There’s an old adage that goes, “Sell in May, go away.” The saying applies predominantly to “traders” – folks who either professionally or for “fun” like to “play” in the market – who believe there is an historical pattern that indicates that the “stock market” tends to decline or go sideways in the summer months. And while we are NOT traders on behalf of our clients, but instead are INVESTORS, we have of late been doing a bit of “spring cleaning” that has us selling first and buying very carefully.

For the past several weeks, we have painstakingly been reviewing every single holding we manage: actively managed mutual funds (we hold very few); exchanged traded funds (we hold many); and individual stocks (we hold quite a few) to see what to keep and what to pitch. With a market still hovering near all-time highs but unable to make any serious moves in either direction, it seemed an ideal time to do this.

We have been using several criteria in our evaluations:

  • Environmental, Social and Governance (ESG) ratings: We use these ratings NOT JUST to help you align your values with your investments, but also to ferret out risks that could reduce or enhance the valuation of your investments over time. In other words, values and valuation go hand in hand from our perspective. ESG criteria are central components of the fundamental analysis we do of any mutual fund, exchange traded fund, or individual stock.
  • Valuation criteria: For example, return on invested capital, price relative to forward earnings projections, price relative to free cash flow, price relative to earnings growth, and debt trends (how much debt has the company issued as of late?). See last month’s blog post as a reminder of our concerns about debt in the overall system.
  • Specific circumstances: In what type of “tax box” is the particular mutual fund, ETF, or stock held and what are the tax implications of selling something we otherwise think needs to go? Obviously, some positions in a client’s after-tax account have been held for a long time and perhaps have done very well. Selling it would incur a large “tax event” (translated – would cost our client a boat-load of money in taxes) – so naturally we are not just going to go in there and blast away. We would seek to mitigate the tax effect of such sales by trying to pair it with selling another position that might be sitting at a loss OR simply selling it out a little at a time. ALL of this would be done in consultation with the client in question, of course. We know how much you hate nasty surprises come tax time!

 

This most recent exercise has reminded me that, while we often speak of the “stock market,” there really is no such thing. There is instead a market of stocks. And further, these stocks are investments in real, individual companies that are better or worse at using your precious capital to make something or provide something of value that our fellow human beings want and need and thus will pay to purchase. And ideally these companies are even making or providing things that contribute in some small or large way to human and planetary flourishing. Companies, or funds that hold such companies, are the “keepers,” and the rest will eventually be swept out.

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On a somewhat unrelated note (but perhaps not!), I want to share with you a short video about the Women Donors Network, of which I am a board member. The video features me, as well as several others involved in this organization, and, I think, gives a good overview of my philosophy of philanthropy and how it plays out in my own personal life.

Click here, or on the photo below: