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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: jeffbas who wrote (3575)	3/22/1998 11:55:00 AM
From: Chuzzlewit	Read Replies (2) \| Respond to of 78594

Jeffrey, let me give you one example. I bought TYC about twelve years ago for approximately $4.50 (split adjusted). It is currently selling at about $55. Neglecting dividends, this works out to an annual rate of return of a little over 23%. If it were originally bought as an "undervalued" security and sold when "fully priced" (in the words of the analysts) I would have probably sold it a year later at $6. But now, consider this. The short term profit would have been decent (about 33% per annum) BUT 1. I would have had to pay capital gains taxes which would have reduced the gain by about 1/3 or 22% after taxes; and 2. the investment returned 22.3% (pre-tax) for the remainder of its life! (it is still live and well). Notice the fact that taxes significantly reduce returns. That's why a buy and hold strategy is so effective -- you avoid paying taxes. In effect, you could think of capital gains taxes as zero interest non-recourse loans from the government. So, the bottom line is: give me a TYC anyday of the week over a "turnaround" that is undervalued that does not have prospects for long-term growth. And that's why I like companies like ATI and ASI and TLAB and PSFT. Regards, Paul