3 things I’m thinking about this week…

1 –  Change is the Only Constant.  Those 73 and over receive an unwanted new “to-do” from Uncle Sam – taking RMDs (required minimum distributions) from IRAs and retirement plans. These distributions are taxable income and there are penalties for not taking them.

Determining when and how much to distribute used to be straightforward…but no longer. This Barron’s article is a refresher on where things stand after 5 years in a row of rule changes. One bright spot is the Qualified Charitable Distribution (QCD) – a direct charitable gift from your IRA that counts toward your RMD. 

2. - Sticky Inflation.  I’ve just bought a new cocktail cherry (I love cherries!) where the surrounding syrup has an adhesion factor that is off the charts. This stuff could have held Space Shuttle tiles on through re-entry.

Inflation has been about as sticky as that the past few years. “Headline” numbers don’t do it justice as they report trailing twelve-month inflation. April CPI was reported better than expected at 3.4%. But it’s up roughly 20% since the end of 2020.

Investing based on forecasts is foolish, but preparation isn’t. My take is that we’re more likely to experience an inflationary world in the years ahead. Investing in asset classes like stocks can help grow purchasing power over time. Are your assets invested with this in mind?

3. - The Power of Optionality.  Many of the best businesses behave with a delayed gratification mindset. I get excited when I find these 3 beliefs in a company:

  • Not maximizing pricing power. Think of In-N-Out Burger, Costco memberships and Microsoft 365. All could charge more than they do. It makes them really hard to compete against.
  • Low debt. Not maxing out debt provides options to get ahead in turbulent times – acquisitions, buying back stock, etc. And reduces business risk, too…as Buffett said, “to finish first you must first finish.”
  • Capacity to Suffer. Tom Russo of Gardner, Russo and Quinn popularized this phrase. A willingness to invest in future value creating projects that depress near-term results. Example: Nestle/Nespresso pod coffee. Took 11 years to break even.

…and one more thing

Repurposing real estate reminds me of defunct department stores that get converted into “Spirit Halloween.” A London company has found a new use for a big chunk of “meanwhile space” - a former Ikea – by converting it to a nightclub. Still looks enough like the old furniture seller that some attendees reminisce…and miss the Swedish meatballs!

-Dave