The Tufton Viewpoint, Winter 2018: Confidence is King

by Chad Meyer

In this space, a bit over twelve months ago, I admitted that I didn’t have a clue what sort of market 2017 would bring. “Perhaps the economy will thrive…buoyed by the message that America is now ‘open for business’,” I wrote. “Or perhaps…our new president-elect will prove uniquely problematic, unduly influencing the market one late-night ‘tweet’ at a time.”

On Wall Street, however, where confidence is king, well-paid prognosticators were obliged to issue a more definite outlook. And as you may recall, that outlook was rather bleak. On January 3, 2017, CNBC reported that Wall Street’s collective annual forecast was the most bearish it had been in over a decade. The following day, Goldman Sachs warned clients of “downward pressure” on U.S. equities. With sociopolitical tumult and a bull market that was officially long in the tooth, it seemed as though worrying over a slowdown was the respectable analyst’s only prudent move.

What happened next is history. Over the last twelve months, that bull market has grown even longer in the tooth, surmounting the Street’s “wall of worry” (and continued sociopolitical tumult) in truly rare form. In 2017, while volatility sat at historic lows, the S&P 500 rose 22% (total return), posting its largest yearly gain since 2013. Not to be outdone, the Dow Jones shot up 25%, its second-biggest annual gain of the last decade. With this increase, it turned in nine consecutive months of growth, its longest streak since 1959. So much, it would seem, for those January jitters.

Yet, pleasant as the market’s surprises were in 2017, one question still looms large. What should investors expect in the year ahead? Given the strong start U.S. equities have already had in 2018, it’s no surprise that many once-dour pundits have taken on a sunnier tone. Open the morning paper, and you’re likely to read about the market’s “record run,” spurred on by an encouraging global economic outlook. As Goldman Sachs’ asset management arm now succinctly puts it, “We think equities will continue to outperform in 2018.”

We certainly hope Goldman Sachs’ prognostication will prove to be the case. However, all good things must eventually come to an end, and we at Tufton Capital will continue to implement a bottom-up, value-driven investment philosophy that delivers performance in a strong market—and perhaps more importantly – provides peace of mind when things take a turn for the worse. For twenty-two years, this approach has kept our clients in good stead from the “Great Recession” of 2008 throughout the “great gains” of 2017.

As we charge into 2018, I will again forgo a firm “outlook”. Instead, I offer this simple assurance. Above all else, your team of investment professionals at Tufton Capital remains honored by your trust and committed to your interests. From all of us here at Tufton Capital, Happy New Year.

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The Fourth Quarter of 2017: Consistent Returns, Low Volatility

by Eric Schopf

The frigid weather that ushered in the New Year has been no match for the red hot stock market.  The Standard and Poor’s 500 delivered a total return of 6.6% for the fourth quarter and 21.8% for the year.   As many expected, the fourth quarter continued the trend of consistent returns with little volatility. Although technology stocks led the way with returns in excess of 38%, the rally was broad with most sectors posting double-digit returns.  This widespread improving economy, combined with low interest rates and benign inflation, continues to attract investors to the equity market.

Interest rates were once again on the move, with the Federal Reserve raising the Federal Funds rate to 1.5% in December.  This rate increase was the fifth since the Fed began tightening two years ago.  Despite the increases, interest rates are not yet attractive enough to entice investors to move out of stocks and into bonds.  Longer-term interest rates continue to be a challenge.  Although the Fed has raised the Fed Funds rate from .25% to 1.5% since the tightening cycle began in 2015, longer-term rates (maturities of 10 years or greater) have essentially remained unchanged.  Although the business cycle is approaching maturity, which would normally suggest some shift to bonds, we thus have little appetite for the longer-term instruments that offer returns that are just slightly higher than the rate of inflation.  Higher rates on the short-end are a welcome relief.  It is nice to actually earn something greater than zero on cash held in money market funds.

The major news headline in the quarter was tax reform.  The Tax Cut and Jobs Act was passed along party lines in late December and provides some tax relief for many individuals.  However, the lion’s share of the law was designed to reduce corporate taxes.  Although the corporate rate has been reduced to 21% from 35%, the impact will vary from company to company.  Legions of accountants are employed to minimize corporate taxes, so most corporations have not been taxed at the 35% level.  Nonetheless, extra cash generated through any tax savings may be deployed in a shareholder-friendly fashion. Investment in plant and equipment made to produce future earnings or reduce costs, share buybacks, and higher dividends are all potential uses of the extra cash.  President Trump and his administration expect the lower tax rate to help “make America great again” by attracting more business back to our shores from abroad and igniting economic growth.

US Treasury Yield Curve

While lower corporate taxes are a good thing, there is no such thing as a free lunch.  Unless spending is reduced or economic growth truly does generate enough incremental tax revenue to allow the tax cuts to be self-funding, the Treasury will need to issue a lot of debt to cover the expected expansion of our nation’s deficit.  The Congressional Budget Office estimates that the deficit will grow by $1 trillion over the next decade.  The issuance of debt to cover the deficit will come at a time when the Federal Reserve is winding down their balance sheet amassed during quantitative easing.  The end result will most likely be higher interest rates.

Low interest rates have not been the only pillar of the soon-to-be nine year old bull market. The  economy has improved, which has had a tremendous impact on the equity market. Gross domestic product grew in excess of 3% in the second and third quarters.  This is the first time our economy has grown at these rates for consecutive quarters since 2014.  Additionally, consumer confidence has bubbled higher.  Confidence hasn’t been this high since the dotcom era of 1997 to 2000, and it may further improve once individuals feel the impact of lower taxes. Corporate earnings growth has also provided a stable footing for the stock market.  Wall Street estimates going forward are strong, and the rebound in energy prices should drop to the bottom line for a wide range of companies that support the industry.

Our optimistic outlook for the near term reflects the mosaic of earnings growth, low inflation and interest rates, along with the continuation of a strengthening economy.  We temper our enthusiasm knowing that the business cycle is not extinct.  The five interest rate hikes initiated by the Federal Reserve have not put a damper on the economy.  However, with three or four more hikes potentially in the cards for this year, the impact may be more apparent.  We must also pay attention to the fact that the growth in share prices has been much greater than underlying earnings.  Stocks are just more expensive.  It is becoming increasingly difficult to find quality investments at reasonable prices.  Finally, consumers are very confident and are spending freely.  The U.S. savings rate has dipped below 3%,  the lowest levels since 2005 – 2007, prior to the Great Recession.

Soaring consumer confidence and dwindling personal saving leave little room for future improvement. It may seem that all these factors together suggest imminent recession. However, history has proven that these conditions may persist for many years.

Although we turn the calendar to a new year, our investment style and strategy remain consistent.  We continue to seek quality companies that are trading at temporarily depressed levels.  We place a premium on above-average dividends and sound balance sheets.  Portfolios are maintained within asset allocation guidelines spelled out in our clients’ investment policy statements.  This consistent and disciplined approach has served Tufton’s clients well over the numerous business cycles throughout our firm’s twenty-two year history.


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Company Spotlight: International Business Machines (Ticker: IBM)

by John Kernan

International Business Machines (IBM) reinvented itself before. Now it is looking to do it again. In the tech boom of the late 1990’s, IBM developed a technology services business that became the envy of all the other big tech names. Meanwhile, the company started to move away from the hardware businesses that defined it for a generation. Now, it seeks to make a new name for itself in the burgeoning field of artificial intelligence.

The impressive defeat of all human challengers on Jeopardy was remarkable for sure, but IBM’s powerhouse artificial intelligence system Watson is more than a quiz show smarty-pants (or smarty-motherboard, as the case may be). It is powering industry-specific solutions as the world’s businesses move to hosting their data on the cloud. Companies that have turned to Watson to solve problems in security, healthcare, and automation have seen productivity gains significantly beyond what human engineers could accomplish.

But the great-sounding story of Watson comes on the back of revenue numbers that came in under consensus in 14 of the last 20 quarters. Wall Street is waiting for evidence that IBM has truly turned a corner. As it does, we have stock that is yielding almost 4% and trading at attractive multiples. Technology is a fast-paced, quickly changing industry, and the timing of IBM’s turn is far from certain. But Big Blue has been investing in this change for years. Now we have a company with a strong balance sheet, good customer relations, and a history of success that has a solvable problem affecting the stock price – the value investor’s ideal.

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How The New Tax Plan Affects You

by Neill Peck

Just before Christmas, President Trump scored his first major legislative victory when he signed the Tax Cuts and Jobs Act.  The bill dramatically reworks the U.S. tax code and promises to immediately alter the financial lives of families across the economic spectrum.

The Tax Cuts and Jobs Act represents the largest one-time reduction in the corporate tax rate in U.S. history, lowering it from 35% to 21%. The 503-page bill also lowers taxes for a majority of American households, as well as for small business owners – at least until the personal tax cuts expire after eight years.  The bill lowers taxes for top income earners.  Prior to its passage, couples earning over $470,000 per year paid 39.6% in federal income taxes.  The GOP bill drops that rate down to 37% and increases the threshold at which that rate kicks in to $600,000 for married couples. This new break for millionaires is intended to ensure that wealthy earners in highly taxed states such as New York, Connecticut, and Maryland don’t end up paying substantially higher taxes. Moving forward, taxpayers will only be able to deduct $10,000 in state, local, and property taxes.

The final tax plan lowers taxes for most Americans until 2026, since it will decrease rates for every income level. Even though the personal exemption is being scrapped going forward, the plan nearly doubles the standard deduction.  It also doubles the child tax credit that parents receive to $2,000, and it increases the credit’s income threshold from $75,000 to $200,000. The bill also creates a new $500 temporary credit for non-child dependents (children 17 or older, a disabled adult child, or an ailing elderly parent).  Moving forward, the new plan lowers the cap on the mortgage interest deduction on a first or second home. Now, homeowners will only be allowed to deduct interest on the debt up to $750,000, down from $1 million today.  While early versions of the bill had proposed repealing deductions on medical expenses and student loan interest, these changes did not make it into the final version.

Republicans in Congress had originally wanted to do away with the estate tax entirely but ended up settling on increasing the taxable threshold from $5.5 million per person to $11 million.  Going forward, a wealthy couple will be able to pass $22 million on to their heirs tax free.  Small businesses are getting a big tax break under the new plan. Pass-through companies (LLCs, S corps, partnerships, etc.) will receive a 20% reduction under the new tax code.

Investors saving for retirement will not expect many changes under the new tax plan, since it makes no changes to the tax-free amounts they can put into 401(k)s, IRAs, and Roth IRAs.

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How The New Tax Code Affects Your Portfolio

by Ted Hart

The new tax plan promises to cut taxes for corporations. The companies in which we invest our clients’ funds have various options for the new-found savings.

As stated in the preceding article,  the corporate tax rate will be revised from 35% to 21% this year. On a global basis, the tax reduction takes the United States from the highest in the industrialized world to the middle of the pack – quite competitive for businesses in the world’s largest economy. One of the largest benefits that has flown under the radar is the provision that allows businesses to deduct the cost of their equipment immediately.  Previously, these companies were required to deduct the cost over a period of several years.

Despite the tax break, not all businesses will find the new plan beneficial. Companies will no longer be able to fully deduct their interest expenses on their debt. Instead, companies can deduct up to 30% of their EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) through 2021. Thereafter, companies will be able to deduct up to 30% of their EBIT (Earnings Before Interest and Taxes). This will ultimately hurt companies that carry a lot of debt and that have low profitability. Fortunately, a large majority of companies in our portfolios are highly profitable and have affordable amounts of debt.

What will the big multinational companies and other large U.S. businesses do with their tax savings? The answers have varied. AT&T has stated that it will increase its capital investments in the United States by $1 billion over the course of the next year. Additionally, it will provide a bonus of $1,000 to approximately 200,000 people. Boeing, the largest manufacturer of airplanes, says that it will make an additional $300 million in investments, with the idea of allocating one third of the investment to facility improvement, one third to employee training, and one third to corporate giving. In the banking sector, Wells Fargo and Fifth Third Bancorp both stated that their companies would increase their minimum wage to $15 per hour. Fifth Third also said they would reward some 3,000 employees with a $1,000 bonus.

In addition to capital investments and bonuses, many companies plan on additional share buybacks and dividend increases, which should drive investor returns higher. However, the lack of management voices claiming more capital investment implies that their production capacity is not that restrained. Furthermore, the prevalence of bonuses versus wage increases is also somewhat concerning. The lack of wage increases implies that the tax bill may not remain in effect if the Democrats gain control of the House and Senate in the 2018 Midterm Elections or if the Democrats win the White House in 2020. (Although the former is highly unlikely.) Overall, the tax overhaul should be positive for companies in our portfolios.

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“Stocks In The Future”: Investing in Students

Tufton Capital Management is pleased to announce our firm’s involvement with the Baltimore-based charitable organization “Stocks in the Future.”  This non-profit partners with schools in downtown Baltimore and provides a three-year financial literacy curriculum for middle school students in under-served communities.

“Stocks in the Future’s” mission is to develop highly motivated middle school students who are eager to learn and dedicated to attending class.  The financial literacy program introduces Baltimore City students to business concepts, expansion possibilities, reasons for taking a company public, and ways to compare company performance. As students progress through the program, they can earn money in an investment account by attending school regularly and improving their grades. Their money can be used to purchase shares in a publicly traded company.  When they graduate from high school, their hard work pays off, since they are able to keep the shares that they have purchased.

Tufton’s associates have been actively volunteering with the Program.  Our employees have taught middle school math classes and have worked with teachers to help them better understand the Program’s curriculum.

Tufton Capital is happy to support the “Stock in the Future” organization, and we believe its incentive-based curriculum can make a difference in students’ lives.

To learn more about “Stocks in the Future’s” mission, visit the organization’s website:

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The Weekly View (1/16/18)

What’s On Our Minds:

There’s a saying used this time of year as folks are diligently working on sticking to their new years’ resolution. – The trick of getting ahead is getting started. This phrase is especially true for saving for retirement. Below are our 10 tips that may help reach your retirement goals.  Remember, it’s never too late to start and it doesn’t hurt to save more!

1. Start now

It’s a simple fact that the earlier you begin saving for retirement, the more time your money has to earn interest and grow. If you’ve put off saving until your 30s or later, make up for lost time now by stashing away 10 to 15 percent of your salary.Plan your retirement needs

2. Plan your retirement needs

If you want to retire at 55 and travel the globe or work for as long as you can but stick close to home, how much money you need to retire is unique to you. Rather than relying on figures that suggest you’ll need 80 percent of your preretirement income to live comfortably later in life, talk with your spouse and financial advisor to settle on an amount to save that’s tailored to you.

3.  Learn about and contribute  to your employer’s plan

If your employer offers a tax-sheltered plan, contribute at least enough to get the employer match. Your employer can provide you with a summary plan description, which recaps your plan and vesting eligibility, as well as an individual benefits statement.

4.  Consider saving “on the side”


If you don’t have access to an employer-based plan, contributing to a traditional or Roth IRA allows you to get similar tax benefits for your retirement savings. Even if you do contribute to an employer-based plan, an IRA can supplement those savings.

5.  Make saving as easy as possible

Eliminate the need to move money from one account to another by setting a monthly savings goal and automating a deposit to that amount. By making savings routine, you are more likely to see your retirement nest egg grow. To help boost your regular savings, funnel any extra cash windfalls, such as from a bonus or inheritance, directly to your retirement savings.

6. Increase savings as you near retirement

Your income will likely rise with age and experience, so it makes sense to save more as you earn more. After age 50, you will also be eligible for catch-up contributions, which allow you to contribute beyond the set limit. For 401(k)s, you can contribute an extra $6,000, while for IRAs you can contribute an extra $1,000.

7. Be an active participant in your plan

Automating your retirement savings and amount doesn’t mean you should “set it and forget it.” Examine your quarterly statements to ensure you are on track to meet your goals. Can you afford to contribute more? Are your investments still appropriate? Do you need to lower your exposure to risk? By taking active control now, you take control of creating the best retirement lifestyle possible.

8. Decide on your Social Security strategy

Social Security benefits may be available at age 62, but up until age 70, your retirement benefit will increase by a fixed rate (based on your year of birth) each year you delay retirement. Waiting means you may be able to take advantage of some extra cash. If you are married, you may also be able to receive spousal benefits, which boost the amount you and your spouse receive in Social Security as a couple. To learn more, visit

9. Be a savvy investor

It’s important to be smart about not only the amount you save but also how you save. To help insulate against market swings, diversify your investments within sectors and across asset classes and geographic regions. The more intentional you are about where your assets are invested, the more secure you can feel about them.

10. Don’t touch your savings until retirement

Dipping into your retirement savings is a last resort. In addition to harsh penalties, you lose principal, which in turn depletes interest earnings and tax benefits. Also, if you switch jobs, rollover your retirement account rather than “cashing out.” Preserving your retirement savings may be difficult when funds are tight, but will benefit you when you truly need it most.

Last Week’s Highlights:

Stocks were up for the second week in a row. We have had a remarkable start to the year and major indexes are up more than 4%. Stocks have not recorded two consecutive weeks of 1% moves higher since July of 2016. Earnings season kicked off last week. Big banks reported losses due to the new tax code but had pre-announced so the loses had been baked into share prices.





Looking Ahead:

Markets were closed on Monday in observance of Martin Luther King Day. Along with earnings reports coming across the wire, investors will be eyeing some important economic data this week. Industrial production and capacity utilization is reported on Wednesday. Housing starts are reported on Thursday followed by consumer sentiment data on Friday.

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The Weekly View (1/8/18)

What’s On Our Minds:

The Tufton Economics Team takes the reins this week to talk a bit about the changing shape of the American consumer. As our readers know, the stock market continues to hit new highs as corporations enjoy an increasingly business friendly environment in the US. But the consumer does not seem to be sharing in those gains. Now more than in decades, Americans’ balance sheets are looking weak: they “owe more, save less, and are poorer.”

Corporations’ earnings have steadily risen, but the median consumer hasn’t seen the gains (note that the comparison isn’t perfect: there is no “per-corporation” data like the per-capita data we have for consumers). The Economics Team will stay on the sidelines as far as the political implications of this relationship, but we would like to point out that  weakening consumers are also bad for economic growth.

Last Week’s Highlights:

The new year got off to a good start, and interest rates ticked up slightly, resulting in an all-green summary chart below. Hopefully we can keep that up all year.

Looking Ahead:

This week should be a relatively light one in terms of earnings and economics. We’ll be watching the weekly claims, as always. CPI and retail sales numbers come out Friday, which should help us get a better picture of the consumer economy that we talked about in the blog post.

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The Weekly View (1/2/18)

What’s On Our Minds:

Happy New Year!  By all measures, 2017 was a stellar year for stock markets around the globe.  It appears the bull market continued to climb its proverbial “wall of worry”.  For the first time since 2012, international stocks outperformed U.S. stocks. Domestic market indexes were no slouches though.  The S&P 500 was up over 20% and the Dow Jones added 5,000 points, its largest ever point gain in a calendar year.  The rally was fueled by resurgent economic growth, blockbuster corporate profits, and the promise of sweeping Republican tax cuts which should save corporate American billions of dollars.

After a great 2017, investors are likely asking, “so what does 2018 have in store?”  Well, of course it is hard to predict but market experts seem to agree that the outlook for the new year is good but not a rosy as last year.  Wells Fargo forecasts the U.S. economy will grow by an average of 2.5% each quarter in 2018 and 2019.  As the labor market continues to tighten, wage growth and increased energy prices could start to squeeze corporate earnings, but expanding sales and lower corporate tax rates should also give earnings a boost. Meanwhile, if the economy continues to improve, the Federal Reserve plans to continue increasing interest rates.

If Wall Street’s predictions for the new year hold up and the bull market continues, it will put the economy on track for its longest expansion in decades.

Last Week’s Highlights:

Stocks were down slightly during the final week of 2017 which was shortened by the Christmas holiday.  It was reported that Russian tankers have been supplying North Korea with oil in recent months which increased geopolitical worry.  The minor declines experienced last week still left investors happy with significant gains experienced across the board in 2017.

Looking Ahead:

Important economic data comes across the wire this week as we kick off 2018. Manufacturing purchasing managers index will be reported on Tuesday followed by vehicle sales and minutes from the Federal Reserve’s December meeting on Wednesday. On Friday, we will close out the week with December’s jobs report.

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The Weekly View (12/25/17)

What’s On Our Minds:

The team at Tufton Capital Management wishes you a season of joy as we look forward to continued success in 2018.

Last Week’s Highlights:

Stocks were up last week as investors focused on the passage of the U.S. tax bill.

The tax bill is the largest tax cut in U.S. history for the nation’s largest companies. Starting on January 1, 2018, big businesses’ tax rates will be reduced from 35% to 21%.  Republicans have argued that companies’ tax burden will be decreased one trillion dollars over the next ten years which should help the economy. Time will tell if the tax bill will accelerate economic growth.


Looking Ahead:

This week, investors will be busy closing the books on 2017 which has been a strong year in equity markets.  Many are wondering if we experience a “Santa Claus Rally” this year.  This typically occurs when investors see a surge in the price of stocks during the last week of December though the first two trading days in January. There are numerous explanations for it, including tax considerations, happiness around Wall Street, and people investing their holiday bonuses.

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The Weekly View (12/18/17)

What’s On Our Minds:

The economic team at Tufton has been thinking about employment quite a bit lately. We have a few internal reports, the first of which we’ve adapted here for our blog.

The employment rate has remained remarkably low, while wages have refused to budge. In theory, when labor is in low supply, employers will raise wages to attract talent. That increase in wages tells us that our economy is starting to heat up, and we need to be caution of above-trend growth- the kind that causes recessions. At least, that’s how it’s always happened in the past. What is different now? Our labor force is changing, in age, skill, and desires.

That is to say: not only are consumer preferences changing, but so are labor preferences, as evidenced by the below chart. The reasons for the labor force decline among young men are likely threefold: drugs, jail, and video games. The opiate epidemic has hit hard, especially in those young males who found themselves jobless. Additionally, supply has been fueled by drug companies who have pushed these drugs on doctors. Because of these and other causes, the percentage of previously-incarcerated males has risen from 1.8% in 1980 to 5.8% in 2010. Of course, this makes it harder for this segment to re-enter the workforce, and they may choose to stay on the sidelines. Finally, to the dismay of parents everywhere, it seems that many young men would rather simply stay home and play video games (see charts, from Bank of America / Merrill Lynch).



Last Week’s Highlights:

We are experiencing a bonfire Santa Claus rally this month.

Markets continued their march higher as investors continue to weigh the impacts of the tax reform deal.  The S&P 500 rose nearly 1% and the Dow Jones added 1.3%.  The S&P experienced a drop on Thursday when Senator Marco Rubio said he would oppose the bill if it didn’t include a larger tax credit for parents with children.  On Friday, senators gave in to Rubio’s suggestions and equity markets charged to reach new all-time highs.  Since the tax reform bill passed in Congress, the S&P 500 has gained roughly 3%.

As investors had expected, the Federal Reserve increased its federal funds target rate by 25 basis points to 1.25%-1.5%.  Janet Yellen shared an optimistic view on the economy and upgraded the Fed’s outlook on GDP growth citing the impact of corporate and personal tax cuts.


Looking Ahead:

Market futures are up big to begin the week before Christmas.  The House of Representatives is set to vote on the tax bill either Monday or Tuesday and Senate will vote shortly thereafter.

Important housing data will be in focus this week. New home starts and permit data will be released on Tuesday and new home sales will be reported on Friday.

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The Weekly View (12/11/17)

What’s On Our Minds:

Even with a strong year in equity markets, the meteoric rise in the value of Bitcoin has been grabbing headlines left and right.  Bitcoin’s run up in price has been nothing short of astounding.  For instance, if you invested $1,000 in bitcoin at the start of 2013 and never sold any of it, you would now have around $1.3 million. In 2010, a software developer paid 10,000 bitcoins for two large pizzas which today would be worth about $160 million.  Bitcoin has seemingly deified the laws of gravity as levels of speculation and fascination continue to increase.

Just this morning Bitcoin’s value has surged again as the Chicago based CBOE launched a futures exchange Sunday evening that allows traditional investors to trade futures contracts on the unregulated currency.  Even though it has been exciting watching Bitcoin’s meteoric rise, Tufton Capital does not believe there is a place for Bitcoin in a traditional investment portfolio given its “Wild West” like nature, its volatility, its shady history, and the cyptocurrency’s unproven track record.  Many critics of Bitcoin are suggesting it shows the classic signs of a bubble.

Market bubbles, like the tech bubble of the 1990’s, have formed for as long as there is record of exchange, and all follow a similar pattern of speculation.

In the early 17th century, the Dutch became enraptured by tulips, and created the first chronicled speculative bubble in history. As recorded in Charles Mackay’s Madness of Crowds, tulips began to grow rapidly in popularity all around Europe, and therefore tulip prices rose sharply. Many deft merchants identified this trend and made a large profit in trading tulips. Other merchants and the nobility, seeing these extraordinary profits, jumped into the tulip market. As a result, prices for tulips kept rising and rising, backed by nothing but speculation. Soon enough, nobles, farmers, seamen, chimney sweepers, and maidservants alike were all dabbling in tulips. Below is a chart of what one individual paid for a single tulip bulb!

Eventually, the tulip market ran out of new money to keep bidding up prices. As reality sat in, speculators all ran for the exit and prices plummeted. Many speculators lost all their savings as contracts they purchased were ten times the price that tulips were then trading.

This is an important lesson for us in 2017. As Benjamin Graham poignantly argues, “an investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” Graham would certainly have chuckled at otherwise serious individuals who lost a whole year’s salary on buying tulips.

Buying something, be it tulips, Bitcoin, or the hot stock of the day, as an investment because everyone else is doing it, or because of tremendous recent returns is not investing, but speculating. It may work in the short term, but it always has devastating effects in the long term.

The lessons of manias past are always important to keep in mind in an ever changing market. This isn’t to compare any particular asset to the tulip bulb craze, but it is always smart to study history in an attempt to understand the present. Many people will make bold claims about “X being in a bubble” or “Y will never go down.” A prudent investor, not speculator, will not be swayed by the opinions of crowds and will continue to drown out the noise and invest in quality assets at good prices.

BitCoin Price Cart (2014-Present)

Source: World Coin Index


Last Week’s Highlights:


US stocks had a strong week.  Equity markets closed on Friday near record highs as investors continue to wait for a finalized tax reform bill.

Friday’s job report was better than expected.  The US economy added 228,000 jobs in November.  Average hourly earnings grew 2.5% over the past year which is up from November’s 2.3% number.  GDP has risen by more than 3% over the past 6 months which continues to show a favorable backdrop for stocks.



Looking Ahead:

Investors will keep their focus on Washington D.C.  The GOP’s plan promises to be the biggest change to individual and corporate rates since Ronald Reagan’s tax overhaul in the 1980s.

Investors are expecting the Federal Reserve to increase its federal funds rate from 1.25% to 1.50% on Wednesday. Janet Yellen recently restated that she and her colleges, “continue to expect that gradual increases in the federal funds rate will be appropriate to sustain a healthy labor market and stabilize inflation around the FOMC’s 2% objective.”


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The Weekly View (12/4/17)

What’s On Our Minds:

The hum of the holidays has begun at our offices in Hunt Valley, and with equity markets at or near all-time highs this year, investors are feeling joyous indeed.  With plenty of green flashing across traders’ screens this holiday season as opposed to the dreaded red, the hangover left by the Great Recession feels like a distant memory to most. Not everywhere is the good cheer so merry, though.  Customers are experiencing sticker shock thanks to the 2008-2009 downturn somewhere many wouldn’t guess: the Christmas tree lot.

During the financial crisis, cash-strapped Americans cut back on their spending and bought fewer trees. As demand plummeted tree growers either went out of business or planted fewer saplings during those years.  Because it takes 7 to 10 years for a Christmas tree to grow, the entire market is now faced with a shortage this year.

The leading source in the Christmas tree business is the state of Oregon, which harvested an estimated 5.2 million trees in 2016. They are followed by North Carolina with 3.5 million, Michigan with 3 million, Pennsylvania with 2.3 million and Washington with 1.5 million. Since a freshly cut tree can retail anywhere between 60 and 80 dollars, that adds up to some serious money in the Christmas tree business.

The high prices of authentic trees this year has growers worried that families will switch to artificial trees that outlast their natural competitors.  The American Christmas Tree Association estimates that artificial trees accounted for nearly 81 million of those displayed in the U.S. in 2016, while 19 million were natural.

Last Week’s Highlights:

Happenings in Washington D.C. had investors on their toes last week. Stocks were higher but more volatile. The Dow Jones passed 24,000 for the first time in history.  Tuesday and Thursday were both strong days as investors grew more optimistic that the Senate was getting closer to passing a tax reform bill. On Friday we saw a pullback when news broke that President Trump’s former national security advisor, Mike Flynn, might testify regarding interference in last year’s Presidential election.

GDP data from the third quarter was revised higher to 3.3%. This was the second consecutive quarter that saw growth above 3%. Business investment figures were up, suggesting that economic conditions continue to improve.


Looking Ahead:

News coming out of Washington will likely drive investor sentiment again this week. Funding for the government is set to expire on Friday. Government officials are hoping to avoid a government shutdown by pushing the deadline out into the future but President Trump has signaled that he could play hardball.  Meanwhile, the GOP is looking to pass their tax reform bill before the end of the month.

On Thursday, AT&T will go to court against the Justice Department over AT&Ts bid to acquire Time Warner.  The government has cited antitrust concerns.

Friday’s jobs report will also have investors watching.

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The Weekly View (11/27/17)

What’s On Our Minds:

Oil investors will be focused on the OPEC meeting this week. The Organization of Petroleum Exporting Countries (OPEC), which controls over 30% of the world’s oil production, will meet this Thursday in Vienna, Austria to discuss the continuation of production cuts. The cartel agreed to a production cut at the meeting one year ago and investors are expecting a continuation of the deal – keeping roughly 1.8 million barrels a day offline.


Brent crude oil, the global oil benchmark, has risen 12% year-to-date and the price is near the highest level in nearly two years. The Brent crude oil futures curve has returned to backwardation – meaning that the Brent crude price today is higher than all future price in months and years ahead. Historically, a rotation into backwardation has been a bullish view for oil and despite the S&P Energy Index down 7% year-to-date, the index has rallied about 3.5% over the past three months as the futures curve has shifted.


It may be too soon to call, but the futures curve is saying the worst of the oil glut is behind us. Though that may not be an advantage for prices at the pump, client portfolios should benefit from rising energy stocks.


Last Week’s Highlights:

Last week, the three major indexes reached all-time highs. The S&P 500 closed above 2,600 for the first time last Friday, despite lighter trading volumes due to the Thanksgiving holiday and a shortened trading session. The Dow Jones Industrial Average is less than 2% away from breaching the 24,000 mark and the technology driven Nasdaq is rapidly approaching 7,000. Earnings season is winding down with 98% of S&P 500 companies having reported earnings updates. Up to this point, S&P 500 earnings grew 6% year over year. In corporate news, Department of Justice is suing to block the AT&T merger with Time Warner.


Looking Ahead:

This week, investors will continue to monitor news out of the Federal Reserve as well as the White House. On Tuesday, Federal Reserve Governor Jerome Powell will have a confirmation hearing before Congress. Powell has been selected as the next Chair of the Federal Reserve once Chair Janet Yellen finishes her term. Also on Tuesday, President Trump is expected to meet with congressional leaders to discuss a deal that could avoid a government shutdown in December. On Wednesday, Fed Chair Yellen will provide her views on monetary policy. Finally, on Thursday, OPEC will meet to determine oil production strategy and the Senate will vote on tax legislation.


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The Weekly View (11/20/17)

What’s On Our Minds:

With the end of the year quickly approaching, portfolio managers are busy reviewing accounts and, if the opportunity presents itself, harvesting tax losses in accounts.

Aside from research roles, Tufton Capital’s portfolio managers are responsible for all aspects of portfolio construction and supervision, which includes the management of gains and losses that are realized in our clients’ taxable accounts. Of course, tax implications are not the paramount concern in the management of a portfolio, but trading responsibly with this in mind can make a big difference for investors come tax day in April.

Selling at a loss may seem to run counter to your investment goals, but because the IRS allows for investment losses to be used to offset capital gains, investors should look to make the best of an otherwise unprofitable investment. With that in mind, investors should consider selling poor performers in their taxable accounts by conducting tax loss sales. This strategy is especially good for investors in the 25-35% Federal tax brackets who must pay a long-term capital gains rate of 15%. The tax savings increase for the highest income earners in the 39.6% Federal tax bracket, who must pay 20% on long-term capital gains. Plus, depending on where you live, you may be subject to capital gains taxes at the state level. Our clients in Maryland know this all too well!

Of course, we don’t make trades just for tax purposes. If we think a stock is going to increase in value, we hold it. If we think it is going to go down, we sell it. But using a tax wash sale, in which a security is sold and then repurchased after 30 or more days, enable an investor to claim the tax loss but still hang on to an investment that he or she thinks has long-term potential.

Take for example a single person who has an annual income of $100,000. He would be in the 15% long-term capital gains bracket. In his brokerage account, he has a realized long-term capital gain of $50,000 in Investment A and an unrealized long-term capital loss of $30,000 in Investment B. If he sells his shares of the losing stock, he can offset the $50,000 gain against the $30,000 loss, resulting in $20,000 of net long-term gains. If he does not harvest the loss, the Federal tax on his $50,000 long-term gain would be $7,500. By partaking in this tax loss harvest, he will save himself $4,500, which would have otherwise been a piece of his Federal tax liability for the year (See Figure 1).

Portfolios with large unrealized gains will likely have some positions that have unrealized losses. Although a loss may be hard to look at, sometimes it’s best to bite the bullet and clean these losers out of a portfolio. This management strategy allows investors to free up cash in the portfolio, which can be deployed into other, more attractive investments.

While it’s important to avoid the tax tail wagging the investment dog in your overall investment strategy, a disciplined approach to managing tax liabilities is an important component of wealth management.


Last Week’s Highlights:

Stocks were lower for the second week in a row. After a calm summer and placid fall, we have seen a bit of volatility return over the past two weeks.  Markets reacted to lower oil prices and worries surrounding the progress of Republican’s tax reform plan.  Investors seem to be a bit doubtful that Republicans will be able to reconcile Congress’s plan and Senate’s tax reform plans in a timely fashion.


Looking Ahead:

Existing homes sales will be reported on Tuesday and the Federal Reserve is releasing minutes from their meeting earlier this month on Wednesday. Markets will be closed Thursday and will close early on Friday.

The entire team at Tufton Capital Management hopes all of our friends and clients have a wonderful Thanksgiving holiday this week!

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