Good strategy, but definitely not for the faint of heart an it takes a lot of guts that not everybody has.
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Short-Term TSLA Price Movements - 2013
- Thread starter Robert.Boston
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Agree with that. Another example is if you have losses to balance, those have to be outside the IRA. If it's a Roth IRA though any taxes are already paid, so his no tax on gain scenario would be accurate
Citizen-T
Active Member
This is the problem with buying and holding a stock like TSLA: Those great fortunes that were built by buying and holding long term? Most of those were built through reinvesting dividends, not pure growth. See, when you bring dividends into the equation, you've now got a compounding effect. That is where the real power of investing comes from, that compounding effect---that's how fortunes are made.
But, TSLA doesn't have a dividend and probably won't for a very long time. Even if you bought the IPO at $17ish and over the course of 25 years Tesla grows to be the size of Toyota (a spectacular accomplishment), you'd only make like 90x your money. Not bad at all, but that's not going to make most people filthy rich (assuming they started with a modest percentage of their net worth invested in TSLA). The problem is that your gains have only grown linearly with TSLA's market cap. This would not be the case with a stock where you could reinvest a dividend. In that case your position would grow (loosely speaking) exponentially as the stock price rose linearly because with each tick higher, you'd own more shares than you did at the previous price.
So, I see taking profits when the stock is getting overbought and buying shares back when it is clearly undervalued as creating my own dividend. With each move higher I own more TSLA than I did before. There is some risk here that you wouldn't have with a dividend. That risk is the chance that you aren't fully invested when a big move happens. But that's a high quality problem to have, and a risk I'm willing to take to create that exponential growth over the long-term.
That said, it's not for everyone. I firmly believe that you should only trade as often as you have the time and inclination to do so.
Citizen-T, how do you recommend managing the tax issues with that approach. It seems to me that unless you are in an IRA (as Robert.Boston wrote), each time you jump out and are looking to jump back in, you need Tesla to fall enough to make up for the 20% that you need to pay in capital gains. So if you originally bought 100 shares at $20, sell them all at $30, you're on the hook for $200 in taxes on the $1000 in profit. That leaves you $800 additional to get back in, so $2800. If the stock goes back down to $25, and you go all in except for the money you owe in taxes, you end up with 112 shares, so 12% more than you started with. Is that the right way to think about it?
I completely agree, but like myself I think others are trying to throw tax into the equation as well (the whole long term/short term thing). This didn't click for me till I realized I could change my tax strategy on my trading account.
I'm trying to figure out when the next entry point is. I'm thinking 42. What's your target? Always interested to know your thoughts.
I'm trying to figure out when the next entry point is. I'm thinking 42. What's your target? Always interested to know your thoughts.
You may notice that when a stock goes ex-dividend, its share price normally drops by the amount of the dividend. In the case of a company that does not pay dividends that saved expense is reinvested in the company, thus making its shares more valuable. The two methods produce different types of "compounding effects".
Indeed, those few who are good at catching short term price swings in effect earn a type of “dividend”. Most players, however, are pretty bad at this. Even those who do manage to scalp a few bucks are eventually socked when the stock inevitably zooms for quite a while in one direction or the other and they are not on the right side of it. Although not the same thing, this results in something like the effect from Martingale betting at a roulette table. A player takes a few “sure” dollars from the casino for a period of time until an inevitable string of losses bankrupts him.
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Citizen-T
Active Member
I do this more in a Roth IRA than anywhere else because of taxes. You pay taxes on dividends too, so I don't really see this as a negative versus buying and holding. I guess the one difference is that you have to work a little harder to get the long-term tax rate on what you are selling, but no, taxes don't kill it.
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You know what you are talking about. Yes, if we think more abstractly in the case of companies like Tesla, the company is essentially reinvesting your dividend for you. This is definitely a different kind of compounding growth. I appreciate that. If I can create my own "dividend" on top of that with a few smart trades I get the benefit of both.
And actually, THAT is what happens in companies that pay dividends. Because, when a company pays a dividend, they are essentially saying, "We have reinvested every dollar that we can into the business to the point that investing another dollar will not give you any more benefit than if we just give you that dollar. So here, take it." See, so you are getting the compounding growth of the business reinvesting it's profits, plus the compounding benefit of buying more shares.
I don't think it is at all like gambling so I don't think the comparison to roulette is right. If I were to compare it to gambling, I'd compare it to a game of BlackJack where you are allowed to count the cards. Doesn't mean you are going to get it 100% right every time. But you know what the probability of card X showing up next is, better than everyone at your table that isn't counting.
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Agree completely with Curt on this. Compounding dividend growth is a fine long term investment strategy for out stripping inflation or other economic effects, but doesn't relate to investment in high growth stocks like Tesla. And compounding intrinsic growth rates completely demolish and are nearly unrelated to compounding dividend returns, which behaves more like compounding interest.
That said, it is possible to increase your take with trade in-out as Cit-T describes, but it is very hard, requires more risk and IMO should be done in concurrence with a long hold position, not in replacement. And it usually takes a presupposed bias (upward in this case) and a strict adherence to the charts. I was able to this with Apple for several years, but it is very hard, requires large over exposures when stock is down (relative to your portfolio).
Personally I would only recommend it with small amounts while just holding most or all of the long position you want over the growth years of TSLA. But to each his own and I do what I recommend. Trade in and out, but while holding 100% of a minimum investment long hold position in stock and LEAPS (that constitutes something close to my full position). That puts me always in at 80-100% and at times in 120%.
Citizen-T
Active Member
Yes.
Yes. If you've ever heard me talk about this before on these forums you know this is exactly what I preach. The "dividend" is relatively small versus your long term position (just like a real dividend).
Your quote sums it up quite well. In fact it demonstrates that the company is not reinvesting a portion (perhaps all) of its profits in the business by paying a dividend, but is releasing excess dollars to the company's owners to spend in whatever manner they choose. The "plus" portion of your conclusion is quite true for a reinvesting shareholder but not the company. Remember, the reinvestment dollars generally are not paid to the company but to another shareholder who has chosen to sell his shares through the market. If the company sells shares from its treasury, then the float is increased and the value of each outstanding share is diluted. A growth company like Tesla reinvests all of its profits into the business. Rest assured that fortunes have been made investing in growth companies. Once a person has accumulated great wealth, one often becomes financially conservative and invests in established companies that pay dividends.
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deonb
Active Member
That can be a big problem. We did a study of the "Ten Best" principle in the late 90's to see if it would apply to MSFT. (The "Ten Best" principle says that if you sat out on the "Ten Best" trading days over a given time period you would lose out on the majority of gain for a stock over that time period).
Sure enough, for MSFT between 1990 and 1999, if you sat out on both the "Ten Best" and "Ten Worst" days (equally likely), you would have lost out of just under 50% of the gain.
We did not take into account the cumulative effect of the additional stock that you'd be gaining over that period by trading the band though.
Just something to consider. YMMV.
I wasn’t trying to associate it with gambling per se, despite using a simple gambling scheme as an example. The connection was with money making systems that appear contained in a manner to produce regular profits, but eventually break down when seemingly unusual but actually inevitable events occur that are contrary to one’s plans.
Norbert
TSLA will win
Norbert
TSLA will win
mitch672
Active Member
Could also be a new round of shorts selling now, hard to tell.
Lets hope it can maintain upward movement
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