Your Stocks !

[Captain Oates 911]

When I first started studying finance in the professional stages (1976 and my second career after being a detective) , the point was made that the only rational reason for owning stocks over the long term is in order to own the dividend stream

A very simple thought but not emphasized enough

Through the period to spring, people like CNBC and Cramer were pushing their high growth stocks like netflix and the mining companies etc etc

Now, when it is too late and the market for these more volatile stocks is down by a third, they start saying that dividends is where its at

They always tell you what to do when its too late.

I have taken two actions:

A Where a stock has a similar company which has fallen a similar percentage, I sell it and switch to the other. This gives me enormous tax losses. I can set $3k pa of those against ordinary earnings at my highest marginal tax rate for years to come, plus I will not pay capital gains tax for a long, long time. Its called 'loss farming'

B I have switched to excellent big companies where there are substantial dividends which will either hold, or only reduce slightly through a long downturn.

If I close my eyes for a year, or 5 or 10, my stocks will be back to where they were in Spring (at least) plus a compounded dividend rate of 4 or 5 %

That means I can laugh off these huge dips in the meantime so long as I don't need the cash.

I like big growth stocks like apple/google/netfix/amazon etc but they don't have the dividends and its a white knuckle ride with the price so I am out.

The big oil shares are volatile and lose 25% off their price very easily, but their dividends are steady and oil will be with us a long time after the other products have been eclipsed. I like a basic physical product like oil or food or booze or even insurance which isn't quite physical but is unavoidable. People can buy from my competitor but they cant do without the product. If I buy 'best of breed' with a good dividend then I feel content.

Cramer is basically saying the same stuff now (when its too late), but he didn't say it before.

That's how I am managing mine - how are you managing yours ?

PS I am sure it's best to state right now that this thread describes what I am doing for background reading and doesn't encourage you to buy or sell ANY particular stock or take ANY specific action. Its general reading with flawed ideas and for idle curiosity only. When you lose your money, it was your idea and its nobody else's fault.

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[TBoneTX 45,309]

That's how I am managing mine - how are you managing yours ?

I earn it, and Mrs. T-B. spends it, sigh man.

[Captain Oates 911]

I earn it, and Mrs. T-B. spends it, sigh man.

They say that 70% of Americans own stocks - but I don't know any - so you are not alone

Those that do are trying to blot it out right now

[웃 910]

A Where a stock has a similar company which has fallen a similar percentage, I sell it and switch to the other. This gives me enormous tax losses. I can set $3k pa of those against ordinary earnings at my highest marginal tax rate for years to come, plus I will not pay capital gains tax for a long, long time. Its called 'loss farming'

Long long time meaning 1 year? I was under the impression that if you lost $100,000 in 2011 you could offset your gains for the following year 2012...So if you made $100,000 exactly in 2012 you would pay exactly $0 on that gain because they balance out.

But it only works for the following year. If you lose $100,000 in 2011....But gain $20,000 in $2012 you can offset your $20,000 gain and pay no taxes on it....But come 2013 you can only carry over $3,000 a year (which is practically nothing).

And if you are talking about $3k against ordinary earnings, then again, it's nothing....Make $500,000 in ordinary income and *only* pay taxes on $497,000. What's the DIFF!

eta: This is only the way I thought it worked and I could be 100% wrong...

That's how I am managing mine - how are you managing yours ?

I own 0 because in the area where I live I can either take $20,000 and invest it in stocks hoping to make a couple thousand in a year with extremely high risk involved. Or I can purchased a 3 bedroom / 2 bath home with at least 1000 square feet on a nice yard for the same $20,000 (give or take $5k) and I can rent it out no problem for roughly $1000 a month. The answer of what to do is a no brainer, isn't it?

I didn't mention I have to load up a lot of money (at least $7,000) onto Home Depot credit cards and other credit cards because I'm not overflowing with cash. And they need a lot of work to renovate entirely.

But say 5 or 10 years from now when I have a 'stock'pile of cash I'll start buying stocks like Apple at $980, Amazon at $600, Google at $1200, etc...Takes money to make money.

Edited October 4, 2011 by Lord Infamous

[MyLittlePony 340]

I have no money so ** the idea.

[Captain Oates 911]

Long long time meaning 1 year? I was under the impression that if you lost $100,000 in 2011 you could offset your gains for the following year 2012...So if you made $100,000 exactly in 2012 you would pay exactly $0 on that gain because they balance out.

But it only works for the following year. If you lose $100,000 in 2011....But gain $20,000 in $2012 you can offset your $20,000 gain and pay no taxes on it....But come 2013 you can only carry over $3,000 a year (which is practically nothing).

And if you are talking about $3k against ordinary earnings, then again, it's nothing....Make $500,000 in ordinary income and *only* pay taxes on $497,000. What's the DIFF!

eta: This is only the way I thought it worked and I could be 100% wrong...

I own 0 because in the area where I live I can either take $20,000 and invest it in stocks hoping to make a couple thousand in a year with extremely high risk involved. Or I can purchased a 3 bedroom / 2 bath home with at least 1000 square feet on a nice yard for the same $20,000 (give or take $5k) and I can rent it out no problem for roughly $1000 a month. The answer of what to do is a no brainer, isn't it?

I didn't mention I have to load up a lot of money (at least $7,000) onto Home Depot credit cards and other credit cards because I'm not overflowing with cash. And they need a lot of work to renovate entirely.

But say 5 or 10 years from now when I have a 'stock'pile of cash I'll start buying stocks like Apple at $980, Amazon at $600, Google at $1200, etc...Takes money to make money.

Capital gains are only taxed when they are realized - so if I have 300k in gains unrealized (I still have the stocks) then my capital gains tax bill is zero

The capital losses can be carried fwd indefinitely and not just for one year...

So if I want to sell a stock with big gains and I don't want to pay tax, I simply set some of my brought forward losses against it..

We all have to decide ourselves but I wouldn't invest in houses other than the one I live in (tax free gain). Too much insurance/legal bills/property taxes /tenant problems etc etc. Just buying half a dozen oil company shares at this point will beat buy to rent in a5 year window I reckon - but that's my decision for me.

The high fliers like google/apple/CRM etc are set for a 15% crash from here according to Cramer.

I left for my rifle club this morning with stocks down 200 points or so. Half an hour later they closed UP 150 !!!!

Nightmare trying to time that

I am fully positioned and I just tinker around the edges right now and own some index PUT options to make me feel better when my stocks go down..

I hate paying tax but I love avoiding it. There is tax avoidance (legal) and tax evasion (crime)

I avoid like crazy and then pay every cent that falls into the net

[웃 910]

So if I want to sell a stock with big gains and I don't want to pay tax, I simply set some of my brought forward losses against it..

So in other words you don't get a big gain....You get a big gain and a big loss?

I know they carry forward infinitely at a pathetic $3,000 amount per year, but that is nothing. A joke. Unless you make exactly $3,000 a year then who cares? It doesn't benefit they guy that pays taxes on $197,000 instead of $200,000 at all. That type of person can piss away the savings in 30 seconds and not think twice about it.

Edited October 5, 2011 by Lord Infamous

[Captain Oates 911]

So in other words you don't get a big gain....You get a big gain and a big loss?

I know they carry forward infinitely at a pathetic $3,000 amount per year, but that is nothing. A joke. Unless you make exactly $3,000 a year then who cares? It doesn't benefit they guy that pays taxes on $197,000 instead of $200,000 at all. That type of person can piss away the savings in 30 seconds and not think twice about it.

No the amount of the carry forward is unlimited - it can be billions and can be carried forward forever

But 3k pa is allowed against ordinary income (wage, interest etc)and the rest of the REALIZED is taxed at 15% (capital gains)

That is why warren buffet pays less % tax than you

yes the gain and loss can be considerable but the gain is only taxable when it is realized

so only realize gains (by selling) when you have losses available brought forward to knock it out

the US tax code is VERY accommodating... its great.