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EverydayInvestor (100.00)

Never too early to tax-loss harvest; increasing (slightly) my equity exposure

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February 26, 2009 – Comments (16) | RELATED TICKERS: VTV , VWO

A good thing about being a self-employed stock trader is that my earnings are capital gains. That means I don't have to pay the 15% self-employment tax (I'm 26, so I'm never getting Social Security anyway). It also means that in times of falling investment prices I can deduct my investment losses from my income (people are limited to deducting $3,000 per year against 'earned' income). So today I took the opportunity to realize some losses and increase my net stock investment (only slightly, though).

Still, far less than 1/4 of my wife and my net worth is invested in stocks. Most of the rest is in cash. My wife's job situation is precarious and I need lots of cash to trade with; also, I am not convinced that I will be able to indefinitely continue trading profitably (furthermore, the real jobs I am most qualified for are in the financial industry, not a good place right now). All these are very good reasons to hold lots of cash. Should any of these factors change, I would gladly double or triple my exposure to equities. That leads me to one important piece of advice that most people never paid attention to until it was too late: if they work in a cyclical industry or have a job that is not secure (or have large fixed expenses such as a mortgage or yacht), they should have a much lower equity exposure than otherwise. The key is to make sure your assets and liabilities match and make sure that your investments (regard your career as an investment) are not strongly correlated.

PS - anyone take a look at my last comment on my last post? Brilliant, if I do say so myself.

16 Comments – Post Your Own

#1) On February 26, 2009 at 3:59 PM, EverydayInvestor (100.00) wrote:

Hmm, actually, my allocation to equities has decreased by about 25% over the last 8 months as, even though I have continued to buy more, I have increased my net worth even as the stock market was falling. I guess I should buy more.

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#2) On February 26, 2009 at 4:20 PM, abitare (99.59) wrote:

Everyday,

I know this is a general question, but to trade full time, how much in cash, do you think you could start with. It obviously depends on living expenses. I had someone tell me $300k back in 1994. But think you could trade full time with $50k depending on your sucess?

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#3) On February 26, 2009 at 5:39 PM, anchak (99.73) wrote:

I did Michael(about the last) ....need to think it thru a little bit - I think you are right ....

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#4) On February 26, 2009 at 11:30 PM, EverydayInvestor (100.00) wrote:

abitare - $50k absolute minimum, only for the best traders. I'd also say a minimum of 2 years of living expenses separate in cash too. The less frequent a trader trades and the less talented, the more capital they need.

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#5) On February 27, 2009 at 12:34 AM, BigFatBEAR (99.16) wrote:

Michael,

WAIT A SECOND. You're 26?? And married?

I'm 26. And no where near married. And with a net worth about 1/100th of yours.

Sigh. I would have guessed you were at least 10 years my senior...  this is somehow fairly depressing.

I wonder how old Specbear, tenmiles, nicvo, etc are...    is the top 10 a bunch of 20-somethings? I'd figured more weathered investors would be highly ranked, but it appears that the younger crowd is outperforming...   I know GMX is 6 years younger than us, and TDRH is around our age...

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#6) On February 27, 2009 at 12:39 AM, EverydayInvestor (100.00) wrote:

Bigfatbear ... I may be 29 ... I like to give some ambiguity about my age. Married my college sweetheart 5 months after I graduated. I can't say I made much money on my own, and I trade with some borrowed money too ... some good people died to get me my trading capital, including my father in law, quite prematurely.

TDRH is older, anchak is older, dwot is older (and by older I just mean y'all're older than me; you are all still spring chickens). You just notice the people similar to you in age b/c they are similar; you don't think of the others so much, they are more 'normal'.

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#7) On February 27, 2009 at 3:43 AM, Tastylunch (99.53) wrote:

Reaper

Sorry to hear about your wife's situation at work. My best advice there would be to newtork network network. In this environment your social network is safety net. It's not what you can do it's who you know, I'm sad to say. The other thing she can do is volunteer to take on more work, it's a bit machiavelian but if she cna show she cna do art of someone's elses job in addition to her won they may decide to keep her over one of her office mates should the axe fall.

For what it's worth I did look around town when you asked me  several months ago about job openings. We don't have much in her particular industy and most of my connections are worried about their own jobs.If I hear of anything I'll pass it onto you.

Next week I'm going to a pink slip part networking event out of curiousity (and maybe to see if I can snag some good help on the cheap), all sorts of signs like this are popping up in everyday life anymore I'm sad to say.  Two weeks ago I bought fixtures from the City Center Mall Liquidation and you'd be amazed at some the careers the liquidators came from out of desperation.

You and you wife have my deepest condolences on the untimely passing of her father. I know its been a while now, but I'm sure it must not be easy for her still.

You know I think we might have taken the wrong lesson from Tim Sykes. The real success he has is not his trading but his periperheral sales (DVDs, Timalerts,ads etc) that he leverages through his knowledge of a basically uncovered area of the market.

I think you could very easily do a very scaled down personal version of that  with minimal effort to your goodevalue.com website. You have a real talent for writing Reaper, you might as well let it earn you some extra income, perhaps even some passive income. You know an extra 5-10k a or so in passive income might take some of the pressure off. I think ti would be easier tna writing a book. Actually if it might help you sell a book later on if you chose to write one.

If Sykes can bag ~40k a month I think 10k a year is a realistically achieveable amount for your site based off the content you already have, provided you keep adding to it. and spiff it up a bit

A lot of traders like the assurance of a little guaranteed income. everybody has a down year eventually (assuming you aren't madoffing yourself :) )

Just a thought.

Well hope things calm down for you guys. Work stress=no fun I'm sure.

 

 

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#8) On February 27, 2009 at 3:50 AM, Tastylunch (99.53) wrote:

BigFatBEAR

I think the oldest player on here might be Wax (kahunacfa is probably another), incidentally Wax in my opinion is one of the very best analysts in CAPS, if not the.

I really wish Wax would post more, he got attacked by some Dryships goons and I think he decided the message boards are more his style. I see him post to the Liquid Lounge sometimes.

EverydayInvestor

forgot to mention I did see your last comment on the previous post as well,but i have to think about it too. I only got a chance to skim it been very busy at work lately

I guess knowing Siegel has been saying stocks are cheap for two straight years now does make me a little leery of putting too faith much in his work.

I really liked that link you gave to the Tobin Q ratio story. I hadn't heard of that.

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#9) On February 27, 2009 at 8:58 AM, EverydayInvestor (100.00) wrote:

Tasty - well, my wife at least has known that her job would cease to exist. It is a contract position that has already been extended to its maximum amount at a large pharmaceutical company that is cutting jobs like crazy. No hope there. She has been networking like crazy -- I've been surprised how willing people are to help. We'll see, though.

As to the passive income from blogging thing, I believe that to be harder than it seems.  And don't worry about me -- even if I can keep up my trading for only five more years I'll be doing quite well and would not need to worry about money for a long time.

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#10) On February 27, 2009 at 10:33 AM, BigFatBEAR (99.16) wrote:

EverydayInvestor

My comment from last night seems incredibly self-pitying in retrospect - sorry bout that, definitely not my style. Keep the faith with your wife's job situation and your trading - you guys will figure it all out. ;)

Tastylunch

Thanks for the names, never seen much from either of them but I'll have to check them out.

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#11) On February 27, 2009 at 12:19 PM, Tastylunch (99.53) wrote:

Reaper

Cool sounds like she is doing the right things. I'm not surprised how willing people are to help. One of the biggest lies I think parents and society tell their kids is popularity isn't important. While it may not be true in the strictest sense, it's always been my experience that likability is extremely important in business/careers.

Oddly enough the less you appear like you badly need help (i.e. you appear capable but perhaps young or unlucky) and the more likable you are the more people seem to want to help. Kinda funny how that works (I'd be interested in seeing a study done to see how this possible behavior might explain some homelessness)

RE; blogging I think it depends Reaper. I think it's hard to do what Sykes does and make a living from that entirely, like he does. But a couple thousand extra scratch per year? I think that's pretty easily attainable, but getting to the proverbial "next level" I do think is extremely difficult.

But yeah 5 years of trading with your base you should give you  a great start. I thought you were considering quitting right now, my mistake. Maybe once the commercial RE market bottoms/stabilizes you can get a NNN property for low stress income . :)

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#12) On February 27, 2009 at 12:56 PM, anchak (99.73) wrote:

Michael.....Apologize for not responding earlier...on your personal front..... you know possibly not of much use - field/industry wise - however if you think/need of anything -do not hesitate to drop a note 

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#13) On February 27, 2009 at 2:25 PM, REITDUDE (35.15) wrote:

good advice, rock on.

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#14) On March 01, 2009 at 3:40 PM, Ecomike (< 20) wrote:

Everyday,

Are you set up as a DBA, or a Corp or LLC? Curious how you set up and handle the self emplyed details. I have a DBA and a corp in the chemcial / environmental business. Do all my trading in an a small traditional IRA, which limits my trading cash on a daily basis. I like the sound of handking taxes as a business on daily trading, but need a few more details please. 

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#15) On March 01, 2009 at 3:51 PM, EverydayInvestor (100.00) wrote:

Ecomike - Get Robert Green's book "The Tax Guide for Traders". Theres no point to an LLC or Corporation because there is no need for limited liability.

The main thing about being taxed as a business trader is that I can deduct my expenses against my earnings. Investors cannot. I also get the home office tax deduction because I use a room solely to trade.

Michael

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#16) On March 02, 2009 at 12:00 PM, Ecomike (< 20) wrote:

I follow the same plan for my environmental consulting practice. If I do well enough with my IRA trading I may start doing some day trading with non-IRA cash too. I had avoiding the trading so far in non-IRA because of the potential tax issues. Did not want added complications, but you have opened my eyes to a path I had not thought of before. Thanks!

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