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Strategies & Market Trends : Let's Make REAL MONEY (Big, long-term cap. gains)
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To: Don S.Boller who wrote ()3/24/1998 8:15:00 PM
From: Chuzzlewit  Read Replies (1) of 135
 
Don, first, let me congratulate you on probably one of the very few ideas that works in investing -- buy and hold. I would like to use this opportunity to point out one of the great reasons for this strategy -- having taxes work for you. People often neglect proper consideration of taxes in their investing strategies. I believe the way to look at taxes is as a non-recourse interest-free loan from the government, since taxes are not due until the investment is sold.

Now, let me take a real-life situation and analyze it from that perspective. In 1986 I bought TYC for about $4.25. Today it is approximately $56. That works out to roughly a 24% per annum gain. Assuming I sold right now, that gain would decrease to about 21% per annum using a capital gains rate of 19%.

Now, how would a trader fare in comparison. I will use the simplifying assumption that the trader has a capital gains rate of 29% (It was actually much higher during this period). In order for the trader to equal the return I achieved, He would need to yield almost 29.6% per annum pre-tax!!! And, this analysis neglects transaction fees.

Obviously, the longer the holding period the greater the effect.

Regards,

Paul
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