Invest not thy whole wad – stock market
Maynard Good Stoddard
Before you begin thawing out of your frozen assets to transplant in the speculative soil of Wall Street, I’d like a few words (exactly 1,337, as it turns out) with you.
You may be confused (I know I was) by divergent sayings emanating from the Street. One saying warns, “Invest not thy whole wad.” Another one says, “The only way to come out of the market with a small fortune is to go into the market with a large fortune.”
As you should already know (otherwise, this is no place for you), participants in the market are divided into two camps: the Bulls (optimists) and the Bears (pessimists). I was neither. I started out as a Hog and came out a Chicken. Having neither a whole wad nor a large fortune, I wondered what would happen if I went into the market with only half a wad. The answer is, I came out with my shirt. And I was lucky to have that.
But don’t go away. In the process of watching my dollars dwindle to this 50 percent polyester, 50 percent cotton, size M, I stumbled upon an investment strategy that has turned April 15 into one of the happiest days of the year. And before you turn your wad over to the Wall Street wolves, I suggest you listen up.
With dreams of yachts, spas, limos, eyeglasses with stained glass lenses, and monogrammed toothpicks dancing in my head, I began my invasion of Wall Street by buying 100 shares of Thortec at 203A (dollars, that is) per share. When the stock promptly dropped to a bargain at 17 1/2, I shrewdly added another hundred. By the time it had descended to three, my portfolio boasted a neat 1,000 shares, primed and ready to take off like a goosed gazelle.
At 9/16–or 56 1/4–I cleverly executed what is known as the “bigger fool” strategy by dumping the whole load on a poor novice in the market. It’s dog-eat-dog, you know.
“So, how much did you lose?” will, of course, be your first question. As it was my dear wife’s first question. But, as I pointed out to her, there’s this saying: “There is no gain except by loss.” (You could look it up.) When something in the glaze that formed over her eyes told me that she wasn’t quite clear on this point, I took her–as I’m now taking you–to Tax Form 1040, Schedule D, Capital Gains and Losses, Line 20: “If line 19 is a loss, enter as a loss on Form 1040, line 13.”
“With this loss,” I said, “our taxes this year will be cut to a nubbin.” But why is it that a woman who can de- cipher the hieroglyphics of crocheting directions can’t understand a simple principle of economics?
Nevertheless, once I had caught onto this strategy, there was no stopping me. By avoiding the pitfalls of comparing a company’s current assets to liabilities, working out its price-earnings ratio, checking its long-term debt, earnings record, and management background, I took on 600 shares of Pennsylvania Engineering. When it, in remarkably short order, folded its tent, I quietly stole away with another neat tax loss of $1,200.
You may resent my continuing to boast like this, but I can’t help mentioning how I snapped up 200 shares of Arrow Electronics at 19 1/2, adding another 100 shares at 143A. Sold the first 200 at five, the 100 at 5 1/2. And barely in time. At this writing, the stock has hit 35 3/8. I still get chills thinking of the tax if I’d hung onto that baby.
Oracle Systems would bring me even closer to a disaster. I bought 200 shares of that dude in January at 8 1/8, sold the 200 in July that same year at 8 1/8. Couldn’t figure out why the stock would tread water for six entire months. The answer turned out to be me. Once I gave up on it, Oracle Systems headed due north, arriving at a price of 64 only a year later. The stock has since split two for one and headed now for who-knows-where. I’m still sweating over that one.
Timing, as you can see, must be credited with much of my success. Knowing when to hold ’em and when to fold ‘cm. Even street-smart veterans will hang onto a stock like the proverbial puppy to a root, even while it continues to go up, up, up, finally getting out right at the very top. They don’t seem to realize what they’re in for.
But, thanks to stocks like Crime Control, College Life, Alphanumeric, Solar Equinox, and I don’t know how many others (my dear wife could tell you, but I have lost count), I have learned that there’ll come a day when the company’s CEO will come down with a head cold, or quarterly earnings will plunge by one cent a share, and the stock will drop like a rock. Then a stockholder can get out without having that big tax axe hanging over his head.
One question I am often asked (most often by dear wife) is, “How do you come up with these rocks that offer so much tax relief?”
I would like to credit my own sagacity, of course. But, to be truthful (strange as that word may sound, coming from me), I must include several sources for my tax-loss triumphs. A “stockbroker” has been so named because a client who responds to his tips most often ends up broker than when relying on his own stock selections. For one of my numerous examples, I refer to College Life. The broker talked me into 100 shares at 10 1/2. It went directly to 21. Talk about your sleepless nights! But not to worry.
When the stock finally “dipped” to 17 1/2, I took the broker’s advice to snap up another 100 shares. (Which reminds me, I never did thank him.) From 17 1/2, College Life continued to dip until the stock certificates finally joined those of Pennsylvania Engineering and the others now decorating the west wall of my home office. With a lacelike border in light purple, they are really lovely.
Nor must I forget the sage advice of the “stock analyst,” an animal to be found in publications such as The Wall Street Journal, Barron’s, and Forbes, as well as “Wall Street Week” and “The Nightly Business Report” on the tube: The more laudatory the praise, the more assurance I have that the analyst has been caught with the stock and is trying to unload it on the “bigger fool.” Had I not adopted this bigger fool role in several instances, I’m sure I wouldn’t be enjoying the tax status I hold today.
Finally, I pay careful attention to the letter dreamed up by the president to his stockholders in the annual report. Whenever I read of the “one-time adversities” that have temporarily brought the company to its knees, and the surefire convalescent strategy for the year ahead, I know I’ve got a sure tax-loss tiger by the tail.
The one catch to my modus operandi: the IRS allows but a $3,000 capital loss per year; the remainder must be carried over. As I have tried to explain to my dear wife, I am staying in the market primarily to build up this carry-over to where it will last for as many years as she does. I’m not sure she fully understands.
As this carry-over may well be all that I will be leaving her, I’ve warned her not to go messing with the AT&Ts, the Chryslers, the Oracle Systems, and that bunch. Otherwise, all the work I’m doing now could go down the drain in a hurry.
If she–and you–have been paying attention, I want to wish you all a very happy April 15, this year and for years to come.
COPYRIGHT 1994 Saturday Evening Post Society
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