Southeastern Asset Management and the Longleaf Funds: The Advantages of Getting Away From Wall Street

Morningstar named Mason Hawkins and Staley Cates of Southeastern Asset Management’s Longleaf Partners Fund and Longleaf Partners Small-Cap Fund their 2006 domestic equity managers of the year. For this issue, we talked to three of Southeastern’s vice presidents about the technical and psychological aspects of the Longleaf approach to investing, and how to achieve enough confidence that it doesn’t matter what everyone else thinks. Read the full article . . .  

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Additional Information:

• The Longleaf Funds
• A Motley Fool Profile of the Longleaf Team

Estate Tax “Repeal”: Ramifications and Outlook

In the unlikely event that the federal estate tax phase-out scheduled for 2010 becomes permanent, heirs will still have to pay capital gains taxes on their inheritances.

The law that gradually phases out the federal estate tax through 2010 provides for it to return in 2011. Even if it doesn’t come back, that doesn’t mean that tax on wealth transfers from one generation to the next will disappear. Here's a simplified explanation. Read the full article . . .

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Additional Information:

• Further Information from the IRS about the Estate Tax

Inherit An IRA, Write-Off The Tax Bill

Inheriting a traditional IRA? Good news: You gain assets from your departed uncle. Bad news: Withdrawals will be taxable. But you're eligible for a tax break if you inherit an IRA from someone whose estate paid federal estate tax.

If so, you can take tax deductions that many individual taxpayers overlook. Those deductions can cut the tax you'll owe on IRA distributions. Most inherited assets get a stepped-up basis to their date-of-death value, so you aren’t taxed on the value that those assets gained during your uncle’s lifetime. That's not the case for funds held in your uncle's IRA. They don't get a basis step-up to market value, and you can’t even use the tax rate for long-term capital gains. But tax reduction is still possible: You or your tax pro must calculate how much tax your uncle's estate would have owed without the IRA. Read the full article. . .

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Additional Information:

• Inherited IRA Issues

Even Amid the Housing Slump, American Demographics Create Big Opportunities

Residential market values are down, mortgage defaults are up, and condos take longer to sell. However, one segment of the housing industry is poised to stay strong—homes designed and built for older Americans.

Potential buyers should be relatively plentiful because the age 50-plus market is housing's fastest-growing niche. The number of people in the U.S. 55 or older is forecast to hit 85 million by 2014. One in five home buyers is 55 or older. "Baby boomers are an attractive demographic because they're affluent and still working," said Paul Emrath, the NAHB housing policy researcher who authored the "Profile of the 50+ Housing Market" study. "According to a 2004 Federal Reserve study, U.S. households in the 55-64 age bracket have an average net worth of $841,000 and an average annual income of $97,000." Read the full article. . .

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Additional Information:

• The 50-Plus Housing Market

A Bright Side to Financial Bubbles?

Housing seems to be the investment bubble du jour, coming on the heels of the Internet bubble, which popped seven years ago. Despite the fear and trembling, some regard it as further evidence of a competitive advantage for the American economy.

That's the novel view of bubbles offered in a contrarian new book by Daniel Gross, Pop!: Why Bubbles Are Good for the Economy (HarperCollins, May). A critic of the contemporary business scene and author of previous books on American business history, Gross isn't a Pollyanna; he's well aware of the widespread misery and financial ruin that followed the bursting of previous bubbles. But he writes that while the misery has been amply chronicled, the positive side of bubbles has received little attention. Read the full article. . .

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Additional Information:

• More on Famous Financial Bubbles

Oakmark’s Bill Nygren offers some places he’s finding value and one where he’s not

Bill Nygren, a topflight portfolio manager, manages or co-manages several Oakmark funds. His long-term record is excellent, though like many margin-of-safety investors, he often makes concentrated big bets and his picks can lag the market during the short term.

In his recent communications with his Oakmark shareholders, Nygren disclosed what the mutual fund has been buying, as well as his reasons for doing so. His discussion is a terrific window into how a great investor recognizes opportunity—in Best Buy, Capital One, and Federal Express—and the danger in crazy optimism. Read the full article. . .

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Additional Information:

• Bill Nygren Speech to Morningstar Conference

Palmerston Group provides fee-only financial and investment management services based on fundamental analysis and margin of safety principles. Palmerston’s approach to planning and wealth management is a blend of financial strategy, investment philosophy, and risk management. At the core of this approach is the conviction that preserving and building wealth is best achieved through a process of careful research and investigation in which Palmerston Group seeks both to identify marketable securities trading at a discount to intrinsic value and to allocate clients’ capital with other investment managers (through mutual funds and managed accounts) who do the same. Please contact Palmerston.

For more information, visit www.palmerstongroup.com or call 732-248-5777.