Uf and thread--
Gee folks, I'm totally surprised that there is so much interest in an obscure private message from Mike Buckley about why he didn't sell when even he knew price/value was out of sync. Is this guy some sort of God, or what? (gg)
Anyway, FWIW, here's his response to the question. The italics are mine. I haven't asked this follow-up, but maybe I should.
Mike: Did you ever run a senario in which you sold everything using gains to offset the excess beyond $3,000 in losses, or were you one of the lucky guys who didn't have more than $3,000 in losses?
Chaz--
The reason I didn't sell anything when the values were so high varied from stock to stock. In the case of Qualcomm, I would have taken a 40% tax hit. In the case of others, I would have taken a 20% hit (or was the long-term tax still 28% at that time?) There were also other reasons for those stocks and the others in my portfolio.
I've never believed in selling just because a stock is over valued, a point I made many times in the folder. We never know when a press release is going to come out that changes a stock from being dramatically over valued to being a little over valued or even fairly valued.
Being over valued is just not a good enough reason for me to sell if that's the only reason. It has proven to be flawed thinking in the days beginning in late 1999, but in the ten years prior to that it was proved to be excellent thinking. It was thinking that powered my portfolio. On balance, if I had sold stocks purely on the basis of their valuation over the last ten years, I'm very confident that my net worth would be a LOT less than it is today.
As for shorting, I've come not to like it because most if not all shorts are intended by design to be relatively short-term moves with short-term tax consequences. You probably remember the discussion about the spread sheet I ran showing how lethal taxes are to the otherwise incredible benefits of long-term compounding.
Did these things go through your mind at the time?
Absolutely. Every time I end up owning a stock that is over valued, or one such as Gemstar or Qualcomm that is difficult to value because it's nearly impossible to assess the value of its market opportunity, I always think about it. But I rarely act on it unless I'm also concerned about fundamental aspects of a company such as the anticipated growth of its industry, its core competitive advantages within the industry, etc., etc. However, now that I'm living off my assets, I'll tend to sell stocks when they get over valued knowing that by necessity I'll need to occasionally sell them; it's better to sell them when they're over valued than being forced to sell them when they're undervalued.
It's interesting that I learned just the other day that though I'm aware of stock valuations, Frank had the impression that I never use the knowledge in my investing decisions. I corrected him about that. I don't remember buying a stock in the last six years (I learned how to value stocks six years ago) without seriously running the valuations first.
When I decided to keep enough cash to cover about 7 or 8 years' living expenses out of the market when I quit working, a large part of that decision was based on my thinking that stocks were very overvalued. You might remember that at the time that I discussed my thinking about that with the thread (this was in early 2000), I got a lot of comments that I was being much too conservative and should put most of it into the market.
When I quit working, I also made the decision that I wouldn't put any of that money in the market unless I saw stocks valued so low that there was blood in the streets. I've never felt stocks have gotten to low valuations, much less blood-in-the-streets valuations. The fact that the valuations have prevented me from taking that money and putting it into the market has saved my ass several times in the year and a half since I quit working.
The moral of the story is that valuation doesn't always work. But for me it's proven to be a helpful tool often enough that I'm glad I use it.
If you believe it would be helpful to copy this into the thread, feel free to do so.
--Mike |
