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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: Stock Farmer who wrote (46158)	9/4/2001 1:03:18 AM
From: hueyone	Read Replies (1) of 54805

The math is relentless: as long as you buy back a stock like Seibel for less than you sell it for, you will profit more in the end than holding through. After tax. John, I must be confused about the math. What about this example? Mike and John each buy 1000 shares of XYZ Corp at $10/share. XYZ Corp appreciates to $11 per share next week and John sells it. John is in the 50% s/t term tax bracket, so he ends up with $10,500 after tax. The stock falls to $10.75/share and John buys some more. But John's $10,500 will only buy 976.75 shares at $10.75 per share. Over the next few years the stock slowly appreciates to $14 per share and both John and Mike sell. A l/t cap gains rate of 30% applies. Mike sells for $14,000 and pays $1,200 in taxes and nets $12,800. John's 976.75 shares sell for $13,674.50 and he pays $952.33 in taxes and nets $12,722. Mike did better just hanging on. If John did this every year (and paid transaction costs) the difference in Mike's favor would be more pronounced---unless John was able to buy back in at a significantly larger discount to the price he sold it at than was given in this example.

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