Taking profits or holding

[dj_420]

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?

 

[Kauri]

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

 

[dj_420]

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.

 

[Happy]

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

sell down original investment (avoiding taxation)

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.

 

[tech/a]

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.

 

[zeezee1962]

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

 

[Mellow77]

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

 

[nizar]

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

 

[Kauri]

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.

 

[zeezee1962]

well said

 

[chops_a_must]

Fundamentals good. No can dunk.

 

[Julia]

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

 

[CanOz]

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.

 

[Fab]

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

 

[CanOz]

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?

 

[Freeballinginawetsuit]

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.

 

[chops_a_must]

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.

 

[rub92me]

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...

 

[nizar]

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.

 

[CanOz]

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?