Every Wednesday, Legg Mason Wood Walker financial adviser Jonathan Murray answers e-mail on your investments. To be included next time, send your questions.
> From: Goldstein, Jon W.
Sent: Tuesday, December 18, 2001
To: ‘Murray, Jonathan P.’
Subject: $
Hello, Jonathan,
Christmas is upon us and consumers aren’t the only ones shopping. Two huge deals this week look like the makings of a holiday buying spree,
USA/Vivendi and Amgen/Immunex.
While the economy has fallen, the rest of us
have tightened our belts and scaled back on spending; retailers are
definitely feeling the pinch. So, why are companies different? They seem to
still be shopping like it’s 1999.
Thanks
From: Murray, Jonathan P.
Sent: Tuesday, December 18, 2001
To: Goldstein, Jon W.
Subject: RE: $
Companies, like individuals, are looking for better bargains today. They are
being more cautious about their purchases and aquisitions.
With the stock
prices of many companies down, they have become more attractive as takeover
candidates. So, Amgen sees value in Immunex, and Vivendi thinks they’re
getting a pretty good deal in USA Networks.
Yes, we see these acquisitions
taking place, but companies aren’t willing to pay outlandish premiums the
way they did 2 years ago. Price matters more today.
> From: Goldstein, Jon W.
Sent: Tuesday, December 18, 2001
To: ‘Murray, Jonathan P.’
Subject: $
I read somewhere that rather than hold onto a poorly performing stock in
the hopes it will recover, to consider selling it at a loss to balance out
any capital gains.
Can you only declare a loss if you cash out the fund? If
you do cash out the fund, do you pay any additional taxes on it? I plan to
cash out the fund, put the cash in a Roth IRA and use anything left over to
pay 2001 taxes come April.
–Confused
From: Murray, Jonathan P.
Sent: Tuesday, December 18, 2001
To: Goldstein, Jon W.
Subject: RE: $
One of the unfortunate things that happens when you own stocks is that they sometimes go down. In fact, you should probably be prepared for your stock or fund to drop in value at some point during your holding period. (I can’t tell you how many times I hear people say that the stock they bought falls in price the second they buy it!)
Now, if that stock/fund continues to
underperform for some reason, and if it is held in a taxable account (versus an IRA) you may consider selling it for a capital loss, to offset any capital
gains in your portfolio.
In the case of a fund, you can call the fund
company and inquire as to the likelihood of a gains distribution. If you do sell for a loss, you may buy the shares back after 31 days have passed, avoiding the Wash Sale Rule.
Make sure you consult with your tax adviser,
and keep in mind that you should be investing for the long term. If you own
a solid fund or company, don’t give up on them just because of some
short-term underperformance.
> From: Goldstein, Jon W.
Sent: Tuesday, December 18, 2001
To: ‘Murray, Jonathan P.’
Subject: $
Finally, what is on your financial radar screen for the year ahead? Do you
have any predictions? Is one market sector looking better than another?
Who and what do you think market mavens will be chatting about this time
next year?
From: Murray, Jonathan P.
Sent: Tuesday, December 18, 2001
To: Goldstein, Jon W.
Subject: RE: $
While it’s impossible to predict the near-term direction of the markets, I
certainly hope we’ll have a better year next year. There are reasons that
we should:
1. We’re due. Each bear market throughout history has been followed by a
bull market. This bear has been with us for quite some time, and is getting
a little long in the tooth.
2. The economy is showing signs of turning around. Manufacturing activity
has picked up a bit, rate cuts are beginning to take effect, housing remains
decent, consumer confidence has improved and inventories are being worked
off … all good signs.
3. With interest rates so low (currently the Fed Funds rate is 1.75 percent) where
can you go as an alternative to stocks? You don’t get paid enough to sit on
the sidelines, so many people are moving money back into the market.
4. Valuations, even though still relatively high, are down from their lofty
1999 levels. The speculative froth that we witnessed has been worked off,
and investors seem to have more reasonable expectations.
As far as specific sectors, I think that the better values exist today in
small cap and value stocks. But make sure that you have assets
allocated in all sectors, maintaining a diversified approach.
> From: Goldstein, Jon W.
Sent: Tuesday, December 18, 2001
To: ‘Murray, Jonathan P.’
Subject: $
Thanks, Jonathan.
Have a great holiday, and we’ll talk again in two weeks.
