# Taking profits or holding



## dj_420 (9 November 2006)

i have a question which which affect people who have a longer term view of the market. the fact is that do people sell out during a correction only to buy back in later. this would mean you pay tax on your gains and then reinvest.

i have a number of scenarios which play out this idea. this is if you think market is just correcting itself. all hypothetical and assuming you have originally invested $50 000 and your portfolio has increased 100% so on paper its $100 000

scenario one
you sell everything and get taxed 50% on your gains $50 000. 
paper = $0
cash = $75 000

scenario two
you hold your entire portfolio and market corrects 10%
paper = $90 000
cash = $0

scenario three
sell down original investment and retain other half. market corrects 10%
paper = $45 000
cash = $50 000

so from these scenarios it is obviously more viable to hold for long term or sell down original investment (avoiding taxation) and re-invest following correction.

does anyone use this method or do they just sell out completely during correction. i feel that my portfolio is for the medium term to longer term and dont wish to sell out or i will have to pay tax on current gains.

i feel if i am to sell out i would sell out my original investment and then be able to average down in correction and not be taxed at all.

obviously this is from the long term viewpoint. short term would be completely different.

any opinions?


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## Kauri (9 November 2006)

dj..
          What was your selling strategy/plan when you set up your portfolio?


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## dj_420 (9 November 2006)

at the moment i have mostly miners in my portfolio. but only sectors which i believe will be supported by great market fundamentals such as zinc and uranium.

my strategy is to hold my zinc stocks for medium term and my uranium stocks for long term.

i will be adding other sectors to my portfolio along the way. but i want to take a medium to long term approach with my investments.

i have tried to find undervalued shares with good growth potential over the next couple of years. 

now since i have invested in these stocks they have made considerable gains, its tempting to sell out and take my profits but i believe that these companies have great further growth potential.

a good idea is to use these weaker or down days to top up and invest in other companies that are undervalued.


once i develop a greater understanding of the stockmarket i will be making a short term acct for short term plays, but at the moment am content to stick with what i know.


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## Happy (9 November 2006)

dj_420 said:
			
		

> scenario three
> sell down original investment and retain other half. market corrects 10%
> paper = $45 000
> cash = $50 000
> ...




Correct only if shares sold do not give any profit, so called inactive part of portfolio. 

If shares sold give profit, tax has to be paid.


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## tech/a (9 November 2006)

> scenario two
> you hold your entire portfolio and market corrects 10%
> paper = $90 000
> cash = $0




Your presuming the Portfolio corrects the same as the market.
If your holding ASX 300 stocks thats likely.

If your holding Smalls its highly unlikely.

Tax is an issue. But you either pay the tax or if you you may give it back to the market.
Its a hard call.
I personally am keeping all longterm portfolio's.
But I short term trade as well.


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## zeezee1962 (9 November 2006)

not sure if this helps but at first i was a buy & hold (all blue chip) and still have them
but now i put my money into stock that i think give me a return over a short time of a day - a month so far it seems to be working 
eg brought 40000 @14c then sold two weeks later @.195c then brought 40000 @ .17c three days later  sold @.205 one month later 
as my system told me when to sell and then showed me when to get in again 
i have ten stocks that i watch on most days and if the system tells me to buy i buy and 8 out of 10 times it is right so may be that is of some help


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## Mellow77 (9 November 2006)

scenario one
you sell everything and get taxed 50% on your gains $50 000. 
paper = $0
cash = $75 000


Wait a second. Are you telling me that every gain from stocks is taxed 50%? 

Last year I made a profit of $2000 and did not definitely pay 50% from it. I just add it to my salary (very low, just part time work) and taxed it together. At least that was how an accountant told me to do.

Should I expect any problems from tax office?

NB: I come from Czech Rep. and we have a very nice low - to support long term investors over speculative traders, when you hold papers for longer than 6 months, then sell with profit, you do not have to pay tax at all  

cheers


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## nizar (9 November 2006)

dj_420 said:
			
		

> scenario two
> you hold your entire portfolio and market corrects 10%
> paper = $90 000
> cash = $0





The above scenario, at least in my view, is flawed. During a correction, my stocks fell MUCH MORE than 10%. During April, KZL fell by like 30%, OXR by 34%, and OMC a fair fair plummet. Thats why im much more cautious now. I sold out of everything on Tuesday.

My stocks are for the long term, but i realise now, that industry outlook, company profitability, company assets, and management reputation (such as owen hegarty is the best) mean nothing to me anymore. If the share price goes up u make money, and when it goes down u lose money, thats really how simple it is.

I felt as though a correction MAY happen after the election and i have mentioned this is other posts previously. So i planned my investment decisions accordingly. Next week, if no, correction, ill jump back in perhaps. Will i pay a bit more for my stocks? maybe. But the main thing for me now is peace of mind, and not being too greedy. And yeh, locking in those profits


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## Kauri (9 November 2006)

In my opinion people are getting far too used to the market going relentlessly 
in one direction. What has the XAO "_pulled back_" in the last two days, 1% ??.
For me a little drop to the May highs of 5350'ish and a bit of consolidation there would be welcome, rather now than later when it may need a larger % drop to prove that area up. Every correction, crash, whatever, may start with a 1% initial drop, but not every 1% drop starts a correction, crash, whatever. Set your stops when you _*initially*_ place the trade, adjust them up as required, and let the market decide when you should exit.


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## zeezee1962 (9 November 2006)

well said


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## chops_a_must (9 November 2006)

Fundamentals good. No can dunk.


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## Julia (9 November 2006)

For me it depends on the stock.  Core long term companies like the banks, Woolworths etc I would always hold during corrections unless there is some major fundamental news which would mean drop might be sustained, e.g. the problems with the NAB until recently.

But I'm more cautious with resource stocks other than e.g. BHP.

Julia


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## CanOz (9 November 2006)

Kauri said:
			
		

> In my opinion people are getting far too used to the market going relentlessly
> in one direction. What has the XAO "_pulled back_" in the last two days, 1% ??.
> For me a little drop to the May highs of 5350'ish and a bit of consolidation there would be welcome, rather now than later when it may need a larger % drop to prove that area up. Every correction, crash, whatever, may start with a 1% initial drop, but not every 1% drop starts a correction, crash, whatever. Set your stops when you _*initially*_ place the trade, adjust them up as required, and let the market decide when you should exit.




Ditto, i'm holding as long as my stops hold, trade the plan man.


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## Fab (9 November 2006)

I am actually surprised that the correction has not been stronger after the annoucement of the rate increase and the democrat win in the US plus commodities drop that is normally a trifecta of event which could have create a mini crack in my opinion


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## CanOz (9 November 2006)

Fab said:
			
		

> I am actually surprised that the correction has not been stronger after the annoucement of the rate increase and the democrat win in the US plus commodities drop that is normally a trifecta of event which could have create a mini crack in my opinion




Maybe it shows that the market could care less about the U.S. and more about the hands that are really feeding it?


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## Freeballinginawetsuit (9 November 2006)

Fab said:
			
		

> I am actually surprised that the correction has not been stronger after the annoucement of the rate increase and the democrat win in the US plus commodities drop that is normally a trifecta of event which could have create a mini crack in my opinion




The last two days haven't been a correction!, not even close.


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## chops_a_must (9 November 2006)

Fab said:
			
		

> I am actually surprised that the correction has not been stronger after the annoucement of the rate increase and the democrat win in the US plus commodities drop that is normally a trifecta of event which could have create a mini crack in my opinion




Commodities go down maximum .5% in a night, after going ballistic for 2 months, with upward pressure, and you're calling it a drop? It doesn't make sense.


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## rub92me (13 November 2006)

chops_a_must said:
			
		

> Commodities go down maximum .5% in a night, after going ballistic for 2 months, with upward pressure, and you're calling it a drop? It doesn't make sense.



This goes to the heart of the hypothetical scenarios by dj. When do you call it a drop, when do you start protecting your gains (lock in the profits) and how do you know it is only a (shortish term) correction, and not the start of a major bear dump...


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## nizar (13 November 2006)

rub92me said:
			
		

> how do you know it is only a (shortish term) correction, and not the start of a major bear dump...




You dont know. I just prepare myself for the worst case scenario.


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## CanOz (13 November 2006)

nizar said:
			
		

> You dont know. I just prepare myself for the worst case scenario.




Nizar, do you think he Zinc stocks will rebound, and if so will you be ready to buy them?


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## nizar (13 November 2006)

CanOz said:
			
		

> Nizar, do you think he Zinc stocks will rebound, and if so will you be ready to buy them?




Yes i think they will rebound in due time.
I will only buy on the way up, when the momentum is clearly upwards. I wont try to catch a falling knife or pick a bottom coz ill most likely get it wrong. I prefer averaging up rather than averaging down. I would expect zinc spot to bounce off us$1.80/lb.

Sitting on us$1.91/lb now down about 3%.


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## Buster (14 November 2006)

Fab said:
			
		

> I am actually surprised that the correction has not been stronger after the annoucement of the rate increase and the democrat win in the US plus commodities drop that is normally a trifecta of event which could have create a mini crack in my opinion



Nah.. I think both results were a given.  Certainly every analyst who got airtime was calling the rate rise, and for some time.. 

Same with Bush losing his hold.. the amount of Bush bashing that's been going on (again for some time, like almost since he was re elected..  ) pretty much indicated his party was going to lose (loose for those on the spelling thread..  ) control of the senate..

Just my   ..

Cheers,

Buster


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## Ken (14 November 2006)

i think everyone feels it when bhp drops.  because most people see that as the bench mark... it has driven the market along.  and aas it has not performed for past 6 months...  questions are being asked.


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## Kremmen (14 November 2006)

Mellow77 said:
			
		

> Wait a second. Are you telling me that every gain from stocks is taxed 50%?




Don't worry, he's not saying that. The scenario is probably assuming that most people buying and selling $100k worth of stock at a time will be in the top marginal tax bracket anyhow, and therefore will be taxed at about the 50% level. (or half that if you've held the stock for over 12 months)


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