year-flood, or a 100-year-flood, or a very heavy truck--or a dozen (or more) heavy trucks on the bridge at the same time, and all the other things that you and I both could imagine might happen to my bridge. You've accounted for them in your plans.

Your plans are going to include some struts (and other parts) that I might think are unnecessary. And, in the interest of saving myself some money, I ask you to remove them. You're likely to call me crazy because you are the expert and I am the bridge-buyer. It's all or nothing.

That loser-stock is like a strut we don't think we need (and might, over the short haul, have done better without).

At any given point in time, mechanical things are going to fail. We have to build things to withstand the predictably unpredictable failures. Maybe we don't see the value this year (when so many other investments did well) but we design our portfolios this way on purpose. This year, we actually get some benefit (as discussed above) from a loser-stock.

In fact, any individual holding could fail or succeed, as long as the plan persists. The plan is the key--not the portfolio.

We build financial plans like an engineer builds a bridge. The bridge gets you from here to where you want to be. The portfolio is a support (or many supports) underneath the plan. The plan determines the portfolio, and never the other way around.

As one of our favorite investment managers is fond of saying, "I've no regrets. I might have made a decision with a poor outcome, but I've no regrets at all."

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