Greetings, fellow Pro-fundity team members -
3-3-00 Page Background music:

This Week's Guidepost

“THE TAX MAN COMETH”

1. As we invest, we experience gains and losses. To track our progress, we use a spreadsheet planner like the one below that will do the math for us. Let’s examine the worksheet first, then look at an example:
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   

2. Each column is designated by a letter. We place the ticker symbol under A, the date of purchase in B, and the price of the purchase in C. The commission we pay for the purchase goes in column D, and the total amount we invest in E. This value is the total dollars out-of-pocket. Column F calculates the number of shares we purchase by subtracting the commission from the total and dividing by the share price. This means the dollar value in E includes the required commission.
3. The next two columns are calculations for planning purposes: G is the price we would have to sell for the just break even (enough gain to pay the commission twice, one for buy & one for sell). H is the price required for a gain designated in the cell just above the H. This value can be changed to any % gain. We like to use 10% as a target for quick sells, may get more, may get less.
4. We watch price movements, looking for the chance to sell profitably. When we sell, we enter the date and sale price in columns I and J. The commission cost goes into K (this may be the same as the buy commission or different with limit or stop orders). The worksheet then calculates the dollars returned by the sale (sale commission is included in this figure) in L, with the dollars gained ($ out less $ in) in M, and the percentage gain in N. The final column calculates the annualized gain, based on the number of days the money was in the market.

5. In the example that follows, we can see our progress and how profitable we’ve been. Five tickers are included with three gains, one loss and one still in our portfolio.
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   

6. On the bottom line we see $8,950 invested with $12,353 returned, or a gain of $4,253 (48%). Not a bad year, 1999. But what are the lessons here? First, PMCO was purchased in 1998 at $5.25. We carelessly let a $6.00 sale slip by (our 10%) because, well, it had been as high as $7.50 in the recent past.  We then failed to execute a stop loss at -12% ($4.62) in March. You know, it wasn’t that much money anyway... It will probably come back, and remember, we don’t lose any money until we sell! How many rules have we broken so far?

7. The next two were good tricks but we lost money on SUIT. However, we executed a stop loss at -12% on 8/10 and cut that loss short (Note: $22.25 was the closing price on 8/10. Had it been an automatic stop-loss order at -12%, we would have sold at $22.36). The last ticker brought a nice return, adding to the total for the 1999 gain of 48%.

8. This worksheet provides a visual accounting as the year progresses. But its important role is to help calculate what we owe the IRS at years end. In fact, the picture above leaves out this important feature of any investment or trading strategy. This is often overlooked by first time investors and traders. Next week we will add the columns in the worksheet to consider the tax liability at the start. This will include an understanding of capital gains, cost basis, just how big a bite we are in for with successful trading, how the IRS view the activities of a trader vs. an investor, and what that means about allowable deductions. Stay tuned.

Recently (12/28/99), eminent stock market chartist and guru Don Worden (founder of TC2000) made the following comment: “Every stock has a personality. You should study a stock's personality before you attempt to come to conclusions about its technical strength or weakness... “

To Worden’s observation we add a hearty hurrah! That is the purpose of the Rolling Analysis section. It is not to fix buy and sell triggers. It is to help us understand the personality of tickers we are considering to be rollers. This is but one unique and proprietary feature of Pro-fundity that sets it apart from other rolling stock web sites. Properly utilized, this will provide a market sense and understanding of the nature of what we call “rolling stocks,” increasing their successful use to fatten our wallets.

It is our intent to help our subscribers understand market strategies well enough to make informed decisions and understand the risks.

TC-2000 tutorials are available on the home page.

Take action!

If you have thoughts, suggestions, or comments, we would like to hear about them.
Your e-mail address:

Your comments:

[HOME] [SITE MAP] [TUTORIALS] [MEMBERS]
[THE OFFER] [TOOLS&LINKS] [CONTACT US]

---

COPYRIGHT © 1998-2006 by Pro-fundity (sm). All Rights Reserved. No part of this work may be used or reproduced in any manner whatsoever without the written permission of Pro-fundity(sm). Pro-fundity(sm) is an independent research firm producing research reports based on many sources believed to be reliable. No guarantees are made as to the accuracy and completeness of the information. The information in this report does not constitute an offer nor solicitation to buy or sell securities. Information obtained via the use of this site should be coupled with the individual's personal due diligence in researching individual securities BEFORE purchase and the individual is advised to contact their broker or financial advisor before making any investment decision.

Linked sites on the Pro-fundity web site, that are not under the control of Pro-fundity, are provided as a convenience only. The inclusion of a link does not imply endorsement of the linked site or its content by Pro-fundity.