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October 2017 Letter To Investors

Nov. 05, 2017 8:21 AM ETAAPL, GM, BX, KKR, EPD1 Comment

October was a reminder for us of why it's important to diversify. Apple (AAPL) had a fantastic quarter on expectations of strong iPhone sales, and as I write this, the company is within striking distance of being the first trillion-dollar company by market cap.

I've been expecting this for a long time, and it's nice to see an investment thesis executed as expected.

General Motors (GM) also had a great month, though it ended on a sour note with negative comments from Goldman Sachs prompting investors to take profits.

But these successes notwithstanding, October was a difficult month for many of my favorite sectors. Our MLPs, REITs and alternative investment managers such as Blackstone (BX) and KKR (KKR) didn't react well to certain aspects of President Trump's tax reform proposals. Specifically, companies that routinely use a lot of debt in their capital structures - and MLPs, REITs and private equity firms all most certainly do - might see their ability to write off interest expense curtailed.

Weakness in these sectors dragged down the Dividend Growth portfolio's performance in October, and we finished the month down 0.4% after all fees and trading costs.

I'm not particularly concerned about the proposed tax reforms. To start, these are proposed reforms, and there is still a lot of deal making left to be done. And while our government has a long history of making very poor decisions, I don't think they are dumb enough to pass a tax reform law that will do serious damage to the real estate market, as a cap on interest expense write offs most certainly would.

In fact, I expect that tax reform will actually help most of these companies, which was one of the reasons I overweighted them in the portfolio this year.

I'm not alone in that

This article was written by

Charles Lewis Sizemore, CFA is the Chief Investment Officer of Sizemore Capital Management LLC, a registered investment advisor. He has been a frequent guest on Bloomberg TV and Fox Business News, has been quoted in Barron’s Magazine, The Wall Street Journal, and The Washington Post and is a frequent contributor to Forbes Moneybuilder, GuruFocus, MarketWatch and InvestorPlace.com. Charles holds a master’s degree in Finance and Accounting from the London School of Economics in the United Kingdom and a Bachelor of Business Administration in Finance with an International Emphasis from Texas Christian University in Fort Worth, Texas, where he graduated Magna Cum Laude and as a Phi Beta Kappa scholar.

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Comments (1)

05 Nov. 2017
Charles, always look forward to your monthly letters.
Realize I have to be ware of confirmation bias, as I'am long all the companies mentioned.
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