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Author: twenty20 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75530  
Subject: 18 mos for lower cap gains Date: 9/18/1997 1:52 PM
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What effect will the 18 mos holding requirement have on the Foolish Four formula? Should we buy and hold for two year intervals?
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Author: MontanaFool One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 346 of 75530
Subject: Re: 18 mos for lower cap gains Date: 9/18/1997 2:57 PM
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<What effect will the 18 mos holding requirement have on the Foolish Four formula? Should we buy and hold for two year intervals?>

No-one knows yet what the results will be for 18 month holding periods. Fool HQ is working hard to gather and crunch the data. To do it right is an order of magnitude more work that what was needed for the yearly Dow Dividend SpreadSheet. Expect results to be published before my year is up in Jan.

For two year holding period see Message 89 in Beating the Dow Board. You can jiggle the numbers to come out with higher CAGR for two year holding, but for practical investing where money is added each year (such as an IRA) the one year holding is better than two.

Fooling in the Flathead

Tom Kuffel, kuffel@cyberport.net

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 349 of 75530
Subject: Re: 18 mos for lower cap gains Date: 9/18/1997 5:15 PM
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<<What effect will the 18 mos holding requirement have on the Foolish Four formula? Should we buy and hold for two year intervals?>>

As MontanaFool pointed out, we don't know for sure and the elves in Fooldom are madly crunching the numbers; however, we believe the 18 month holding period will probably be better given a recent study and the reduction in the capital gains tax at 18 months.

You may want to read an Aug 4 article on this, which you can find at:

http://www.fool.com/DDow/1997/DDow970804.htm


Regards........Pixy

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Author: JeanDavid Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 354 of 75530
Subject: Re: 18 mos for lower cap gains Date: 9/18/1997 9:37 PM
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<What effect will the 18 mos holding requirement have on the Foolish Four formula? Should we buy and hold for two year intervals?>

Research by Mark Pantin (sp?) reveals that an 18-month holding period may be ideal, although he thought 2-years was a good interval as well. His web site used to be URL:

http://www.nicom.com/%7Emdp/dow/

but it has not worked in a couple of weeks. (Anyone know the correct URL now?)

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Author: rayvt Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 357 of 75530
Subject: Re: 18 mos for lower cap gains Date: 9/19/1997 11:12 AM
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<< <<What effect will the 18 mos holding requirement have on the Foolish Four formula? Should we buy and hold for two year intervals?>>



<< ... the elves in Fooldom are madly crunching the numbers; however, we believe the 18 month holding period will probably be better....>> >>

I think that "believe" is too strong of a word. I think the most correct word would be "hope".

Jim O'shaughnessey reportedly said recently that 12 months is still better for most people, even after considering the tax issue. From what I see, we are in the mode of "listening to casual remarks emitted by self-proclaimed experts". We won't know anything for sure until after the number-crunching is done----and I want to closely examine their methods and assumption, to make sure that they did it right.

Some other thoughts (and to keep things in proper perspective):

1) I've heard that 60% of the DowDogs carry over from one year to the next.

2) By my calculations (from 1971 through 1997), 44% of the Foolish Four carried over, and 25% of the Foolish Two carried over.

Anything, of course, that carries over is long-term anyway, so extending to 18 months only converts the remaining 56% from short-term to long-term. So you don't save 8% tax on the full gain, but only on the gain attributable to the 56%. Complicated, also, by the fact that I have no idea of how the gains are distributed between the 44% and 56% of the stocks. Folks, this is NOT as straightforward as it looks on the surface!

3) Tom Kuffel's analysis showed that a two-year holding period was much inferior to a one-year period. A naive straightline drawn between these two points would indicate that 18 months is also inferior. But we have no idea (yet) on the true shape of this line, and we don't know if there is a peak around 18 months or not.

4) The Republican leadership in Congress has said that they are not done, and plan to revisit capital gains tax laws in the near future.

5) The long-term holding period in the new tax law was changed from 12 to 18 months only at the last minute, at Rubin's insistance. It appears to be totally arbitrary--and arguably has the effect of reducing tax revenues.

6) There doesn't seem to be any rational reasoning for the 18-month period--other than "evil greedy capitalists want a short period, so we'll make it long, on the theory that whatever our enemy hates must be good for us."

7) Somebody famous (Buffett, perhaps? I don't remember) said something pithy--something about not letting the tail wag the dog (not letting taxes drive your investments).







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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 364 of 75530
Subject: Re: 18 mos for lower cap gains Date: 9/19/1997 6:42 PM
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Yo, Ray.

<<I think that 'believe' is too strong of a word. I think the most correct word would be 'hope'.>>

Perhaps. I, too, await the results.

<<6) There doesn't seem to be any rational reasoning for the 18-month period--other than 'evil greedy capitalists want a short period, so we'll make it long, on the theory that whatever our enemy hates must be good for us.'

7) Somebody famous (Buffett, perhaps? I don't remember) said something pithy--something about not letting the tail wag the dog (not letting taxes drive your investments). >>

I, for one, never have let the tax issue drive my investment decisions. But it's sure nice when they coincide to my benefit. James Carville (sp?), Clinton's ex-flack and long-time ally, defined politics once. He said that "poli" comes from a Greek word meaning many, and "ticks" are blood sucking parasites. You can put 'em together yourself. :-)

Regards.......Pixy

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