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Your Annual TAX-LOSS “HARVESTING” Reminder

Wednesday, October 30, 2024

 

Your Annual TAX-LOSS “HARVESTING” Reminder

 

OCTOBER is typically the WORST month for TRADERS/INVESTORS, and STOCKS that are already DOWN often see further DECLINES. This is partly because many MUTUAL FUNDS, with FISCAL YEARS ending in OCTOBER, unload “UNDERPERFORMERS” to clean up their portfolios.

However, NOVEMBER HIStorically brings a brighter outlook. As the best-performing month on record, NOVEMBER provides an opportunity to sell off weaker stocks that may temporarily bounce, enabling you to engage in some Tax-Loss “HARVESTING” for the year's end.

Though year-end tax planning can be done through DECEMBER, it's wise for YOU, ME, WE the ATWWI FAMILY to begin planning EARLY to have time to develop and execute a solid tax strategy. Below, I explain how to do it…

This year's (2024) big sector winners are UTILITIES and REAL ESTATE INVESTMENT TRUSTS (REITs).

The only sector in NEGATIVE territory year-to-date is the ENERGY sector. Odds are, your overall portfolio is up, as the S&P 500 has gained more than 20% this year (2024).

You may be thinking about taking some profits, but if you have GAINS OUTSIDE OF A RETIREMENT ACCOUNT, you will generate a TAX LIABILITY.

A SHORT-TERM CAPITAL GAIN occurs if you held an asset for LESS THAN ONE (1) YEAR BEFORE “SELLING” IT.

NOTE: SHORT-TERM CAPITAL GAINS ARE SUBJECT TO TAXATION AS “ORDINARY INCOME”.

For ASSETS HELD FOR LONGER THAN ONE (1) you will benefit from a more attractive LONG-TERM CAPITAL GAINS TAX RATE.

The LONG-TERM CAPITAL GAINS TAX RATES ARE 0%, 15%, or 20% depending on your TAXABLE INCOME.

Accordingly, one consideration as we head into the end of the year (2024) is how long you have held a security. By paying attention to the” TIMING” of your sale, you can save yourself quite a lot on your tax bill.

But you can save even more on your tax bill by “OFFSETTING” those GAINS with any LOSSES in your portfolio. This is the time of year that you should look over your portfolio and make those kinds of “STRATEGIC” decisions.

TAX-LOSS HARVESTING

As you scan your portfolio holdings, take a look at the MOST and LEAST PROFITABLE holdings. If you have already SOLD some holdings for a PROFIT, also take note of that.

Companies that are down for the year (2024) can face increased selling pressure as the year (2024) comes to a close. That's why I prefer to do my TAX-LOSS HARVESTING in NOVEMBER.

 

 

 

 

 

If you “SELL” off your LOSERS and harvest those LOSSES, you can “OFFSET” DOLLAR-FOR-DOLLAR your GAINS. This strategy is especially appealing to LIMIT THE IMPACT of SHORT-TERM GAINS.

You can even “SELL” a LOSING company that you still like.

Just be careful about the "WASH SALE” rule in the TAX CODE...

This rule prohibits a taxpayer from claiming a “LOSS” on the SALE OF A SECURITY and then “BUYING” a "SUBSTANTIALLY IDENTICAL” SECURITY within 30 days of the “SALE”.

What does "SUBSTANTIALLY IDENTICAL” mean???

It obviously covers “SELLING” and “BUYING” back COMMON SHARES in the same company within 30 days.

However, an S&P 500 INDEX FUND run by one company may be deemed by the IRS to be “SUBSTANTIALLY IDENTICAL” to an S&P 500 INDEX FUND run by another company.

Let's say you own shares of oilfield services provider HALLIBURTON(HAL), which was one of the WORST performing S&P 500 stocks this year (2024) with a DECLINE of 22%.

You can “SELL” those shares, record the “LOSS” to offset some of your “GAIINS”, and then “BUY” shares in competitor SCHLUMBERGER (SLB), which is DOWN 19% on the year (2024).

When the OIL SERVICES sector rebounds, your SLB shares should RISE, but you received the TAX BENEFIT out of recording the “LOSS”.

I would rather be “FEASTING” on GAINS than “HARVESTING” LOSSES, but smart moves now can save you big time later…

Just don't wait until the “LAST MINUTE” when all the other PROCRASTINATORS are trying to do the same…

GET AHEAD OF THE “HERD” AND YOUR FUTURE “SELF” WIILL THANK YOU!!!

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

Losing Your Head…

Tuesday, October 29th, 2024

Losing Your Head…

“If you can keep your head while all about you are losing theirs…”

It’s the first line of RUDYARD KIPLING’ famous poem in 1895.

It’s all you need to know to navigate the current ARTIFICIAL INTELLIGENCE (AI) “MANIA”. 

Right now, anything vaguely related to AI is being extolled by the media as “THE NEXT BIG THING” and INFLATING those companies way BEYOND THEIR VALUE.

Many think there is a MASSIVE “BLOODBATH” coming in AI stocks…

Now you might be expecting me to “CHAMPION” AI and not advise “EXTREME CAUTION”…

I do believe AI will “TRANSFORM” our lives and make us WEALTHIER and HEALTHIER.

After all, who would not want to eradicate disease and cancer???

Who would not want to work LESS and have MORE money??? 

BUT, I have also been TRADING/INVESTING in the markets for a long time, almost three (3) decades in fact.

I have been around for the DOT-COM “BOOM” and “BUST”, the U.S. HOUSING “BOOM”, CANNABIS STOCKs’ RISE and FALL, and more. 

AND, at each turn, the same thing has happened…

WALL STREET and the MEDIA goes absolutely “CRAZY”...

It borders on some kind of “MANIA” almost “HYSTERIA”!!!

So I know, with 100% certainty, that when a “BUBBLE” appears, a “PIN” will also appear… as certain as “NIGHT” follows “DAY”… to BURST THAT BUBBLE!!!

AI is no exception…

Let me be clear… I am no “CHICKEN LITTLE”... Far from it!!!

BUT, I am an “EXPERIENCED” TRADER/INVESTOR and I am here to show our “BELOVED” ATWWI FAMILY how to monetize the “CAPITALIST OPPRESSOR…as he continuously manipulates society (aka: the “HERD”).

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

Why the EFFICIENT MARKET HYPOTHESIS Is “BUNK”

Wednesday, October 23rd, 2024

Why the EFFICIENT MARKET HYPOTHESIS Is “BUNK”

“I believe there is no other proposition in economics which has more solid empirical evidence supporting it than the efficient market hypothesis.”

– Michael Jensen, Harvard Business School professor emeritus of business administration

You may have heard of the “EFFICICENT MARKET HYPOTHESIS” (EMH).

Put simply, it states that stock prices reflect all information in the markets.

As a result, a stock will always trade at its “FAIR” value.

That, in turn, makes it is IMPOSSIBLE to “BEAT THE MARKET” CONSISTENTLY…

So you should give up on picking stocks and invest all your money in INDEX FUNDS, right???

By matching the market, you will ensure that you end up better off than most investors – with next to no effort….right???

That’s a compelling argument… and one that is tough to refute.

NEVERTHELESS, in this “WIZ” DAILY JOURNAL, I want to reveal why I think the EMH is “BUNK”…

AND, why you should devote at least a part of your portfolio to trying to BEAT THE MARKET(s).

To mainstream ECONOMIST, the EMH is an article of “FAITH”.

EUGENE FAMA of the UNIVERSITY of CHICAGO developed the EMH in the 1960s.

PRINCETON PROFESSOR BURTON MALKIEL popularized it in the 1970s in his best-seller A Random Walk Down Wall Street.

 

Like JOHN BOGLE, the FOUNDER of VANGUARD INDEX FUNDS, MALKIEL argued that the best strategy as an INVESTOR is to “BUY” THE ENTIRE STOCK MARKET THROUGH A “TRADITIONAL” S&P 500 INDEX FUND.

Even WARREN BUFFETT recommends INVESTORS “BUY” LOW COST S7P 500 INDEX FUNDS AND STAY IN THEM FOR THE LONG TERM.

The EMH is a product of the 1960s and 1970s. But economists had very different views both before and after it became the accepted “RELIGION” in ACADEMIA.

ENGLISH ECONOMIST JOHN MAYNARD KEYNES developed a reputation as an “OUTSTANDING” INVESTMENT MANAGER of CAMBRIDGE’S KINGS COLLEGE CHEST FUND endowment from the 1920s through the 1940s.

KEYNES believed that you could achieve “OUTSTANDING” results by MAKING LARGE “CONTRARIAN” BETS ON UNDERVALUED STOCKS.

Plenty of ECONOMISTS “PREACH” the WATER of “EFFICIENT” MARKETS but drink the WINE of “ACTIVE” investing.

The late MIT PROFESSOR Paul Samuelson – the first NOBEL PRIZE winner in ECONOMICS – published a 1965 paper in support of the EMH.

Ironically, SAMUELSON personally made a “FORTUNE” as a FOUNDING INVESTOR of COMMODITIES CORPORATION, a “SECRETIVE” TRADING GROUP that produced some of the “GREATEST” TRADERS in HIStory. He was also a “SIGNIFICANT” INVESTOR in Berkshire Hathaway in the 1970s.

UNIVERSITY of CALIFORNIA, SAN DIEGO PROFESSOR HARRY MARKOWITZ never invested his own pension fund using the EMH… for which he earned the NOBEL PRIZE.

BUT, the ECONOMICS profession has come around in recent years…

YALE’s ROBERT SHILLER won a NOBEL PRIZE for highlighting the importance of MASS PSYCHOLOGY in the markets.

 

In his 2009 book, Animal Spirits, SHILLER (along with UC BERKELEY’s GEORGE AKERLOF) argued that investors make decisions based on “EMOTION” rather than on the “RATIONAL ASSESSMENT OF UNDERLYING VALUE”.

 

Just think of the STOCK MARKET CRASH of 1987, the DOT-COM BUBBLE of the 1990s… or even CRYPTOCURRENCIES today.

Here’s why I think the EFFICIENT MARKET HYPOTHESIS fails to stand up to evidence…

Just because the “AVERAGE” INVESTOR does NOT beat the market does NOT mean that NO INVESTORS beat the market…

 

Think of INVESTING like playing in a chess tournament.

In chess, a few high-level players will win almost all of the games.

In INVESTING, a few top INVESTORS will consistently “OUTPERFORM” the markets.

In both cases, the participants have the SAME INFORMATION…

BUT, the “HIGH-LEVEL” participants interpret this SAME INFORMATION DIFFERENTLY FROM THE MAJORITY!!!

Here’s the most surprising point…

In both CHESS and INVESTING…EXPLOITING THE MISTAKES OF THE MAJORITY CREATES PROFITABLE OPPORTUNITIES FOR THE FEW BUT FAR MORE SKILLED!!! 

 

As CHESS GRANDMASTER GARRY KASPAROV has pointed out, in CHESS, MISTAKES ARE DRIVEN BY “EMOTION”!!!

You can say the same for INVESTING…

It’s “EMOTION” that causes MISTAKES and IRRATIONAL BEHAVIOR.

That’s how market prices can get so far out of line.

So I have two (2) takeaways for you…

If you are a “CASUAL” INVESTOR, take BUFFETT’s advice and INVEST your money in an S&P 500 INDEX FUND.

BUT, if you are COMMITTED to “BEATING” the market…

Just as a “SERIOUS” CHESS PLAYER is COMMITTED to MASTERING CHESS…

Don’t be discouraged by EMH.

Yes, it is difficult to “BEAT” the market…

BUT, it is possible…utilizing our various ATWWI strategies/techniques.

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

You Can’t Become Seriously “WEALTHY”… Unless You OVERSTAND/UNDERSTAND This

Tuesday, October 22nd, 2024

You Can’t Become Seriously “WEALTHY”… Unless You OVERSTAND/UNDERSTAND This

I have often examined and explained how people become “WEALTHY” in this country… and why most people don’t.

The FED announced back in June of 2018 that U.S. household “NET WORTH” hit a RECORD $100.8 trillion.

And in May 2018, it was reported that the number of U.S. households with a “NET WORTH” of $1 million or more hit a RECORD 11.5 million in 2017. (And if you include HOME EQUITY, there were several million more.)

How did so many Americans become highly “AFFLUENT”???

Not through INHERITANCE, TRUSTS or “SPECIAL” CONNECTIONS… AND NOT – as many believe – by running a BUSINESS either…

Thanks to the work of Dr. THOMAS STANLEY – who spent his career studying the “VLAUES” and “HABITS” of AMERICA’s “AFFLUENT – we know that most followed a SIMPLE, STRAIGHT FORWARD strategy/formula.

They MAXIMIZED THEIR INCOME, KEPT A SHARP EYE ON THEIR EXPENSES and, “RELIGIOUSLY” SAVED, INVESTED and, REINVESTED THE DIFFERENCE.

Most people who could “SAVE” DON’T… or not nearly enough… or soon enough.

Yet “SAVING” is only the BEGINNING…

To achieve a “HIGH NET WORTH”, you need to INVEST that money and GENERATE a HIGH RATE OF RETURN.

The best way to do that – especially if you are starting small – is through COMMON STOCKS.

Here’s how you can be sure…

Dr. JEREMY SIEGEL – professor at THE WHARTON SCHOOL of THE UNIVERSITY of PENNSYLVANIA and author of STOCKS FOR THE LONG RUN – researched investment returns in the U.S. from 1802 to 2015.

 

What he discovered is nothing short of “ASTONISHING”!!!

Over this period, the DOLLAR DECLINED – in INFLATION ADJUSTED TERMS to less than $0.05…

A DOLLAR invested in GOLD INCREASED to $2.77 AFTER INFLATION!!!

Clearly, it’s better to hold a “HARD ASSET” like GOLD than a DEPRECIATING ASSET like “FIAT” PAPER CURRENCY.

BUT, it isn’t better than holding other LIQUID ASSETS…

For instance, a DOLLAR invested in TREASURY BILLS over the period would have INCREASED to $273 AFTER INFLATION.

In TREASURY BONDS, with the INTEREST REINVESTED, it would have grown to $1,659.

BUT, every DOLLAR invested in a basket of COMMON STOCKS – with DIVIDENDS REINVESTED – would have turned into $1.3 million AFTER INFLATION!!!

 

That’s right, EVERY SINGLE DOLLAR…

 

GOLD IS NOT THE GREAT INFLATION HEDGE… STOCKS ARE!!!

Yes, there were plenty of market downturns and lots of neck-snapping volatility along the way. (That’s just the price of admission.)

BUT, HIStory clearly demonstrates that nothing BUILDS or PRESERVES a FORTUNE like a “FOCUSED” DIVERSIFIED portfolio of COMMON STOCKS..

Or better yet, UNCOMMON STOCKS that deliver MARKET BEATING RETURNS.

 

NOVICE TRADERS/INVESTORS are often “AFRAID” of the STOCK MARKET. They think of it as a “CASINO”… AND, in “TRUTH”, depending upon how you engage the market, it often acts like one in the SHORT TERM.

BUT, over the LONG TERM, “LUCK” has little to do with it.

As WARREN BUFFETT’s mentor BENJAMIN GRAHAM pointed out, in the SHORT TERM, the market is a “VOTING MACHINE”. Investors cast their votes through their “BUYS” and “SELLS”.

BUT, over the LONGER TERM, it is a “WEIGHING MACHINE”… AND what it “WEIGHS” is EARNINGS!!!

AS CORPORATE PROFITS INCREASE SO DO SHARE PRICES!!!

It is IMPOSSIBLE to CONSISTENTLY “OUTGUESS the STOCK MARKET in the SHORT TERM. Millions have TRIED and FAILED…

I should mention one EXCEPTION, however – a select group of people who are always in the market for the UPSWINGS and out for the DOWNSWINGS.

They are called “LIARS”!!!

As VANGUARD FOUNDER JOHN BOGLE likes to say, “Not only do I not know any successful market timers, I don’t know anybody who knows any.”

By now you should OVERSTAND/UNDERSTAND that nothing generates higher returns than COMMON STOCKS… and nobody can tell you EXACTLY when to be “IN” the market and when to be “OUT”.

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

Are You Ready for Third Quarter Earnings Season???

Monday, October 21st, 2024

Are You Ready for Third Quarter Earnings Season???

Third quarter earnings season recently kicked off with a “BANG”!!!

As they do every quarter, the BIG INVESTMENT BANKS launched the reporting season for quarterly financial results.

JPMorgan Chase (JPM) and Wells Fargo (WFC) both reported results recently.

These big money center banks – together with rivals like Citigroup (C) and Bank of America (BAC) – are major pipelines for money moving through the economy. As such, they can provide bountiful information about both BORROWING and SPENDING (two activities that are vital to economic growth).

 

While LOAN DEMAND remained WEAK in the third quarter – mostly due to ELEVATED INTEREST RATES engineered by the FED since early 2022 – CONSUMER FINANCES and SPENDING CONTINUE to be “HEALTHY”, despite the HIGHER INFLATION of the last few years.

With CONSUMER SPENDING driving roughly two-thirds of economic activity, that’s a very good sign indeed… for both the ECONOMY and INVESTORS.

In fact, industry analysts were predicting WORSE EARNINGS for the BIG BANKS due to still-meager LENDING DEMAND.

BUT, the BANKS have OUTPERFORMED those expectations so far and their EARNINGS are expected to IMPROVE going forward as the FED LOWERS INTEREST RATES and LOAN DEMAND rebounds.

As a result, both JPMorgan (JPM) and Wells Fargo (WFC) stocks SOARED – bringing their best daily performances since early 2023. The S&P 500 also ROSE on the news.

FactSet tracks both earnings estimates by equity analysts and actual earnings, and it predicts the S&P 500 will report earnings growth of about 7% this quarter (compared to the same quarter a year ago).

And as you can see in the chart below, S&P 500 overall EARNINGS have been GROWING at an accelerating pace since the third quarter of 2023…

A company’s EARNINGS GROWTH is the best indicator of where its stock price will go in the MEDIUM to LONG TERM.

By extension, the aggregate EARNINGS of an INDEX are the best indicator of where the BROADER MARKET (in this case measured by the S&P 500) will go in the MEDIUM to LONG TERM.

Bottom line: If EARNINGS continue to grow as they have been for the last four (4) quarters, it’s a very good sign that the current two (2)year “BULL” market can continue to climb.

(That’s assuming there isn’t a shock like a war involving the U.S. or a spike in oil prices, of course).

There’s much more to come…

YOU, ME, WE the ATWWI FAMILY should watch the EARNINGS of several “BELLWETHER” companies over the next few weeks to get a more accurate measure of the “HEALTH” of CONSUMERS and BUSINESSES.

These companies include AIRLINES, MANUFACTURERS, AUTOMAKERS, RESTAURANT CHAINS and, MEGA TECH COMPANIES closely linked to ARTIFICIAL INTELLIGENCE (AI).

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

The Ask The Wiz Wealth Institute is not an investment advisor. We strive to be educational and informative community servants.
 

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