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Technology Stocks : LSI Corporation -- Ignore unavailable to you. Want to Upgrade?

To: shane forbes who wrote (18594)	5/30/1999 12:30:00 PM
From: sea_biscuit	Read Replies (2) \| Respond to of 25814

Shane, I do understand the power of compounding. However, there are occasions when one has to rethink the buy-and-hold religion, even while largely remaining an adherent of that philosophy. Too many investors freeze themselves into never selling because of what they perceive as huge tax liabilities. Selling periodically along the way, paying the resultant tax (btw, I ALWAYS set aside the tax payable in a separate "bucket savings account" whenever I take my profits), and then buying another stock (or even the same stock on a dip) rids one of this psychological "lock-in". While this strategy is very effective for non-blue-chip company stocks (like LSI), it is sometimes applicable even to blue-chip stocks. IBM is a good example. It began faltering in 1985, but the share price hovered around $160 in '86 and '87. Thousands of investors had locked in huge gains (in some cases, ten-fold gains). At $160, they "couldn't sell because of the huge amount of taxes to be paid". The same argument was advanced at $120 in 1990-91, and at $90 in 1992. The problem was "solved" for many of them when the stock fell below $40 in 1993. Only then, after two dividend cuts and with earnings running in the red, was the threat of taxes small enough for them to sell (at the bottom). "Buy and hold" is wonderful and has to be followed for the most part, but an investor also has to realize that being emotionally and intellectually prepared to sell any holding at any time will free the investors from "the tyranny of the tax lock-in". Btw, this also ties in with my "dividend growth philosophy". While enabling and encouraging a "buy and hold" approach, it also forces the investor to sell when things start turning sour. In the IBM example above, the stock was well above $100 when the dividend was cut, but those who let the tax tail wag their investment dog generally sold only after the stock plummeted, not when the dividend was cut. My feeling is that such a story will repeat in the case of LSI too. As the stock soars ahead, the "tax lock-in" will prevent many investors from taking profits. They will sell only when their taxes are much lower, i.e. when their profits are also much, much lower!