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AlbionWood
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Urban refugee from the San Francisco Bay area, now living a slacker lifestyle in the redwoods on the Mendocino coast of northern California. Husband to a wonderful wife, father to a pair of bratty dogs, I grow food and make furniture and cider and beer, and do a Celtic music show on public... More
  • Buy Signal Of The Year? 2 comments
    Nov 19, 2012 6:05 PM

    "John Moorin, the founder of a medical equipment company near Indianapolis, said he sold about $650,000 in dividend-paying stocks like McDonald's and Coca-Cola a few days after the election, worried about the potential increase in taxes.

    "I love these companies, but I'm so scared that now all of the sudden I'm going to get taxed at such a rate with them that they won't be worth anything," Mr. Moorin said."

    (NY Times, 11/18/12, "Investors Rush to Beat Threat of Higher Taxes" - emphasis mine)

    This guy is afraid that allowing parts of the Bush tax cuts to expire might render stock in KO and MCD worthless. Not just worth less than they are now, but not worth anything.

    Further on in the article, a chiropractic business owner describes her fear of crossing the $250K income threshold and becoming subject to a possible increase in the marginal tax rate. Apparently the tax hysteria now extends to fear of increasing your net income!

    These people aren't dumb; they are smart enough to be successful. Yet their fear (of losing money to taxation) is causing them to make decisions that are probably going to cost them money. Mr. Moorin is almost certainly saddling himself with a sizeable capital-gains tax bill, as he sells stock at or near the bottom of a market correction, leaving him with a pile of cash to reinvest - most likely after the market has recovered and the same stocks are selling at higher prices. (He also gave up about $20K/yr of dividend income.) The chiropractor is planning to avoid making more than $250K, even though an increase in the marginal tax rate would almost undoubtedly still leave her with more money to spend.

    This kind of irrationality is unlikely to persist for very long. At some point, investors realize the world hasn't ended yet, and they still need to invest. Business owners eventually realize they end up with more money in their pockets if they grow their businesses, even if it means paying more taxes along the way. Life goes on; the market rises, falls, rises again. Periods of fear are usually the best times to invest.

    Too bad this article didn't come out last Thursday, as it now looks like Friday may have been the best buying opportunity of the year. Today wasn't as good, but I still bought. We'll see how it all goes from here.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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  • guyinthearticle
    , contributor
    Comment (1) | Send Message
     
    Hi this is John...to follow up....not much in way of capital gains....I took some of the money and paid off a mortgage on a rental property....I read seeking alpha lots and follow Todd Johnson....I am probably looking to have him help me....I am pretty dumb when it comes to this and got burned in 07....met with a reputable financial planner.....market fell sharply....I became half the man I used to be but didn't go through a divorce....waited it out....didn't have the stomach to go through it again....I don't really believe ko and mcd are going to zero...should have chosen my words more carefully...not used to talking to a newspaper....I don't like that left and right can't get along....I saw the republican pundits dead sure that Romney would win...I saw the democratic pundits sure that Obama would win....they both had passion and made compelling arguments....one side was wrong....I see arguments to stay the course.....I hear arguments that we are heading for trouble...I am frozen....want to get some clarity til I stick my head out again in the line of fire....there is a video that Gary Kamiskey(sp) did for cnbc...about four minutes....if you watch it it will make you think....I respect his acumen.. My takeaway was banks sold us out at different periods and to him it looks as though this is going on now...I am not advising anything...not qualified to do so.....take care
    John
    28 Nov 2012, 05:39 AM Reply Like
  • AlbionWood
    , contributor
    Comments (769) | Send Message
     
    Author’s reply » Hi John, thanks for providing your side of the story! It still sounds to me as if you are making decisions based on emotion, which is how most investors lose money - it leads us to buy high and sell low.

     

    Mortgage rates are so low right now that it's possible you could have made the payments with the dividends from the MCD stock; by selling the stock and paying off the mortgage, you eliminated a tax deduction and threw away the possibility of capital appreciation on the stock. I can't see how that is going to work out for you in the long run.

     

    Instead of watching CNBC pundits, who get paid for talking and are never held to account, try reading Jeff Miller at A Dash of Insight. He might be the most rational financial writer I've come across.
    http://bit.ly/SuElLX
    28 Nov 2012, 09:27 PM Reply Like
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