We're happy to unveil a new look! With the year coming to a close, here are a few last minute reminders.
Mariposa Capital Management, LLC
Newsletter: December 2012

Our New Look

We're happy to unveil a new look! Not only do we have a shiny new logo, but we have a new website as well.  Please come visit and let us know what you think!

Happy holidays and warm wishes for the new year.

Year-End Reminders

With the year coming to a close, here are a few last minute reminders.


  • Normally, I would recommend realizing losses in your taxable accounts to reduce your taxes (tax loss harvesting). However, every asset class I consider for client portfolios is up for the year, so this opportunity is not likely available to you this year.
  • If you are looking to sell appreciated investments within the next few months, consider selling them this year instead of next, since the tax rate on capital gains is expected to go up in 2013.

College Savings

  • 529 plans are a great way to save for your child's future college expenses. The deadline to open accounts and make contributions for 2012 is December 31.
  • Already have a 529 account opened and funded? Remember to use your annual trade by December 31 if you are not using an age-based option.

Retirement Savings

  • If you expect your 2012 tax rate to be lower than usual, converting Traditional IRAs and old 401k's into a Roth IRA could be a smart move. The deadline to convert is December 31.
  • If you are self-employed or own a business without full-time employees, Individual 401k's are a great way to save for retirement. The deadline to set one up for this year is December 31.

Charitable Giving

  • If you're going to make charitable donations, consider donating appreciated securities to avoid the capital gains tax.
  • If you want the tax benefits of a charitable donation this year, but are not ready to decide on a charity, you can open a donor-advised fund. You get the tax deduction when you contribute, and you can decide which charity gets the money later.
Featured Article

2012 Year-End Valuations

Valuation ratios such as P/E are not very useful in making one year predictions, although they do a fair job of predicting longer-term returns of at least 5-10 years.

Considering this, we will not perform a market forecast for 2013 or any other single year, unless we can support it with a high standard of evidence. Instead, let's use those valuation ratios to evaluate the markets today and estimate how that affects returns over the next 10 years. It’s not as exciting, but it’s far more responsible and reliable.

The following table shows valuation ratios for global stocks and US real estate as of 12/14/2012, with all P/E ratios using 10 years of earnings. Estimates for future returns assume that valuations revert to fair levels 10 years from now and that asset classes otherwise perform in line with their historical averages.

Asset Class Valuation Ratio Market Valuation Future 10y Returns
vs Historical Average
US Stocks Q 40% overvalued 3-4% per year lower
US Stocks P/E 27% overvalued 2-3% per year lower
Foreign Stocks P/E 16% undervalued 1-2% per year higher
Emerging Market Stocks P/E 10% undervalued 1% per year higher
US Real Estate (REITs) P/E 64% overvalued 5% per year lower
Source: Federal Reserve, Robert Shiller, MSCI, and REIT.com data and Mariposa calculations, as of 12/14/2012.

The two valuation ratios for US equities (Q and P/E) are calculated using separate sets of data yet produce similar results, indicating that our methods are consistent.

US stocks and especially US real estate are overvalued by a significant amount, so we can expect lower than historical average returns for both assets classes over the next 10 years. Valuations for stocks outside the US look far more attractive, making higher than average returns more likely.

Since predicting returns even in the 10 year range exhibits a high margin of error, tactical bets should be measured and sized appropriately based on investment goals and risk preferences.

Blog Articles

Asset Allocation with Restricted Stock
When thinking about restricted stock units (RSUs) in a portfolio, most consider the tax and risk consequences of holding and selling restricted stock: should you elect to pay income tax when shares are granted rather than when they vest? How fast should...

The Value of Diversification
When I list “full diversification” as a core component of Mariposa’s investment strategy, what does that really mean? What’s the point of diversification? Before answering those questions, let’s first discuss one interesting, but often...

Glide Path: A Target-Date Fund's Secret Sauce
You probably have never heard of the term “glide path,” but you’ve definitely thought about it before. The rule of thumb of holding 100 minus your age as a percentage in stocks is probably the most well known glide path. Even if you’ve never...

Interesting Reads

The Income Appeal -- The Economist
Dismal bond yields make European equities look relatively attractive.

Is Stock-Picking Just Another Hobby for Men? -- Reuters
Stock picking, at least when practiced by individuals, is best analyzed as an upper-middle-class hobby rather than as purely profit-focused investing activity.

Dueling Prisms for Valuing Stocks -- The NY Times
Some have turned to a cyclically adjusted price-to-earnings ratio, or CAPE, to determine whether stocks are cheap or expensive.

About Mariposa

Mariposa Capital Management is a boutique investment advisory firm designed for individuals and families who want a more thoughtful way to invest.

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