Oh…(and thank you for making me do research)…how about proxy fights for companies? Here’s Warren doing classic activist take overs…
Two of the most well-known activist investments from the Buffett Partnership era were Sanborn Maps and Dempster Mill. Sanborn Maps, which made maps for the fire insurance industry, held a large portfolio of investments worth more than the share price — the map business was thrown in for free! Buffett took over the company in a proxy fight, swapping Sanborn shares for pieces of the investment portfolio.
Dempster Mill, which made windmills, sold at a fraction of book value. Buffett took over the company via a proxy fight. The company faced some operating headwinds, but Buffett eventually turned things around and sold at a profit.
The basis for good investing is accounting. Buffett has always poured over the quarterly and annual reports. I do not understand why you think that is not hard work. I am not talking only a few reporters here and there. I am talking mountains of readings.
Genius level IQs are only worth something major if the person is a workaholic. A genius level IQ other wise is mostly useless. We think of Einstein as someone scattered. Hardly! He was a workaholic.
Yes, that’s a problem. As you know, I manage my portfolio to minimize interest and dividend income and prefer to take my annual withdrawal for living expenses in capital gains as much as possible. But over time, the dividend income continues to rise.
Of course the difference with Berkshire Hathaway is that management has committed to not paying a dividend and the vast majority of their shareholders like it that way. So the dividend policy is unlikely to change.
Not to hijack this, but I have some company RSU’s that vest over the next several years. What I was hoping to do was sell them to fund the early years in retirement, which would be the opposite of what you seem to be doing. (because I would not be carving down the IRA as soon as I could, I would be delaying taking money out of the IRA). Things I need to learn over the next 7-10 years…
Are the RSUs in a 401k? When I quit working 30 years ago, there was a tax loophole called “Net Unrealized Appreciation” that allowed you to pay capital gains taxes on almost all the value of a 401k held in company stock. But apparently very few people were aware of it at the time. One of my Exxon colleagues had a huge 401k and Merrill-Lynch never alerted him to the wonders of NUA, instead Merrill spent a lot of effort trying to sell him a big whole life policy to pay the Estate taxes when the time comes. The loss of NUA cost him hundreds of thousands of dollars in extra taxes.
It always pays to view your portfolio through the lens of a rich person, even if you aren’t rich. Most rich people get their money in the form of capital gains. Therefore, capital gains will always be favorably taxed in this country. IRAs are taxed as ordinary income. Ordinary income is how regular people earn money, so ordinary income will be more highly taxed than capital gains.
In practice it isn’t that simple, probably a blend will work best for most people but that’s a framework for how to view it. The sticky wicket is RMDs. Having a big RMD tax bill is a rich person’s problem, so Congress recently increased the RMD age to 73 gradually increasing to 75. Still, you want to convert as much of your tIRA to a Roth as you can. Then withdraw from the Roth last because it will give you the most time for tax-free compounding.
Another thing you want to look into is a Health Savings Account if your employer offers a high-deductible health care plan. Your HSA hit the tax impossible dream trifecta of being tax-free going in (including FICA!), compounding tax-free, and are tax free coming out. The key is that there is no time limit on claiming expenses. Simply track and save receipts (trivially easy nowadays) and claim the deductions far in the future. The list of qualified expenses is extensive: aspirin, contact solution, flu shots, reading glasses, prescription drugs, etc.
Again, the key is look at the the HSA through the lens of a rich person. Rich people don’t need help with out-of-pocket health care costs, so the tax code gives them lots of help.
NUA is not without pitfalls. You don’t get to pay LTCG on “almost all of the value.” You get to pay LTCG on the appreciation of the stock in a 401k beyond the cost basis. The cost basis is still taxed as income, and every dollar of it has to be realized in the same year.
For example, if your 401k has $1 million in company stock with a cost basis of $300k, you would have to pay income taxes on the entire $300k in one year for the benefit of eventually paying LTCG on the rest when you eventually sell the stock.
Depending on how you plan to spend down your 401k, it may not be tax advantageous to pay a lot of income tax in one year to have lower LTCG taxes later - especially when there is no guarantee that LTCG taxes will remain beneficially lower.
That is not the reason for favorability. The reason is inflation. One should not be subject to (additional) taxes on an item simply because it increased in value due to inflation. The difference in the tax rate was initially created to account for such.
The amount of favorability has varied throughout history (and they did not get favorable treatment until about 100 years ago).
RSUs are taxed as soon as they vest. That is, the value at that time is taxed. After that point, if you hold the shares, all capital gains thereafter will be taxed at long-term capital gains tax rates if you held them for a year plus.
Let’s say someone has an RSU grant of 1000 shares XYZ. It vests on 6/14/23 while XYZ is trading at $20. For 2023, $20,000 (1000 shares x $20) will be added to the W-2 taxable earned income. If the person retires and those shares of XYZ are held until 2027, and are at $100 at that point. If they sell them, then the gain is a long-term capital gain of $80 per share.
Usually, people will sell enough of the vesting shares to cover the tax bill, otherwise they have to come up with the taxes due from other sources.