Investing 102

[CRCRFT78]

On top of the rollover IRA and the Schwab brokerage account, do you recommend also opening a Roth IRA and possibly more than one brokerage account? I'm trying to get the ball rolling but don't want to overwhelm myself either. I'm definitely having a good time reading all of the posts and absorbing all of this information.

[billscamaros]

Originally Posted by GregWeld

What I can't answer for you - is - say you bought 10 shares at $100 ($1000) and it's now worth $3000 -- and you just want to take your original $1000 out and leave the "Gain" ------- and that is what I think you're asking...... and I have to tell you I honestly do not know the answer.

Not quite. So I still have 10 shares that are now worth $300/share. I want to leave the original $1000 in place and move the $2000 in "gain" to some other stock because I want to rebalance my portfolio. So I sell $2000 of the stock and buy $2000 of stock in some other company ... all within my brokerage account .... I don't receive any of this in actual cash payout. (And let's assume that it's a straightforward brokerage account .... not a regular or Roth IRA account. So I already paid tax on the original $1000.)

Let's assume that I had that original stock for a couple of years, so that $2000 gain is a long term capital gain - correct? And I immediately re-invested the gain into another stock. I guess that my question is: given this scenerio, when do I pay tax on my capital gains .... in the tax year that I make the capital gains, or when I actually take the payout from the account?

[billscamaros]

Originally Posted by pw2006

Hey billscamaros- You would pay taxes on the gains in the year they were incurred, the tax basis does not roll into your new stock purchase.

Ahhh .... I didn't read thru all of the posts prior to asking my latest question. So, the answer is 'yes' .... the capital gains are defined immediately upon selling the stock.

[GregWeld]

Originally Posted by billscamaros

Not quite. So I still have 10 shares that are now worth $300/share. I want to leave the original $1000 in place and move the $2000 in "gain" to some other stock because I want to rebalance my portfolio. So I sell $2000 of the stock and buy $2000 of stock in some other company ... all within my brokerage account .... I don't receive any of this in actual cash payout. (And let's assume that it's a straightforward brokerage account .... not a regular or Roth IRA account. So I already paid tax on the original $1000.)

Let's assume that I had that original stock for a couple of years, so that $2000 gain is a long term capital gain - correct? And I immediately re-invested the gain into another stock. I guess that my question is: given this scenerio, when do I pay tax on my capital gains .... in the tax year that I make the capital gains, or when I actually take the payout from the account?

When you'd take the action to SELL the stock - that very instant if you have a gain - you've got a taxable event. So let's say you'd bought stock in 2009 and sold some for a gain in 2012 -- you'd have a taxable event in 2012 to report (provided it's in s normal account for this discussion). Doesn't make any difference that you rolled it into another stock - you took the gain. That help??

[GregWeld]

Originally Posted by CRCRFT78

On top of the rollover IRA and the Schwab brokerage account, do you recommend also opening a Roth IRA and possibly more than one brokerage account? I'm trying to get the ball rolling but don't want to overwhelm myself either. I'm definitely having a good time reading all of the posts and absorbing all of this information.

Jose -- A ROTH IRA is the best thing that ever happened to the American SAVER.... because you could put $4000 in there and it could go to a MILLION and upon retirement (proper age per the rules) you could pull out the retirement amount (again - allowed by the rules) and have NO TAXES....

Dude! It just doesn't get any better than that!

So yes - by all means - if you qualify for - and can contribute to a ROTH - HELL YES! Pound it! That's free money!

[billscamaros]

Originally Posted by GregWeld

When you'd take the action to SELL the stock - that very instant if you have a gain - you've got a taxable event. So let's say you'd bought stock in 2009 and sold some for a gain in 2012 -- you'd have a taxable event in 2012 to report (provided it's in s normal account for this discussion). Doesn't make any difference that you rolled it into another stock - you took the gain. That help??

Yes ... that answers the question! Thanks again for your insight and your willingness to share it!

[68 stang]

Yes Greg that all makes sense to me. I just have 2 more questions.

What to do when the FED raises the interest rate?

Would you sell your shares in a company if the management team starts to leave the company, and it has been a proven performer?

[GregWeld]

Originally Posted by 68 stang

Yes Greg that all makes sense to me. I just have 2 more questions.

What to do when the FED raises the interest rate?

Would you sell your shares in a company if the management team starts to leave the company, and it has been a proven performer?

I'll do NOTHING once the FED starts to raise interest rates... because that would mean that the economy is IMPROVING so stocks will get a nice boost from that (MY GUESS ONLY SINCE WE DON'T KNOW). But maybe by the time the FED gets back to 2 or 3% -- I might start thinking about thinning (raising cash) so I can be ready to buy more bonds. BUT Remember that for most of you - you're on the 20 - 30 - 40 year plan... and steady and not moving around is what is going to work best for you.

If the economy is good - then you're stocks should provide you with growth and that nice dividend. Compounding that dividend is - over time - what works.

What most people do is buy at the top - and sell at the bottom - and then buy something else at the top and sell low etc. You really can't "time" the market or when it's going move - you'll always be behind the curve. SO for 99.9% of investors (including me) they're better off just staying where they are and putting NEW MONEY into the alternative (Bonds/CD's etc).



++++++++++++++

If the news is bad on a company - and the board is firing the heads etc because of it - I'd bail.... Otherwise you're gambling that the "new guys" can right the ship. I'd rather be in shares that don't have that issue.

[Woody]

Greg,

You have mentioned in a couple of your posts that you believe Apple is priced for perfection. A few of questions.

Does that mean you think it is currently over-valued?

Would you buy it now if you did not own it already?

Can you take us through your thought process in determining why it is priced for perfection.

You mentioned that the PE is roughly 14 and the overall market PE is about 15. Would that not indicate it is slightly undervalued or am I misinterpreting the use of the PE.

Thanks

[GregWeld]

Originally Posted by Woody

Greg,

You have mentioned in a couple of your posts that you believe Apple is priced for perfection. A few of questions.

Does that mean you think it is currently over-valued?

Would you buy it now if you did not own it already?

Can you take us through your thought process in determining why it is priced for perfection.

You mentioned that the PE is roughly 14 and the overall market PE is about 15. Would that not indicate it is slightly undervalued or am I misinterpreting the use of the PE.

Thanks

Good question -- and buy the way (pun intended) -- I'm not trying to be or going to be the threads "stock guru" -- but the question is put in a fashion that is the correct (IMHO) way so that we can discuss what something means. We'll use this particular stock - but it's not a recommendation - rather - it's a discussion of thought process to be applied to ANY stock.

The statement "priced to perfection" is not a PREDICTOR of price - nor does it set the current price of a stock (in my mind)... what it does say to me is this:

IF ANYTHING HAPPENS - a "sales miss" - a "product slip up" - a "profit decline" etc -- THE STOCK GETS HAMMERED.

I would buy APPLE on a price decline -- why? Because I think there is a huge shift to their products and the way they work. They're the market makers, not the market followers - and I like that in a company - ESPECIALLY in TECH. Apply that thought to any company -- are they the "best of breed" or are they "me too's"? I like best of breed.

So the statement priced to perfection is just generally used as a "buyer be ware" statement - that the MOMENTUM in a stock is based on everything CONTINUING to go their way. The EXPECTATIONS are very high and the company MUST perform at 100% or even better.

NO I DO NOT THINK IT IS OVERVALUED -- If I did - I'd be a seller... rather than a "holder" -- BUT -- I have taken my profits on this company and am mostly holding free money in the name. When someone buys today - they're betting the stock can and will rise from here. That's a question NOBODY can answer. My GUESS is that they can...

OKAY ---- INVESTING 102 will give you this THOUGHT PROCESS.

One share of a stock trading at 4 or 500 dollars per share and no dividend.

How many shares can you buy? 10? 20? 30?

So let's use the 30 share number. If the stock goes up 10% and it's $400 a share - you have a $40 per share gain - X's 30 ='s $1200 paper gain.

REALLY? 12 GRAND invested to MAYBE make 1200?

So the same 12 Grand invested in Annaly Capital Management (NLY) just to use ONE EXAMPLE ONLY -- would buy you 700 shares (@ $17 a share) and pays you .57 per share - per quarter - or - DRUM ROLL -- $1600 a year!

So that's the problem -- IF -- big if -- you're a beginning investor - and prefer NOT to gamble on pure capital gains - but would prefer to plod ahead... Personally -- I do "both" -- but it depends on your risk tolerance and how much you have to invest etc.

Now -- if you have 12 grand to invest in one stock - that should be only 5% of the total you have to invest - so you should have around 200 grand. At that amount - I think it's probably "okay" to have one stock like this in your portfolio. But if you only have 50 grand to play with... this is pretty "rich".