Q: What’s “window dressing”?
A: It’s what some mutual-fund managers do to fool most of us.
Fund managers regularly report on their funds’ holdings, typically every three or six months.
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Since they want to look good and impress existing and potential shareholders, some will sell poor performers they’ve held for a while and buy recent stellar investments.
That way, someone perusing their list of holdings as of the end of the quarter might be pleased.
For example, perhaps a fund has been invested in some stocks that have plunged or been tied to scandals recently.
If so, before the day on which the fund’s holdings will be recorded and later revealed, the managers might sell out of those dogs, snapping up shares of recent market darlings. This is window dressing. Favoring funds with low turnover ratios (i.e., relatively little trading activity) can thwart window dressers.
Q: Can you explain what a “2 percent floor” is?
A: It refers to your miscellaneous itemized deductions.
They need to exceed 2 percent of your adjusted gross income (AGI) in order to be of any value. If they do exceed it, you’ll be able to deduct only the amount by which they exceed it.
For example, if your AGI is $50,000, your floor will be 2 percent of that, or $1,000.
If your miscellaneous itemized deductions total $825, you can’t do anything with them.
But if they total $1,600, you can deduct $600.
Many expenses may qualify, such as certain home-office expenses, tax-preparation fees, investment-related fees, job-hunting expenses and job-related expenses.
Learn much more from the horse’s mouth, at irs.gov.
Superinvestors Warren Buffett and his business partner, Charlie Munger, recently held forth at their Berkshire Hathaway annual meeting in Omaha, Neb. Here are a couple of paraphrased nuggets:
• On figuring out what one’s circle of competence is: Buffett explained that it requires being realistic and honest about what you really do and don’t know.
Munger added that competency is a relative thing, and that what he needed to succeed was to compete against idiots. “And luckily there’s a large supply.”
• On money and happiness: Buffett said that there isn’t a direct relationship between the amount you have to spend and your happiness. Money makes a difference only up to a point. But once you go far beyond that point, it doesn’t make a difference.
You get two industries for the price of one with Trinity Industries (NYSE: TRN).
The company is primarily a railcar producer, building new railcars to replace all of those old, graffiti-stricken ones traveling across the country delivering goods.
But over the past few years, its energy division has been steadily growing. (It has other businesses, too.)
Consider the promise of its wholly owned subsidiary, Trinity Structural Towers, which fabricates tubular wind towers.
While electricity produced from wind power in the United States was recently just 4 percent of all generated electrical energy, the U.S. Department of Energy believes wind could supply 20 percent of all U.S. electricity by 2020.
Based in Texas, Trinity Structural Towers is in a prime location to supply wind farms in the Great Plains, the wind-rich region that T. Boone Pickens has dubbed “the Saudi Arabia of wind.”
Trinity’s backlog of structural towers orders totaled close to $270 million at year-end 2013.
With a price-to-earnings (P/E) ratio near 12 and rising profit margins, Trinity’s stock is appealing. Its dividend that recently yielded 0.5 percent may not be exciting, but it reflects a hefty 33 percent increase.
Best of all is its diversification.
Trinity’s railcar business can cushion any hiccup in its alternative-energy business, and while wind power spreads, when large equipment needs to be moved across the U.S., it will likely be done by a Trinity Industries railcar.