Some investment Ideas! by yasermahamad


									First thing Monday morning I'm going to march into my boss's office and
demand a pay cut so that I'll be in a lower tax bracket next year.

      Of course that's ridiculous, but isn't it about the same as the
financial community's "Conventional Wisdom" (CW) for year-end tax
planning? What about the long-term nature of investing, or the merits of
that investment they felt so strongly about in July? What are their
motivations, and what discipline thought up these strategies in the first

      Clearly there are many questions that require answers, but as
investors, it should be crystal clear that the object of the investment
exercise is to make money... just as much as possible, quickly, legally,
and within a low risk environment. The faster it comes in, the more
effectively it can be compounded. Otherwise, wouldn't the "CW" be to find
as many downers as uppers so that there are no tax consequences? Wouldn't
Zero Taxable Gain Investing be the only "smart" investment strategy? A
December, 2004 New York Times Money Section article actually suggested
that Investment Professionals had an obligation to lose money for clients
in order to reduce the tax burden.

      Your Financial Professional's perspective may produce smart tax
advice but only professional investors (not accountants, attorneys,
stockbrokers, financial planners, advisors in general) should be called
upon for acceptable investment advice. CPAs may look smarter if you have
a lower tax liability, but many of them go too far with a calendar year
focus that ignores the realities of an emotional and cyclical investment
environment. Take last year's Merck for example. It has nearly doubled in
Market Value since you were told to sell it last November... who'da thunk
it! Why didn't you buy more (of this and many other high quality losers)
instead of selling? Fortunately, not all professionals are into losing
money. In fact, in nearly thirty years of dealing with hundreds of
Accountants and other advisors, not even a handful have suggested that
clients should take losses on fundamentally sound securities, Equity or
Fixed Income. Just think if you had taken your profits in '99,
purchased the downtrodden profit making companies of the time, and paid
the ugly taxes. The value companies didn't crash. They've rallied for
nearly seven years!

      The key issue in considering a capital loss is the economic
viability of the investment... not your tax situation! A key element of
The Working Capital Model (for investment portfolio management) is to
eliminate the weakest security in a portfolio every time the Market Value
of the portfolio establishes a significantly new "All Time High" profit
level (an ATH). My definitions may be different than those you are used
to: (1) Profit = Total Market Value - Net Portfolio Investment, (2) A
"weak" security is a stock that is no longer rated Investment Grade by S
& P, or no longer traded on the NYSE, or no longer dividend paying, or no
longer profitable. Income securities whose payout has fallen to way below
average (or risen to an unsustainable level) could also be culled at an
ATH. Securities that have fallen considerably in Market Value for no
apparent reason (other than recent news or changing interest rate
expectations) are referred to lovingly as "Investment Opportunities".
This is what you look for while trying to reinvest your profits... like
last year's MRK. By the way, switching from the strong asset class to the
weaker one as a "hedging strategy" or vice versa (as a greed motivated
speculation) is simply an attempt at "market timing", not a
"sophisticated" or "savvy" adjustment to your asset allocation. Asset
Allocation is always a function of personal factors and never a function
of asset class (Equities and Income Generators) directional speculation.

      So what happens if a new portfolio ATH is achieved in February or
August instead of in November or December? (Note that the financial
community only preaches tax loss strategies during the last calendar
quarter.) Should you unload all the weak issues at the same time, even
those purchased just a few months ago? Management of your portfolio
requires the disciplined application of consistent rules and guidelines,
and every manager will develop his or her own style. But in a high
quality, properly diversified, income generating portfolio, (1) the
number of weak issues will generally be small and (2) the probability of
escaping with only a minimal loss very real. Keep in mind two basic
investment axioms: There is no such thing as a bad profit, regardless of
the tax implications; and no matter how you may rationalize, there's no
such thing as a good loss. So, sure, if a loss should be taken due to an
ATH in February, bite the bullet on the one security (only one) with the
declining fundamentals (A Merrill Lynch/CNN/CFP opinion is not a
fundamental.) If there are none, good job!

      Profits are the holy grail of investing. Few people will admit just
how infrequently they have experienced them or, conversely, just how
frequently they have watched them disappear beneath the waves of a
correction. (Like gamblers retuning from Vegas... no one ever seems to
lose!) Similarly, most financial professionals will counsel their charges
to let their profits run, particularly around year-end. Surely, speaketh
the CW prophets, these profits will hang around until next year, thus
deferring those terrible taxes! (Worked real well at year-end '99, you'll
recall.) Don't think for a moment that anyone knows what will happen this
time around the rally pole, particularly in those ridiculously priced
ETFs, which are put together with the same kind of spit and duct tape
used for the dot.coms. Always take your profits too soon, because you
can't get poor that way!

      First thing Monday morning I'm going to: (1) Call my accountant to
tell him that I'm going to help him reduce his tax burden by not paying
him, (2) continue to view the Investment process in cyclical rather than
calendar terms, (3) limit my tax liability by how I invest, not by taking
unnecessary losses, (4) continue to make as much money as possible, as
quickly and safely as possible, and (5) contact the media, my political
representatives, and anyone else I can think of that will help in the
fight to abolish the taxation of all investment and retirement income.

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