I was feeling morose when I executed the action a few days back about
selling out the SGP and buying VZ
with the proceeds. Morose and sad because share-wealth-units fell
sharply in my ****tfolio, even though
the money value of the ****tfolio was a rise from $461,000 to that of
$652,000. The OS wants there to be
a rise in both brackets of money value and of share-wealth-units.
I am happy that there was a rise in share wealth units of Verizon
since the $461,000 could only have
bought ---
If in 2002, I had bought only VZ at 32.70 would have given me 14,090
on a tax
basis of $461,000.
Here in 2008, I rest on 16,590 with a tax basis to maneuver of approx
$650,000
(I have not computed the precise basis yet).
But in 2002 if I had bought only SBC (now AT&T) I would have 21,340 of
SBC which I could not
have bought a few days ago. So sad on that score.
But this experience is teaching me alot and forcing me to expand this
research on the OS
of playing the stockmarket. Here are a few questions that I am going
to have to answer in this
book:
(1) How much better is the StockMarket OS compared to buying gold?
(2) How much diversification to fit into the OS?
(3) How does taxes fit into the OS?
I have a gut feeling guess as to what the final outcome of these
researches is going to be. A
guess based on watching Microsoft stock rise in the 1990s and watching
SBC (now AT&T)
rise in the 2000s.
My guess: that the Optimal Strategy of Playing the Stock Market
involves switching and
Crossover to find what I call the Superior Company such as Microsoft
in 1990s or
SBC in 2000s. To use the OS to find these superior companies and then
to find a
point in time in which you fill the bulk of the ****tfolio with that
superior company. And
from thereafter you can only add tiny additions to the superior
company holdings because
it has zoomed ahead so much that the sales costs more in taxes than
switching into
a second company. So you end up stuck with small sales and the
dividends. Stuck
until you find the new Superior Company, and only then can you sell
out in a big
way of the old Superior Company.
Example of what I speak of above: if one started a ****tfolio in 1990
( I do not know if Microsoft
was listed in 1990). Anyway, one starting in 1990 with a cash pile of
$461,000 and was looking
for the Superior company, if they had known it was Microsoft then all
of the cash would buy
Microsoft and sat on it until 2002 when they identified the 2nd
Superior Company of SBC
and would have sold out the entire Microsoft position and filled it up
with SBC (now AT&T).
That is perfect hindsight. More to reality is that it is extremely
difficult to pick a Superior
Company and that is where the Crossover switching campaigns come into
the picture to
help identify and then hopefully park the ****tfolio into the superior
company.
That guess and example addresses the questions of diversity and taxes.
It is far less diverse
than every money manager today is willing to endure. And as for the
taxes, it ties the taxes
with the resolution or decision as to superior-company. If one were
reliving 1990s and 2000s
and they felt confident that Microsoft was the superior company and
filled up the
****tfolio with MSFT and then held on pat until 2002 and sold the
entire position of MSFT
and filled up with SBC, there would have been a huge tax gain. It is
in the millions of dollars
of taxes. So perhaps half of the sales would have gone to pay taxes.
So the new Basis
would have jumped from $461,000 to many millions of dollars and with
that would have
bought all SBC.
Such a scenario would be far ahead in both share wealth units and also
in that of money-dollar
basis.
Now some may say, compute the OS from a IRA account where taxes do not
enter the picture
until old age. My reply here is that time of a person's life is far
more im****tant than to squirrel away
money in an IRA just because taxes are deferred to old age. So I am
opposed to tax deferral schemes
because of this Faustian bargaining of your life's time, that you
trade your young and middle age for
your old age which you may not even reach.
So as for the taxes, I believe the OS is going to say that pay the
piper, and pay the piper in a huge
way, such as selling all of MSFT when the moment you decided that SBC
was going to be the new
and second Superior company.
I believe my above hunches are the OS of StockMarket and I am going to
call it a Quantum Hierarchy
Strategy where the Crossover Switching Campaigns are minor techniques
involved with the overall
game plan. Quantum, because the strategy makes me think of my youth
when crossing a stream or
small river where you use stepping stones and build stepping stones,
where you pay the huge taxes
now and then.
Archimedes Plutonium
www.iw.net/~a_plutonium
whole entire Universe is just one big atom
where dots of the electron-dot-cloud are galaxies
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