"In a few hundred years, when the history of our time will be written from a long-term perspective, it is likely that the most important event historians will see is not technology, not the Internet, not E-commerce. It is an unprecedented change in the human condition. For the first time-literally-substantial and rapidly growing numbers of people have choices. For the first time, they will have to manage themselves. And society is totally unprepared for it."

Peter F. Drucker

Peter F. Drucker is a strategic thinker and visionary…maybe THE preeminent living conceptual thinker relating to business, management , and the human condition. Now in his late 80's or early 90's, he never ceases to amaze me. What a spectacular quote!

In this issue of Investor's Corner:

1. Tax cut update-with excerpts from Jeff Fischer
2. Charlie Munger on Investing-with excerpts from Whitney Tilson
3. Charts

1. Tax cut update: Friday, May 23 President Bush signed a $350 Million tax relief bill into law. Jeff Fischer of the Motley Fool (www.fool.com) summarizes the changes of note that are now law:

• The long-term capital gains tax rate falls from 20% to 15%.
• The dividend tax rate is capped at 15% for the four highest (most common) tax brackets.
• The top tax bracket declines from 38.6% to 35%.
• All other tax brackets aside from the very lowest decline by two percentage points.
• The child credit rises to $1,000, so millions of families will receive $400 checks within months.
• Married couples get relief from the "marriage penalty," and their standard deduction rises to $9,500, twice a single person's deduction.
• Small businesses may expense $100,000 annually, up from $25,000, until 2005.
• $20 billion goes for emergency funding to state budgets that are sinking under deficits.

Your paycheck should be larger after July 1, because withholding will decrease to reflect the new tax rates. Meanwhile, the new capital gains rate applies to investments made on or after May 6, 2003, and only to investments held one year or longer.

As with all things "taxes," the devil is in the details, which reveal most of these cuts as temporary. After 2004, most cuts in personal income taxes will end, and in 2009 (Bush would just be leaving office should he win a second term), the dividend tax would revert to marginal tax rates again. Theoretically, at least.

"Sunset" provisions in the bill dictate that most of these tax breaks end, but subsequent political parties wishing to maintain the public's favor may very well continue them. Should this prove the case in years ahead, critics say, the cost of this tax cut could actually rise to the trillions.

The benefits of roughly 60% of the $350 billion tax cut, or about $210 billion, should be felt by the public and by companies this year and next, and bill supporters suggest this money will help boost the economy quickly.

My take on the tax cut:

1. Dividend-paying stocks just became more valuable.
2. If long term capital gains are taxed at 15%, there will be an incentive to remove high growth-potential equities from tax-advantaged retirement accounts such as traditional IRA's and 401-K accounts, where withdrawals are still subject to being taxed as ordinary income. Equities in taxable accounts held longer than one year would only be taxed at 15%. Interesting….
3. Small business owners (such as myself) should take a long hard look at the provision where up to $100,000 of capital expenditures for new equipment can be expensed "right off the top"….worth some follow-up!
4. There is some snafu regarding the child tax credit. Apparently some lower income households have been excluded from receiving the $400 child credit check. Stay tuned.

2. Charlie Munger on Investing:

Money manager Whitney Tilson recently attended the Wesco Financial annual shareholders' meeting. The CEO of Wesco is Charlie Munger, who is perhaps better known as Warren Buffett's partner in Berkshire Hathaway (BRK.A, BRK.B). Many professional investors consider Munger to be one of the world's foremost investors in his own right. He doesn't talk much on the record, either, so the Westvaco meetings are looked forward to eagerly. Charlie Munger's comments are paraphrased by Tilson in some cases, as no recording devices are allowed in the meeting.

Thoughts on Buffett

While Buffett is now 71 years old, Munger raved, "It's hard to believe that he's getting better with each passing year. It won't go on forever, but Warren is actually improving. It's remarkable: Most almost-72-year-old men are not improving, but Warren is."

Berkshire without Buffett

The most common concern investors seem to have about Berkshire is, "What happens when Buffett dies?" Munger acknowledged that "if he were gone, we couldn't invest the money as well as Warren," but noted that "the place is drowning in money -- we have great business pounding out money. If the stock went down, Berkshire could buy it back. There's no reason to think it will go to hell in a bucket, and I think there's reason to believe it could go on quite well. I'd be horrified if it isn't bigger and better over time, even after Warren dies."

Berkshire's acquisition strategy

Berkshire continues to have spectacular success on the acquisition front. According to Munger, there's no secret: "We've bought business after business because we admire the founders and what they've done with their lives. In almost all cases, they've stayed on and our expectations have not been disappointed."

Berkshire and Wesco's stock prices relative to intrinsic value

Unlike so many corporate managers who seem to believe that it's their #1 duty to inflate their stock price -- often by unethical or illegal means -- Buffett and Munger "like the stocks of both Berkshire and Wesco to trade within hailing distance of what we think of as intrinsic value. When it runs up, we try to talk it down. That's not at all common in Corporate America, but that's the way we act."

As for Berkshire's current share price (it closed yesterday at $72,600 per A share), Munger said "there's been a deafening silence [on what we think of the stock price]. Berkshire is trading in a reasonable way given our environment and opportunities, which is why we've been silent. We are in no distress at all about the current value of the stock." When was the last time you heard a senior manager of a company say that?!

Derivatives

"It's easy to see [the dangers] when you talk about [what happened with] the energy derivatives -- they were kerflooey. When they [the companies] reached for the assets that were on their books, the money wasn't there. When it comes to financial assets, we haven't had any such denouement and the accounting hasn't changed, so the denouement is ahead of us.

"We tried to sell Gen Re's derivatives operation and couldn't, so we started liquidating it. We had to take big markdowns. I would confidently predict that most of the derivative books of [this country's] major banks cannot be liquidated for anything like what they're carried on the books at. When the denouement will happen and how severe it will be, I don't know. But I fear the consequences could be fearsome. I think there are major problems, worse than in the energy field, and look at the destruction there."

Alan Greenspan is apparently listening and singing a different tune than he was only a short while ago. Just yesterday, he expressed concern about derivatives and J.P. Morgan (NYSE: JPM) in particular.

Attractive investment opportunities tend to be ephemeral

The dates stick in my mind: July 23rd and October 9th last year and March 11th this year -- all days in which the market bottomed amidst panicked selling, when bargains abounded. But if you weren't ready to buy, stocks snapped back quickly. Munger noted that "a lot of opportunities in life tend to last a short while, due to some temporary inefficiency... For each of us, really good investment opportunities aren't going to come along too often and won't last too long, so you've got to be ready to act and have a prepared mind."

Views on Ben Graham's ideas

While Munger largely rejects Ben Graham's cigar-butt style of investing, he embraces the core principles: "The idea of a margin of safety, a Graham precept, will never be obsolete. The idea of making the market your servant will never be obsolete. The idea of being objective and dispassionate will never be obsolete. So Graham had a lot of wonderful ideas."

Stock valuations

Munger continues to report difficulty finding good stocks to buy: "In terms of the general climate, I think it's pretty miserable for anyone who likes easy, sure money. Common stocks may be reasonably fairly valued, but they are not overwhelming bargains."

The importance of reading

"In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time -- none, zero... You'd be amazed at how much Warren reads -- at how much I read. My children laugh at me. They think I'm a book with a couple of legs sticking out."

How to get rich

A young shareholder asked Munger how to follow in his footsteps, and Munger brought down the house by saying, "We get these questions a lot from the enterprising young. It's a very intelligent question: You look at some old guy who's rich and you ask, 'How can I become like you, except faster?'" Munger's reply was: "Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts... Slug it out one inch at a time, day by day, at the end of the day -- if you live long enough -- most people get what they deserve."

Humor

Munger has an acerbic, dry wit and he was in rare form this week. Here were my favorites:

• "If you rise in life, you have to behave in a certain way. You can go to a strip club if you're a beer-swilling sand shoveler, but if you're the Bishop of Boston, you shouldn't go."
• "The idea of caring that someone is making money faster [than you are] is one of the deadly sins. Envy is a really stupid sin because it's the only one you could never possibly have any fun at. There's a lot of pain and no fun. Why would you want to get on that trolley?"
• "What's the best way to get a good spouse? The best single way is to deserve a good spouse because a good spouse is by definition not nuts."
• "I think liberal art faculties at major universities have views that are not very sound, at least on public policy issues -- they may know a lot of French [however]."
• Ben Franklin "was a very good ambassador and whatever was wrong with him from John Adams's point of view [I'm sure] helped him with the French."

3. Charts

One year S&P 500

Three year S&P 500

Ten year Treasury note

Whew, that's enough for one issue! Feel free to call or write with questions, comments, or to inquire about my firm's services as they relate to your individual situation.

Good investing,

Will W. Woodard, III, CFP®
Dare Capital Management and Advisory
PO Box 1138
Kill Devil Hills, NC 27948-1138
252.480.0156
will@darecapital.com
www.darecapital.com

Will Woodard is president of Dare Capital Management & Advisory, a Registered Investment Advisor and fee-only financial planning firm based in Kill Devil Hills. Dare Capital is committed to providing independent, objective, and professional financial advice. Mr. Woodard, his firm, or his clients may own the investments mentioned herein. Contact Will at (252) 480-0156 or e-mail Will@darecapital.com

The fine print: This newsletter can be reprinted or forwarded--however, it is requested that reprints of any material in this newsletter include credit to Dare Capital Management and Advisory (252)480-0156 and an email link to will@darecapital.com. Thanks for spreading the word!

All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Will W. Woodard, III and Dare Capital Management and Advisory, and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. Mr. Woodard, his firm, or his clients may own the investments discussed in this newsletter. Past performance is no guarantee of future returns.

The information presented herein and the company's web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future results may vary for many reasons.

Copyright 2003 Dare Capital Management and Advisory-all rights reserved.