John, capital gains tax on shares in NZ is payable if somebody is a trader of shares. Which is an ill-defined definition, depending on how many trades a person makes, how long they held the shares, whether the company pays taxable dividends or in-kind payments such as the Leap Wireless spinoff. Intention at time of purchase is an important defining issue.
If a person is not a share trader, they don't have to pay capital gains tax. It's not a clear definition and a single sale can create the definition of a share trader if the purpose at the time of purchase was to sell at a higher price. Which many argue is automatically true, but is not necessarily as one can intend to always own a share and pass it on to inheritors of the deceased estate.
So, I had to be careful with QUALCOMM having been the best performing company in human history in 1999 in terms of percentage capital appreciation to the end of a year from a start of over $1 billion at the beginning of a year - to exclude little companies [I'm making this up, but I think it might be true].
If I sold it at the end of 1999 at $180, I'd have had to pay nearly 40% tax [= $70] leaving $110. Which is a LOT better than the current $50. I was very tempted. But I did NOT think that QUALCOMM would fall to such levels.
All indicators were set for Telecosmic greatness for 3G CDMA and sooner rather than later. So, I would not have been thrilled to sell at $180, then watch it slowly wind up to $500 over a period of 5 years, with me on the sidelines having waited 10 years, as billions of people switched from GSM to 3G CDMA and Globalstar filled in the gaps.
I was not at all surprised to see QUALCOMM drop to $120 but was surprised to see it drop to $50 and was VERY surprised to see it go to $38.50. Fortunately, when loading my Tonka Truck with debt to buy Globalstar at what was a great bargain price of $15, I assumed it might go to zero and QUALCOMM could go to $50 and I didn't want to be kicked out at the bottom. So my margin debt absorbed those shocks intact.
To be categorized a share trader would have been undesirable. Since I can't predict short term fluctuations, if my long term valuation of the company exceeds the current price, I figure it's better to own it, even if others are likely to bid it down again, because they misunderestimate the value, in my opinion anyway.
If they suddenly realize the value is there, as I believe, it would be silly to try to second-guess when they will discover that value. Things happen quickly in markets, both up and down. Nobody rings a bell at the top or the bottom.
So, you are right, given what happened, I would be much better to have been a share trader. Even with the weird capital gains tax rules in NZ.
<I seem to have got in trouble with some of my posting to you, > Not from me. I appreciate your posts which I find thought-provoking, of high quality and I am still pondering the QUALCOMM valuation post you wrote some months ago. I saw the G&K 'true colors' post and discussion ... I suppose you are referring to that.
So the upshot is that there is a quantum jump from taxable capital gains to non-taxable. Guessing what the market volatility will be is a good trick. I opted [incorrectly] for long term buy and hold, even though the maniacs had bid QUALCOMM up to levels which made me queasy and tempted me to take the bird in the hand.
I'll answer the rest of your great post separately.
Mqurice |
