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Technology Stocks : Vitesse Semiconductor
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To: Dalin who wrote (2377)3/25/1999 4:09:00 PM
From: Chuzzlewit  Read Replies (2) of 4710
 
Dalin a buy and hold strategy works very nicely because of the timing of taxes. It is mathematically superior to a trading strategy because of the ability to stay invested at all times. For example, consider a stock that grows at 30% per annum, and a capital gains rate of 28%. The trader earns 21.6% per annum after taxes, so that at the end of 5 years his total investment has grown by 165.9%.

In contrast, the buy and holder's after-tax stake has grown by 195.3%, or 24.2% per annum. The trader would need to generate a 33.6% per annum rate of return to equal the return generated by the buy and holder. Now, if we assume the more realistic 18% LTCG tax rate the buy and holder generates a 26.4% per annum after-tax gain. The trader would need to generate 36.6% pa pre tax to equal what what the buy and holder generates at 30% pre tax.

TTFN,
CTC
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