Stock Market Analysis: 04/06/09

I did write a paper in 2003 about the potential implications of the tax law change for businesses that you can read. Behavioral economists attribute the disposition effect to a variety of factors including over confidence (that your original analysis was right and the market is wrong), mental accounting (a paper loss is less painful than a realized loss) and lack of self control (where you abandon rules that you set for yourself). There are several products on the market including Retin-A, Clearasil, Proactiv Solutions, and more that all try to tackle the issue of fighting acne. Now that there is the possibility that the law will be reversed, it is time to revisit the issue. 2B. Now assume that you are looking at the same unique boutique trading at $10/share, but that it already part of your portfolio and you bought it at $50/share. Regular value audits: The easiest path to the disposition effect is denial, where we refuse to look at the investments that we already have in our portfolio because we are afraid of what we may find.

It is a bludgeon, because that stock may very have become a bargain, but you may be saving yourself some bad disposition effect losses. In effect, I argued that the tax change would have a positive effect on stock prices, that the effect would be greater for “high” dividend paying stocks than for non-dividend paying stocks and that corporate dividend policy would be altered by the change. I think from our perspective, if you do see Democrats win both of those seats with a 50-50, very slim majority in the Senate, we could see some action that could results in a tax increase really in late 2021 or 2022,” Chris Meekins, healthcare policy analyst Raymond James, told Yahoo Finance. Since I have about 40 stocks in my portfolio, it does require some discipline but I think it has been well worth the cost. Increased usage of financial leverage will lower a firm’s composite cost of capital indefinitely.

In 2003, the tax code was altered to bring the tax rate on dividend income down to 15%, to match the tax rate on capital gains. Put simply, all of the tax changes made in 2002 and 2003 expire at that time, and the tax code will, in large part, revert to what it was prior to those changes. Thus, rather than having to admit that I made a mistake, I can pat myself on the back for a savvy tax trade. For every winner that I sell each year (and I do sell one or two that have become over valued, at least in my judgment), I look for a loser (which is also over valued, in my judgment) that I will unload to reduce my tax exposure. It forces to me to take a look at the company, as if it were a new investment, and decide whether it deserves to stay in my portfolio another year.

One practice that I have instituted for myself is that I have to value every company that is already in my portfolio at least once a year. A great deal has been written about the “fiscal cliff” that US taxpayers, investors and companies are faced with at the end of this year. The problem is that investors seem to have different sets of rules, one for new or marginal investments, and one for existing investments. If one only invest in stocks, they could only use 35% of CPF-OA and none in CPF-SA. One of the big fallers in 2020 is the Kia Sportage, which was 2018 and 2019s tenth most-bought new model. One wonders, however, how long this most recent capital raise will last. That was, in a sense, a revolutionary move, at least for the US, since dividends had been taxed much more heavily than capital gains for much of the previous century.

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