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Strategies & Market Trends : Portfolio Protection + Money Management for the Long Term
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To: BDR who wrote (26)4/10/2000 10:56:00 AM
From: Tom Trader   of 57
 
Last Tuesday about mid-day my gains were taxed (or was that axed) on paper far more than I would have been taxed if I had sold earlier and paid the Feds their due

I was affected the same way in my taxable accounts -- as I posted previously; this concern with the tax implications of liquidating positions is one that while valid can at times cause one to make questionable decisions.

Although I am very much a subscriber to the ltb&h philosophy, I believe that there are times when one should be willing to take profits or limit ones potential upside with a synthetic short position. The reality is that every year -for the past several years -- there is at least one -- and sometimes two -- occasions when the market sells-off and stocks become available at fire-sale prices. So even if I dispose off my stock, I feel confident that I will be able to pick them up again at a lower price -- and if I am not able to do that I am willing to buy it/them back at a higher price.

The crux of such a strategy is to be able to sell during a momentum driven escalation -- even if it means leaving some money on the table -- and then having a set level to re-enter the stock at a lower level. With the sector rotation that seems to be part and parcel of today's market such opportunities are always available. Achieving gargantuan rates of return are not something that I feel are an imperative for me. For anyone who wants to see the effect of compounding -- just look at what an above average -- but achievable rate of return can do to ones savings over 15-20 years. The numbers are mind-boggling!
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