-
8/19/2019 Best Kept Secret Off Wall Street
1/3
The Best Kept Secret off Wall StreetFebruary 2011
I am glad to be back at my dinner table after finishing the
addition/remodel. I am less certain
my kids like to be reminded of a few of the same old table talk
topics like our family rule that
“We do what we need to do before we do what we want to do.”
Yes, Jack, that still means a
little broccoli before chocolate cake. The same principle holds
true at our offices where
occasionally we inspire the same eye-rolling when we surprise
most folks that are referred to us
by discussing the importance of defense disproportionately to
the time we spend outlining our
offense. We think now is a particularly good time to review how
we like to play defense and
answer a few questions raised recently which have created a
historic opportunity shown just
below.
I want my own investment portfolio, no different than my home,
to have a secure foundation
with insurance to protect it against storms before I worry about
any add-ons or growth of any
kind. Outside of retirement accounts, each partner of ours who
trusts us to do for them what
we do in our own personal accounts – a solemn oath we
take at our family owned and operated
firm - knows that handpicked individual tax-free municipal bonds
(Munis) are what provide that
peace of mind for all of us. By the time you are done reading
why we believe so strongly in oneparticular type of Muni, you will
wonder as we do why it remains the best kept secret off Wall
Street. Perhaps it is because Texas, where that secret lives,
could not be farther away from
Wall Street by proximity or principles.
Every investor you know has a greater fear of loss after this
past decade. And looking forward,
there is not one of them that believe federal income taxes are
headed lower. So then why is a
secure Muni owned by less than 2% of households in the United
States? Never in my career
have I found a more astounding contradiction.
The answer used to be that Munis just made sense for the “rich.”
That is no longer the case.
Munis have always traded with a lower yield than comparably safe
U.S. Treasury Bonds because
taxes are owed on a Treasury’s interest, unlike a Muni. However,
as a result of the global credit
crisis over the past few years, there has been worldwide demand
for Treasury Bonds in a flight
to safety pushing those yields down so low that math on this
Muni/Treasury ratio has been
turned upside down in a historical anomaly.
-
8/19/2019 Best Kept Secret Off Wall Street
2/3
This chart shows the yield on a Muni as a percentage of a
Treasury, both maturing in ten years.
Historically, that ratio has been around 83%. In other words if
the Muni yielded 3% tax-free, a
Treasury would be expected to yield close to 3.7% which was
fully taxable. Now, as you can see
above, AAA-rated tax-free Muni yields are higher than
taxable Treasury yields.
Finding secure tax-free yields higher than taxable yields is the
silver lining from Wall Street’s
storms for an investor in any tax bracket and is
hiding in plain sight right now from more than
98% of U.S. households who do not own any. Yet they all agree
that their taxes are about to go
up without them!
What you have just read is only an excerpt of the K&C letter
dated
above. If you would like to be added to our private group of
partners
and friends who will receive future letters please call or
e-mail our
office.
AAA-Municipal / Treasury Yield Ratio (10yr)
70.0%
80.0%
90.0%
100.0%
110.0%
120.0%
130.0%
A p r - 0 9
M
a y - 0 9
J u n - 0 9
J u l - 0 9
A
u g - 0 9
S
e p - 0 9
O
c t - 0 9
N
o v - 0 9
D
e c - 0 9
J a n - 1 0
F
e b - 1 0
M
a r - 1 0
A p r - 1 0
M
a y - 1 0
J u n - 1 0
J u l - 1 0
A
u g - 1 0
S
e p - 1 0
O
c t - 1 0
N
o v - 1 0
D
e c - 1 0
Muni / TSY Average Since 1987
-
8/19/2019 Best Kept Secret Off Wall Street
3/3
713.784.3878
8401 Westview Drive, Houston, TX 77055
[email protected] [email protected]
This letter contains the current opinions of K&C Capital
Partners LLC (“K&C”) at the time it was written, but they are
subject to change at any
time without notification. The letter is shared for educational
purposes only and should in no way be considered investment advice
of any kind toanyone. K&C cannot and will not assess the
suitability of any particular investment to any personal situation
and the reader of this letter bears
complete responsibility for their own investment decisions and
should seek personal advice from a qualified investment advisor and
tax
professional. The information is not necessarily complete
and its accuracy is not guaranteed by K&C although they are
obtained from sourcesK&C believes is reliable. Therefore all
information contained is provided “AS IS” without any warranty of
any kind. Trading in securities can
result in immediate and substantial losses of the capital
invested. Past performance of the Model Portfolio may not be
indicative of future results
and the performance of a specific individual client account may
vary substantially from the results described, in part because
client accounts may
be allocated among several accounts with different
inception dates. K&C may trade securities that are described,
both before and after the
articles are published and/or may have a position in such
securities that may change at any time. K&C is not registered
as a broker-dealer with the
U.S. Securities and Exchange Commission or with any state
securities regulatory authority or with any foreign country.
K&C is registered as aninvestment adviser with the SEC and only
transacts business in states where it is properly registered, or is
excluded or exempted from registration
requirements. Registration as an investment adviser does not
constitute an endorsement of the firm by the SEC nor does it
indicate that the
adviser has attained a particular level of skill or abili ty.
Nothing contained herein should be interpreted as a recommendation
to any investor or
category of investors to purchase, sell or hold any security.
The information contained in this letter is private, confidential
and protected from
disclosure. No part of this article may be reproduced in any
form, or referred to in any other publication, without express
written permission from
K&C. No current or prospective investor should assume that
the future performance of any specific investment or strategy will
be profitable orequal to past performance levels. All strategies
are based upon assumptions that may never come to pass. Historical
performance results for
investment indexes and/or categories generally do not reflect
the deduction of transaction and/or custodial charges or the
deduction of an
investment-management fee, the incurrence of which would have
the effect of decreasing historical performance results, whereas
client accountsare presented net of fees and include the
reinvestment of dividends and capital gains. Economic factors,
market conditions, contributions and
withdrawals, and investment strategies will affect the
performance of any portfolio, and there are no assurances that it
will match or outperform
any particular benchmark. Past performance is not a guarantee of
future investment success.
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]
