There is no joy in Mudville…Mighty Casey isn’t the only one who has struck out today. We’re all getting sent back to the dugout.
It’s a bad day on top of a volatile year to date.
Zoom Out
Here’s where I tell you it’s not so bad.
On the chart below of the S&P 500 price history for the last year, you can see the huge dip starting in February of this year that is giving us all indigestion. This is not cool.
But we can put this in a broader perspective and see that the S&P 500 is back to where it was in late September of last year. Remember? We were feeling pretty good then.
And with good reason. This is what the chart looks like leading up to September 2024.
But Yuk!
Regardless of these facts, we’ve all seen several months of earnings go out the window. And today is a nightmare.
Enough of that, let’s move on.
O’Reilly Automotive
I wrote a post earlier about how I was looking forward to reading the O’Reilly (Ticker: ORLY) annual report. I enjoyed the report and was encouraged to look into buying more shares. While ORLY hadn’t hit my price target yet, I was more optimistic after reading and would consider adding some shares on a big-down day.
Not happening. O’Reilly is up today.
Be Thankful for Boring Stocks
My peek at O’Reilly reminded me to take a look at how my favorite companies are doing today. Here’s a (slightly redacted) view of my big spreadsheet. This is the tab where I see today’s top and bottom performers.
While many of the companies that I love like Shopify, Roku, Apple and Arista Networks are down big, my boring holdings like General Mills (cereal and other packaged foods???) Con Edison (NY power), and MacDonalds (ubiquitous hamburgers), as well as our friend O’Reilly are all up. And I know McDonalds appears twice – it’s a bug in the spreadsheet…
And if I look at year-to-date, I see a similar theme.
Tech is down this year (mostly…OKTA has been on fire). But Con Ed, O’Reilly, T-Mobile, Rollins (who I wrote about recently in the boring is beautiful post), Waste Management, MacDonalds, Aflac, and Fastenal (who I also wrote about recently) are up.
These companies are up for the year and most of them pay a dividend. O’Reilly doesn’t but they plow a ton of cash into share-buybacks and have done a nice job of bringing share-count down and growing shareholder value.
Sometimes boring is beautiful.
Roth Conversion
I’ve written a bit about Roth Conversions. Essentially, we are taking money or investments out of a traditional 401k or IRA and moving them into a Roth account. We pay taxes on the full amount of the conversion today – typically at our ordinary income tax rate, which for retirees like me is lower than when working. But the money in the Roth will never be taxed again. It grows tax-free. And since we paid tax on the basis at conversion, that money won’t be taxed either.
The downside is that we need to come up with the money to pay the taxes this year. That can be big.
Converting Shares
In 2024, I converted cash from my traditional IRA to my Roth.
Today, I converted shares of Emcor, Adobe and Broadcom.
I believe in the long term prospects of these 3 companies. I expect they will beat the S&P 500 over the next 10 years. Who knows what they’ll do in the short-term.
But Broadcom is down 31% this year and the others are down big too.
So I’m converting them today at today’s price. For my tax bill, I’ll be taxed based on the value of my conversion today. Which in the case of the Broadcom, is 31% less than the value of those shares on 1/1/2025.
Example
I converted 230 shares of Broadcom at a price of $159.27 per share. That’s about $36,632. Assuming my tax rate will be about 24%, I’ll pay $8,791 in taxes on the Broadcom conversion.
On Jan 1, 2025, Broadcom was trading at $231.98 per share. The value of these share on 1/1/25 was $53,355. Just as a note, that’s a huge bummer. That’s a big loss.
But, the taxes on converting $53,366 would have been $12,805 (at my expected 24% rate).
By converting the shares today, I saved about $4,000 in taxes.
Clarifications
To be clear, I did not sell my Broadcom shares. I simply transferred them from one account to another. I am not taking a capital loss for tax reasons (which I hate to do).
Moving shares or moving cash are treated the same way for tax purposes. We pay taxes on the value at transfer.
I’m taking advantage of what I suspect will be a temporary pull-back to pay taxes on a lower conversion amount.
Wrap-Up
Today is a bad day in the market. Duh!
I see a lot of red on my brokerage account. But there are some things that give me hope.
- While the S&P 500 is down almost 4% today and over 7% year-to-date, it has only pulled back to the level it was at in September of 2024. We’ve lost 7 months’ of gains. It hurts, but we were pretty happy back in September.
- My boring companies have tended to perform pretty well in today’s pull-back as well as overall in a bad year. I knew there was a reason I decided to keep these back when the magnificent 7 were on fire.
- Now is a great time to do a Roth conversion. I saved about $4,000 compared to if I had done the conversion on January 1.
Where will we go from here? Who knows.
The $100 I put into the S&P 500 ETF when I wrote the post about putting my money where my mouth is is down almost 9%.
It may go down further in the short term. However, I’m still betting that it will be a solid investment in 5 or 10 years.