Chapter 85: Do Not Make Investing So Complicated

Source: https://www.facebook.com/100063294665283/posts/741236967996119/

[James’ Origin and Today] Chapter 85 - [Don’t make investment so troublesome] (11/28/2023)

[Letter from students asking questions on May 19, 2023]

James replied: Hello, let me first assume that you are a US tax resident and live in the United States. Here is my reply:

Letter from students:

Thank you for your patient teaching to so many students. I have the following questions and would like to ask you all:

In the past two years, I bought most of my funds on QQQ, and my US stock holdings are:

QQQ 80% (there were a lot of buying at high levels, just made a profit of 6%)

Apple 7% (profit 40%), BRKB 4.5% (profit 55%)

Amazon 3% (profit 77%) MU and Semiconductor ETF 3% (profit 20%)

Meta & Tesla a little bit (lost, once hesitant to trade BRK to increase the position)

A Chinese concept stock that was previously heavily invested but suffered serious losses currently accounts for only 2.5% of its market value (China concept stocks lost 85%)

1. Do I still need to replace BRKB and Apple? Since the stock market crash in 2020, I have been making profits after buying one after another, so I am not willing to change now. What do you suggest, just keep it? Or switch to TESLA or SPY? Or QQQ?

James replied:

First, you can sell the profits and losses at the same time. In this way, there will be no capital gains, or the capital gains will not be that high, and you will not need to pay too much capital gains.

Second, you can only sell what you lose, and if you have other income, you can offset the income tax of US$3,000 per year. In the long run, you can get back 1/3 of the loss in terms of tax savings.

Third, a long-term solution. If you want to hold these stocks for a long time, such as as a legacy, not every company can survive for more than 50 years. If you do not want to hold a company that will eventually decline, then you will eventually have to choose a time to sell. If you continue to hold and eventually sell, will the capital gains tax be even greater? Unless you finally treat the assets as inheritance and let your children inherit the inheritance and then sell it and transfer it to an index fund, so there will be no capital gains tax, then you have to teach your children to remember to sell individual stocks and transfer them to an index fund after receiving the inheritance.

Student questions:

2. Other Amazon, Semiconductor, Meta, and Tesla positions that were bought early were profitable, but later suffered losses at high levels. It would be a pity to sell them all. The recent rise was a little bigger than QQQ.

The leading big technologies are all profitable. On the contrary, a small proportion of QQQ companies have not been as profitable as big technologies recently. If the overall profit of the US stock market is not yet there, can I wait until these individual stocks of mine rise again before doing anything about it?

James replied:

You can consider selling the losing part to achieve a loss, so that the tax on your losing part can be 1/3 in the long run, and you can continue to make money by switching to QQQ, so it is not too bad. It is quite difficult to hold individual stocks for 50 or 100 years in the long term. Of course, if the final total assets are within the estate tax exemption of US$12 million, there will be no capital gains tax if the stocks are transferred to the children and then disposed of. Therefore, it depends on the total amount of your final inheritance to determine whether the individual stocks should be disposed of.

The investment philosophy and the philosophy of life are the same as long-term stability. Only what can be stable for a long time without making changes is "true", and only "true" can be long-term and eternal. Therefore, all investments must first consider "long-term stability." Investments that cannot satisfy "long-term stability" are not the best investments.