Opinion: Tax season close puts focus back on stocks

Tax season, that bane of every business and individual, when it’s time for the piper to be paid, seldom leaves any of us in a good mood.

Of course, there are those who file early because they want their refund for a trip or down payment on a new car or furniture or whatever, and who tend to treat the refund as “found money.” It’s just one interesting example in the world of behavioral finance. For those for whom it is “found money,” their mindset frequently treats it as money given to them, when in reality it is money they have loaned at no interest to the government. Although those of us who file late in the tax season because we owe taxes crab about having to write that last estimated payment check and our taxes-owed check, we are in effect doing the opposite – using our own money up to the last minute.

One of the most common complaints investors express this time of year is the number of corrected 1099s that result in their having to amend tax returns. A corrected 1099 is almost the rule these days; multiple 1099 corrections are not uncommon, as companies re-classify their dividends in accordance with our complex, convoluted tax laws.

Don’t blame your broker (or worse, us, the money manager). The regulations that require that your broker provide you with 1099 figures by January 31 do not require a deadline for the companies supplying the information to the brokers. Makes no sense to me. Although it does not endear us to the tax preparers, we advise our clients to wait until late in the tax season to turn in their information to their preparer. Is the situation going to get better in coming years? Don’t count on it.

Positive first quarter

The first quarter of 2006 was good for equity investors, in spite of the Fed continuing its interest rate increasing mania and the Fed chairman not providing the kind of transparency investors had hoped for. (Was it transparency they wanted or an open declaration that the March hike in the Fed funds rate would be the last?)

Here’s what the first quarter produced for the most followed indices:

Dow Jones industrial average: +3.7 percent

NASDAQ: +6.1 percent

Standard & Poor’s 500: +3.7 percent

So, how did you do?

If your portfolio performed better than the averages, it was either because you are an exceptional stock picker or because you included foreign issues among your holdings. Using Exchange Traded Funds to provide foreign representation boosted well-diversified portfolios significantly. Here are a few examples:

Emerging Markets +10.38 percent

Brazil +17.91 percent

South Africa +12.82 percent

But out-performance wasn’t across the board for all foreign ETFs. Japan returned only 4.04 percent; Mexico 6.03 percent; and Pacific ex-Japan 4.6 percent, to name a few.

Owning foreign issues should be a part of your portfolio. Depending on your risk tolerance, as much as 20 percent may be called for. Talk with your investment professional to determine the appropriate percentage and in what specific areas your funds should be invested. It’s not, to coin a phrase, rocket science, but it does call for a rational approach. And avoid the temptation to base your decisions on only what worked best last year.

The personal side

A reader e-mailed me suggesting an update on the grandson-to-be’s name (yep, it’s gonna be a boy). The leading candidate is (and I’ll guarantee that this is still subject to change) Quentin Ray Mendez.

P.S. The race is on between the Azaleas at the Masters and the dandelions in my back yard.

Clark Davis is a 37-year investment veteran and CEO of Saint Louis Investment Advisors, a specialized money-management company.