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Growing up, Mark Oelschlager remembers that his dad, Oak Associates founder Jim Oelschlager, never missed an opportunity to teach him about the value of a dollar. When he was in middle school, his father bought him a tractor so he could make money mowing lawns. “Dad paid for the cost of capital, and I got to keep the revenue,” says Oelschlager, 43. When he was off studying economics at Trinity College in Connecticut, his care packages from home included stock-market analysis and company reports.

And yet the senior Oelschlager had no intention of grooming his son to follow in his footsteps, let alone take over the $931 million Akron, Ohio-based asset-management firm he started in 1985. “In fact I was told on the contrary, that I wouldn’t work at Oak,” says Oelschlager. After getting his M.B.A. at Ohio State University and completing a one-year fellowship, he spent four years as an analyst at the State Teachers Retirement System of Ohio.

Stephen Webster for Barron’s

Mark Oelschlager (left), Jim Oelschlager (right)

“I wanted him to find his own path,” says Jim, 69, who is a long-time proponent of managing concentrated mutual-fund portfolios. His firm’s flagship White Oak Select Growth Fund (ticker: WOGSX) as of May 10 had averaged 7.5% annual returns since its 1992 inception, topping the 7% gains of its large-growth peers. The firm now manages seven no-load mutual funds, all of which tend to invest in just 25 to 40 companies.

BUT IN 2000 JIM HAD a change of heart about hiring family. “Everyone talked about what a great place this was to work, and it occurred to me that Mark shouldn’t be precluded from working here,” says Jim, who offered his son a job as an analyst with the caveat that he’d have to work harder than everyone else. “I told him it can be dangerous stuff working for your father, particularly if the son doesn’t work out and the father has to fire him.”

A dozen years later, the elder Oelschlager still isn’t playing favorites. When he passes on, “ownership will be divided among all employees,” says Jim, who was diagnosed with multiple sclerosis in 1973. Likewise, he says, it isn’t a foregone conclusion that his son will become “chief banana.”

Still, there’s little risk that father will have to fire son. Mark Oelschlager now oversees three funds, including the $81 million Red Oak Technology Select (ROGSX), which is up 6% annually since he took it over in April 2006, versus gains of about 4% for its technology-sector peers. Last year the fund was No. 1 in its category, finishing the year up 2.8% when the rest of the group was down 7.6%.

Oelschlager adheres to the same principles as the rest of the firm. With just 35 holdings, the portfolio aims to exploit the firm’s best ideas and has a turnover of just 24%. Despite limited trading, its expense ratio is 1.35%. The focus is long term. “You’re never going to hear us talking about why we like a particular stock for the next three months,” he says. “And you’re not going to see us going to 30% cash.” Like his father—who avoided the Nifty Fifty in the 1970s when the stocks seemed particularly nifty—Oelschlager tends to eschew anything that’s overly popular.

For that reason, don’t expect to see the likes of social-gaming company Zynga (ZNGA) or Web discounter Groupon (GRPN) in the portfolio anytime soon. Rather than try to discern winners and losers in the “frothy” social-media space, he’s playing that trend with established companies like Cisco (CSCO) and Symantec (SYMC), which should benefit from more and more data moving over the Internet.

Top holding Accenture (ACN), which the fund has owned since June 2006, is another example of the kind of company Oelschlager favors. The global consultancy is the go-to source for technology and outsourcing solutions for the world’s largest companies. It has a diverse client base, both by industry and geography, and doesn’t require a lot of capital “because their people are their capital,” he says. But the real attraction for him is its return on equity, which is consistently about 50%. “That’s what it all comes down to—free cash flow,” he says. Moreover, Accenture has steadily increased its dividend, recently 2.3%, since 2005, even during the recession. And yet, the stock remains cheap. “Compare Accenture’s 9% free-cash-flow yield with the 2% yield on a 10-year bond; the gap is staggering,” notes the portfolio manager.

As a rule, Oelschlager looks for free-cash-flow yield that’s in the high single digits, but he’ll make an exception if he thinks a company is investing prudently. That’s true of long-time holding Amazon.com (AMZN), which he says is “plowing money back into its business” with investments in fulfillment centers and its cloud Web-hosting services. Last year its operating margins dipped to their lowest levels since 2001, and in the first quarter of this year those margins were a puny 1.46%. At recent levels, Amazon trades at 86 times forward earnings. Yet, Oelschlager says he’s willing to look past disappointing numbers in the short term if a company is well positioned for the long term. “They’re building a platform that is almost impossible to replicate,” he says.

The same could be said for another large holding, Intel (INTC), which the fund has owned since the middle of 2010. As the dominant player in the microprocessor market, it’s in an ideal competitive situation, says Oelschlager. Chief competitor Advanced Micro Devices (AMD) is “significant enough to keep the antitrust authorities away,” but not strong enough to be a significant threat. That competitive advantage translates to excellent returns on capital, he says, yet the stock trades at less than 12 times trailing earnings. Intel isn’t alone. “Right now you’re seeing a lot of older technology companies trading at depressed valuations,” says Oelschlager. “And yet they’re still growing.”

That’s good news for a growth manager who likes to play it safe. “Typically the father is the more cautious one, but in our case it’s the opposite,” he says. “I’m the conservative one, and he’s the maverick.”

“I’m inclined to let a position run longer and be a larger part of the portfolio,” says Jim, though he appreciates his son’s more conservative approach and, occasionally, gives in to his “badgering.”

SARAH MAX is a free-lance writer based in Bend, Ore.

E-mail:
editors@barrons.com

Selling a stock or a mutual fund is getting a lot more complicated.

New tax rules are changing how your brokers report sales of stocks, exchange-traded funds and mutual funds to the Internal Revenue Service and could deny you the full tax benefit on your investment sales.

The upshot: A little preparation now could make a big difference in tax bills later, say experts. “This tax season, I’m spending more time talking about this” than taxes,” says Michael Eisenberg, a Los Angeles accountant.

Keith Negley

Tax day will be here soon. PwC’s Brittney Saks gives some tips on how to prepare.

In the old days—before 2011—you were supposed to keep track of your “cost basis,” or the amount you paid for stocks, bonds and funds. If you bought your holdings over time and sold only part of your investment, you could decide at tax time whether to use the first shares purchased as the cost basis, or, to minimize your tax bills, match the sale to specific purchases.

Starting last year, though, brokerages were required to keep track of what you pay for stocks, and they are now required to report that cost basis when they report your proceeds from selling the stock on your 1099-B tax form.

As a result, investors must decide how they want their cost basis to be calculated before the stock sale is settled, rather than wait until tax time. If they don’t choose, firms will use a first-in, first-out method to stock sales, applying the sales to the oldest shares first.

This year, the rules extend to mutual funds and most ETFs, including dividend reinvestments. Starting next year, cost basis will be reported on bonds and traded options as well.

Getting covered. The new rules apply only to stocks bought in 2011 or later, so your cost basis will be reported to the IRS on your 1099-B only if you bought and sold stock last year. Next year, the forms also will include mutual funds and ETFs bought and sold in 2012. These are called “covered” transactions.

Some firms, including Charles Schwab

and Fidelity Investments, as a courtesy also are including your cost basis for shares bought in previous years, but those numbers aren’t being reported to the IRS. Not sure which is which? Box 6 of the 1099-B form will tell you if a figure has been reported to the IRS.

Consider your choices. Before you sell an investment, you can designate how you want the cost basis to be handled. With mutual funds, you can use the “first in, first out” method; you can use the average cost you paid over time, or you can match each fund sale to specific previous purchases. If you don’t choose, your fund company is likely to use the average-cost method.

When you fill out the form, you might find a dizzying array of choices. Fidelity offers as many as 10 different calculations for the cost basis on stock sales, for example.

If you want to reduce your taxes, you might want to choose the highest-priced shares you own, or even select those for which you will show a loss. If you are donating the shares, you should select your cheapest purchases. You might want to consult with your accountant before you make a decision.

In communications with account holders, Vanguard Group is encouraging investors to make their decisions as early as when they buy their shares, especially if they have automatic withdrawals set up.

One quirk: You can change your cost-basis choice for mutual funds online or in writing, but not over the phone.

Beware of “wash sales.” A wash sale occurs when you sell an investment at a loss and buy back the same or similar shares within 30 days before or after your sale. In that case, you can’t take a tax loss.

If you sell a mutual fund at a loss 30 days before or after a dividend is reinvested, you could inadvertently trigger a wash sale.

Brokerages and mutual fund firms now must notify the IRS on the 1099-B of wash sales that occur in an account involving the same security.

Forms and more forms. Making things even more complicated, the IRS has changed the old Schedule D and added a supplement: Form 8949. Stevie Conlon, tax counsel at Wolters Kluwer Financial Services, says some investors could have to file as many as three 8949 forms—one when the cost basis is reported to the IRS, another one for transactions where the cost basis isn’t reported and a third for transactions that don’t require a 1099-B, such as options.

Try not to rush your return. Investors were supposed to receive the new 1099-Bs by Feb. 15, but a number of firms sought extensions of up to a month to get correct data out to investors. Corrected forms could still arrive in coming weeks. Robert Green, whose accounting firm Green & Co. represents active traders, says he has seen numerous errors and discrepancies between 1099-Bs and his clients’ calculations and will be seeking extensions while the differences are sorted out.

Write to Karen Blumenthal at karen.blumenthal@dowjones.com

A version of this article appeared March 10, 2012, on page B8 in some U.S. editions of The Wall Street Journal, with the headline: Dodging a ‘Cost Basis’ Crisis.

What if God was an analyst?

Earlier this week on MarketWatch, I looked at how scripture is used to reinforce, justify or vilify economic activity from taxation to bank fees.

In researching that column, one passage in the New Testament kept coming up. More than any other, it addressed the financial world. In fact, it is probably the most cited scripture on Wall Street when it comes to validating the investing and trading with the spiritual life.

Perhaps not incidentally, the passage comes from Matthew, whose profession is one of the few among the disciples that was identified. Matthew was a tax collector before he followed Jesus, according to the scriptures.

Not to make light of it, but who better to pass on financial guidance than someone whose legacy institutions include the Internal Revenue Service?

Even those without a biblical background are probably familiar with Matthew 25: 14-30. It’s a parable about a master who, depending on the translation, leaves his “talents” or “money” to three slaves before the master embarks on a journey.

When he returns, two of the slaves have invested and earned a profit. The master is ecstatic, and he gives them promotions and more wealth.

The third slave is worried. He buries the money in the ground. The master is angry.

“Why didn’t you deposit my money in the bank? At least I could have gotten some interest on it,” the master tells the third slave, according to the New Living Translation of the Bible.

You don’t have to sing in the Sunday choir to get the drift. The message is that God wants us to do something with what we have. He wants us to prosper, multiply and take a little risk.

Nor is it a stretch to think, based on this passage, that almost any Wall Street profession—lender, trader, broker—is practicing what the Bible preaches. Many financial advisers have seized on the Bible, some even on Matthew 25, to market their services. There’s even a registered investment fund called “Matthew 25.”

What’s more, the interpretation of this passage seems to become more finance-focused over time. Older versions of the bible refer to the master leaving “talents.” More recent interpretations say the master left behind “money.”

There is just one problem. Almost everyone I asked, religious, academics and atheists, said that Matthew, and by extension, God, wasn’t talking about money.

The story “advises the faithful to invest wisely about as much as the parable of the mustard seed advises us to plant mustard seeds,” said Harald Thorsrud, an associate professor of philosophy at Agnes Scott College in Decatur, Ga.

“Anyone who finds a justification for profit-seeking here will likely find such inspiration anywhere,” Mr. Thorsrud said.

Kevin Macnish, an assistant professor of theology at the University of Leeds told me that “God’s economy is different from man’s.”

“God values tending the poor, the sick, widows and orphans—the unfortunate and marginalized in society—and so we can store up for ourselves treasures in heaven by investing in these people, rather than in making money.”

Of course, if an individual has a knack for making money, that could be their gift to those less fortunate, Mr. Macnish said. “We all have different things and amounts to give.”

Myles Alexander, a pastor and program director at Kansas State University, agreed and added that a deeper interpretation of the parable asks: “Who is the master, and who is the slave?”

Rev. Alexander argues the master is Jesus, “the slaves are Jesus’ followers who are entrusted with the treasure of the good news, or gospel,” he said “It is up to Jesus’ followers to multiply the good news in his physical absence. Jesus will hold them accountable when he returns.”

Such interpretations aren’t limited to theists. Jen Hancock, an author of several books on secular humanism, said the parable is one of three in Matthew that teach Christians what is necessary to get into heaven. None of them, including Matthew 25 is a financial guide.

Matthew 25 “is about making sure you multiply the good you do,” Ms. Hancock said. “That is why the guy who didn’t use his given talent to multiply his talents was shunned.”

The problem, she said, is that Matthew 25 “has nothing to do with how you should manage your money. To interpret this as financial advice, you would have to take it out of context and decide it wasn’t meant to be read as a parable, even though it is clearly presented as a parable.”

And as for the slave who buried his talent or money, most of those I asked seemed to think he didn’t make a fatal mistake. Rev. Alexander said some theologians consider the “master” to be Caesar. In that reading, the slave’s explanation makes more sense: “I knew you to be a hard man, reaping where you did not sow and gathering where you scattered no seed. And I was afraid.”

Mr. Macnish said the slave was only admonished because he “hid” his talents or money. “Instead of making the smallest, safest investment out of what little he had, the servant hid it,” Mr. Macnish said. “This would be equivalent, to my mind of spending all of one’s time and money on oneself rather than giving any of it to charity.”

In other words, scholars of Matthew 25:14-30 generally agree that the passage isn’t about investing at all, unless you count “working toward an eternal reward” as an investment. Nor is the passage a recommendation on risk-taking. The scholars I interviewed also agreed that the slave was admonished for keeping his money or talents hidden, even putting it to work modestly—say, investing in Treasurys—would have been OK.

God, it seems by these accounts, is a flexible analyst. He is less worried about us meeting expectations. He is worried more that we have expectations of our own.

Write to David Weidner at david.weidner@dowjones.com

Corrections & Amplifications

An earlier version of this column misstated the chapter of Matthew in which the “Parable of the Talents” is found. It is chapter 25.

By SIMON CONSTABLE

There are interest rates. Then there are “real” interest rates.

Many of the savviest investors suggest paying closer attention to the latter. To determine the real rate, you need to start with the rate quoted for holdings in bank accounts, bonds and the like—it is known as the nominal rate—and then adjust it for inflation.

Looking at real rates can help you determine how much your purchasing power may grow, says Mihir Worah, head of the real-return portfolio management team at Pacific Investment Management Co., or Pimco.

The problem for investors comes when real interest rates are negative, when the nominal interest rate won’t keep up with inflation. For instance, if Treasury bonds yield 2% a year, but inflation is 3%, then the real rate is negative 1%. That is more or less where the U.S. is now. It makes standard Treasurys unattractive to all but the most cautious investors.

What alternatives do fund investors have?

One option is to buy funds that hold Treasury inflation-protected securities, or TIPS, whose returns are linked to the consumer-price index. The largest such funds are Vanguard Inflation-Protected Securities

and Pimco Real Return

. Currently, however, TIPS with a 10-year maturity are offering a slightly negative real return.

Another option: debt securities with yields that exceed inflation. Dennis Gartman, publisher of the Suffolk, Va.-based Gartman Letter, recommends investing in countries that produce hard assets such as iron ore and other minerals. He suggests the debt of Australia and New Zealand and points to the $2 billion closed-end Aberdeen Asia-Pacific Income

fund, which holds such securities.

Mr. Constable is the host of the News Hub show at WSJ Live online. Email him at
simon.constable@wsj.com.

A version of this article appeared May 7, 2012, on page R6 in some U.S. editions of The Wall Street Journal, with the headline: Real Interest Rates.