From: nfs@volkl (Norbert Schlenker)
Subject: Re: Taxes and stocks (mostly)
Originator: news@nimaster
Organization: Princeton University, Dept. of Computer Science
Date: Fri, 20 Nov 1992 17:10:06 GMT

In article <1992Nov19.133054.5703@desire.wright.edu> demon@desire.wright.edu (Stupendous Man) writes:
>[article attribution gone, but it was me who wrote ...]
>> Successful traders base all their trades on paper.  Successful TRADERS mark
>> their holdings to market every day; every day you operate as if you bought
>> at yesterday's close.  Yesterday's profit or loss means nothing today.
>
>Mmmm, I don't know if I can agree with your definition of "successful". 
>Success is based on results, and not strategies.

Point to you.  You were, however, talking about how traders thought
about their position.  Traders, as opposed to investors, know that
yesterday's results are fixed, so only today's (and tomorrow's)
results really matter on any given day.  Traders must forget what they
paid for something, and successful traders look back no further than
yesterday. What you paid merely clouds your judgement as to what you
should do today.

>>>Selling and buying back immediately simply locks in whatever profit
>>>you have at that time.
>> 
>> And it raises your cost base.  It reduces future taxes at the cost of
>> today's taxes.  If you anticipate future taxes will be higher, then it
>> may make sense to pay ahead.
>
>	And of course you no longer have the tax money or the commission money
>to invest....

I'll admit you have a point.  Ted Frank will admit you have a point.
But Ted Frank is talking about a situation where the capital gains
rate went from 20% to 28% over year end; that is not an insignificant
jump.  Portfolios with large capital gains in them would be obvious
candidates for sale before such a change.  The question is whether
it's better to pay a 1% commission today to avoid an 8% increase in
taxes.  In many cases (I would guess in ALL cases where one would
anticipate a sale anyway within a few years), paying the commission is
the right thing to do.

>>>        Heh.  So your portfolio is up how much this year?  Mines up 40% so far.
>> 
>> Don't start with numbers.  If numbers are the only guide to the truth,
>> what are you going to do when I say that I agree with Ted Frank and I
>> beat your 40% going away?  Does that make Ted Frank right?
>
>	Nope.  My comparison is with Ted.

Look, I too believe that the spike in capital gains revenues had
everything to do with people accelerating gains into a low tax year,
and that the subsequent falloff in revenues is at least partially a
result of said acceleration.  The rise in the capital gains rate has
not led to a long term reduction in capital gains tax revenues.  This
matches what I take to be Ted Frank's position, and I assume you will
disagree.

Still care to compare returns for the past year?  Or maybe you should
just retract your claim that political views have anything to do with
investment success?

>	BTW-how much more would you have if you had held?

On balance, it's a wash.  All my talk about traders may have misled
you, though - I am not one.  I consider myself an investor who takes
advantage of mispricing.  For the most part, 1992 has been quiet - of
those things I have sold, some are up and some are down since I sold
them.  I don't worry about it.  I am looking for ways of investing my
profits, though. :)

Norbert
nfs@cs.princeton.edu

Newsgroups: misc.invest