How to get started?

Chris, aren’t federal long-term capital gains and qualified dividends zero if you’re in that 15% bracket?

We’re looking at retiring this year but, like you, won’t be able to draw from IRAs for quite some time. Do you have any special tips or retirement advice? We’re lucky to live in Washington state, which has no state income tax.

Neil

Saul,

Maybe look at www.printablepaper.net and see if the 1 to 10 log paper you prefer is there. Lots of log paper options on the site. Not sure I see the 1 to 10 though. What one would you use from the options available? Maybe this will be my little contribution to the wealthy treasure of wisdom on your board. Excited to track my current and future investments with this method.

KLVanLiew

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aren’t federal long-term capital gains and qualified dividends zero if you’re in that 15% bracket?

Neil,

That sounds familiar. You might be right. Better to ask your accountant.

Other suggestions (disclaimer: I am NOT an accountant so please don’t take anything in here as tax advice):

  1. If you have investment property with no or low mortgage balance, you can take out a mortgage at historically low rates. Then you can use the proceeds to invest and deduct the mortgage interest against your dividends and short term capital gains. I borrowed at 4% (30 year fixed) 2 years ago and have been exceeding 25% annual returns on the borrowed money.

  2. For your personal residence, you can do the same as #1 except that your mortgage interest would be deductible against your ordinary income. With interest rates so low, it would be silly to pay off your mortgage.

  3. It’s good that you live in a no tax state.

  4. I haven’t done this but I’ve heard of people renting out their homes using AirBNB when they go travelling. If you like to travel this could be a way to reduce the costs. If you’re a renter, you can consider putting all your stuff into storage and going travelling. I did this for 6 months to reduce my expenses while I traveled the world. Monthly rent in San Francisco usually exceeds $3000/mo so travelling can be cheaper (if you’re not working anyway) than living where you live. You can also suspend car insurance, utilities, and some other expenses.

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For California taxes, I’m pretty much screwed because they count long term gains as ordinary income. The top rate is outrageous at 12.3% at income above $508K. Even income between about $50k and $250K is taxed at 9.3% in California. If I manage to get Saul-like returns for a few more years, I may move to a state with no income tax to realize unrealized long term capital gains before moving back to CA

HI Chris and thanks…tremendous info and I’ve printed it as well as Saul’s guidance. When I come up for air, I’ll be in better shape.

You might consider moving to MX. One of the reasons I’m here is to avoid state tax, yet, I get to enjoy the perfect climate. Later this year, I intend to move somewhere near the border so that my wife and I can receive visitors/family and visit same in LA with only a 2-2.5 hour drive.

I live down here for around less than half the cost, (even less than that if I count the state tax savings). And my Spanish is good.

Learning a new language is also a good barrier/resistant to mental slowdown.
Mykie
PS I have no trouble keeping ordinary income below $400K. If you need some pointers let me know.

Maybe look at www.printablepaper.net and see if the 1 to 10 log paper you prefer is there.

Great idea KL. For those who are interested, this is a website that has free samples of paper you can download as a pdf and print out. They do have paper that will work. I’d go for either:

Semi-log paper: 70 Divisions 5th, 10th Accent by 1-Cycle

or

Semi-log paper: 90 Divisions (2 Millimeters) 5th, 10th Accent by 1-Cycle

What you want is the semi-log with one cycle. One cycle means it goes from 1 to 10, which is what you want to put prices and earnings on a log scale, going up and down. You want it only semi-log, and not log-log, because you want to keep the horizontal axis normal for the months as they pass.

The paper I use is 70 divisions, which means I can get 70 months or almost 6 years on a page. I usually start with graphing the quarterly results for at least a year or year and a half back before I buy in, so it makes sense. I use a separation of 3 vertical lines for a quarter (3 months), so I can graph monthly prices each month.

Saul

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Saul,

Really… you are just kinda cool and kinda incredible.
Take care of yourself, we all enjoy your company!

KLVanLiew

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Excel can display data in simi log. I took physics with a slide rule because you had to THINK. But, I deal with so much data, I try to learn some technology. (But usually I have my husband build my spreadsheets because he is so much faster.)

http://www.ehow.com/how_12100250_make-semilog-graph-excel.ht…

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http://www.ehow.com/how_12100250_make-semilog-graph-excel.ht…

Hey, that is really easy. I think it could be adjusted fairly automatically with some of the tools shared on the spreadsheet board here. I will ask around some.

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Thanks again to everyone who has shared advice to help educate me. I really appreciate it, and hope to be able to give back as my skill level increases.

I exercised the last of my AAPL stock options and sold those shares. They were going to expire in mid October. The price seems within the ballpark of fair, so time to start redistributing and consolidating. I’m trying to hold off selling the rest of my AAPL until 2015 for tax reasons (that option exercise pushed me into the top marginal brackets).

I took most of the proceeds from that option exercise to buy equal weight positions in: AIOCF, BOFI, CELG, HZNP, MTZ, PFIE, SYNA, SZYM, UBNT, WAB, Z. I already had positions in BOFI, MTZ, UBNT, and Z; most were small (except Z). Those other positions are new. These new positions are just large enough to start to matter.

I hadn’t noticed Saul had exited his MTZ position. I read his reasoning after my purchase. I’m going to keep an eye on it. For now, I’m hoping I got a decent price on a good business that had a short term setback.

I already had an options position on AMBA: synthetic long and written puts at various strikes. I added a few contracts to the synthetic long to give me the same capital at risk as the other new positions.

I wrote some puts on a few of the new positions as a way to either buy more shares at better prices, or make some non-trivial income. They also help keep me on the lookout for falling prices (to investigate as possible buying opportunities).

I did top off my PFIE position today, at about 10% below my previous purchase.

The investible cash I have left now needs to get set aside for estimated taxes. If any more opportunities present themselves, I’m going to have to clean up and sell some dead wood (hopefully losers) in order to buy anything more. This has all been in my non-retirement account. Next up is to go through my 401K and start identifying positions to sell so I can continue the consolidation there (or for buying opportunities). This weekend, pick another couple of stocks to start tracking.

-Mark

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Saul. If I may ask. I am trying follow your example from post #2003.

4. Go back through at least two years of quarterly reports and pull off at least adjusted earnings and revenue. Make a table (pencil and paper) for each. Since you are interested in Avigilon, here’s what their revenues look like

2012 - 18 24 25 33 = 100
2013 - 32 39 51 56 = 178
2014 - 56

You see what a good visual image this gives you. You can see both sequential change and year-over-year change at a glance. And that 78% increase in revenue from 2012 to 2013.

Here’s earnings

2012 - 02 04 08 08 = 22
2013 - 08 10 22 19 = 59
2014 - 19

I found revenues which matched your numbers on page 4 of the Q4 2012 Quarterly Report located here: http://ir.avigilon.com/Investor-Relations/Financial-Reports/…

And I found Earnings (listed as Earning before tax)on page 12 of the same document, but the numbers are not even close. So I am doing something wrong. Am I looking at the wrong document for earnings? Thanks, Rob.

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I found revenues which matched your numbers on page 4 of the Q4 2012 Quarterly Report…and I found Earnings (listed as Earning before tax) on page 12 of the same document, but the numbers are not even close. So I am doing something wrong. Am I looking at the wrong document for earnings? Thanks, Rob.

Hi Rob,

First of all, you want earnings after taxes, not before taxes. But secondly you want adjusted earnings. I got my adjusted earnings off the press releases. Here’s what they wrote on the last one. The link on the website is http://ir.avigilon.com/Investor-Relations/News/News-Details/…

Net income for Q1 2014 was $8.0 million, up by $5.2 million compared with net income of $2.8 million in Q1 2013. Earnings Per Share were $0.19 (basic) and $0.18 (diluted) for Q1 2014, compared to $0.07 (basic and diluted) a year earlier. Fully Diluted Adjusted Earnings Per Share were $0.19 in Q1 2014 compared with $0.08 in Q1 2013..

A little lower down the page, under “Non-IFRS Measures”, they describe what they remove to get their adjusted earnings. Every company will do that. They may not be allowed to give their adjusted values in their official report, which could be why you didn’t find it. By the way, for an American company this would correspond with GAAP earnings and non-GAAP (or adjusted) earnings.

On the FAQ page, under Evaluating an individual company, I explain what I feel about adjusted earnings:

* I pay no attention to GAAP earnings and only look at non-GAAP or adjusted earnings. I know this bothers some people, but it’s what I do. I feel that GAAP earnings ridiculously distort the picture. (Consider company X that has a big tax benefit this quarter and reports huge GAAP earnings, and then next year they pay normal taxes and looking at GAAP, it appears as if their earnings have tanked, just for a trivial example. Or company Y that has outstanding warrants. If their stock price goes up, GAAP rules makes their apparent GAAP earnings go down due to repricing of warrants. Just nonsense. I especially remove stock-based compensation as an expense).

Hope this helps. Please don’t hesitate to ask more questions.

Saul

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Got it Saul. I’m sure I’ll have more questions. Thanks.

Saul,

You have graciously accepted and answered questions in the past, so I submit others. I am using the semi log 70, 10 by 1 paper.

Referring back to Posts 2003, 2011, & 2022, I am working on graphing a couple of companies according to your methodology. Due to my inexperience (hopefully not foolishness), I am not quite sure how to make the numbers jive and jib on the semi-log paper graph.

What numbers are you graphing, just TTM earnings and share price? It seems some of the hyper-growth companies like you are dealing with are off the bottom or top of the graph within a couple years time. True? (starting off the bottom and progressing off the top in a few years is a good thing though and just what we want) Share price monthly and TTM earnings quarterly, correct? Or, are you using quarterly non-gapp diluted eps on the graph with monthly share price? Same graph? Separate graphs?

Example:
UBNT reported their 3rd qtr 2014 earnings for 3/31/14: the TTM was $1.77, (quarterly eps $0.50) the share price $45.45, and therefore the PE 25.68. How does this get set up on the graph? What should go on the vertical midpoint of the graph? One of your posts spoke of placing share price and earnings in a manner to reflect a PE of 20 at that point.

Okay, inexperience and foolishness sufficiently revealed. However, I hope my sincere desire to learn and become a better investor is revealed as well.

Thanks for your willingness to help fulfill the “Educate.” part of the TMF mission with your Fellow Fools.

KLVanLiew

2 Likes

You have graciously accepted and answered questions in the past, so I submit others. I am using the semi log 70, 10 by 1 paper.

Referring back to Posts 2003, 2011, & 2022, I am working on graphing a couple of companies according to your methodology. Due to my inexperience (hopefully not foolishness), I am not quite sure how to make the numbers jive and jib on the semi-log paper graph.

What numbers are you graphing, just TTM earnings and share price? It seems some of the hyper-growth companies like you are dealing with are off the bottom or top of the graph within a couple years time. True? (starting off the bottom and progressing off the top in a few years is a good thing though and just what we want) Share price monthly and TTM earnings quarterly, correct? Or, are you using quarterly non-gapp diluted eps on the graph with monthly share price? Same graph? Separate graphs?

Example:
UBNT reported their 3rd qtr 2014 earnings for 3/31/14: the TTM was $1.77, (quarterly eps $0.50) the share price $45.45, and therefore the PE 25.68. How does this get set up on the graph? What should go on the vertical midpoint of the graph? One of your posts spoke of placing share price and earnings in a manner to reflect a PE of 20 at that point.

Hi KL, Great questions!

1 – I graph quarterly adjusted TTM earnings on the left side and monthly stock price ranges on the right.

2 – The basic sheet goes from 10 cents earnings on the bottom left to $1.00 on the top left, and from $2 stock price on the bottom right to $20 stock price on the top right. As you see, if the price and earnings are at the same level it corresponds with a 20 times PE ratio. That’s true no matter where you are on the page. (35 cents is exactly across from $7, and 90 cents is across from $18, etc).

One of your posts spoke of placing share price and earnings in a manner to reflect a PE of 20 at that point.

As you see, it reflects a PE of 20 at every point on the vertical axis.

3 – As you correctly pointed out, what happens when the earnings are over $1.00 and the price is over $20? BOFI is a good example with TTM earnings of $3.52 and a price of $74. Well, instead of starting my graph at 10 cents trailing earnings and running it to $1.00, I start at $1.00 and run it to $10. Stock prices then start at $20 and run to $200. I have 11 quarters of trailing earnings points on my graph of BOFI (I start before the point where I buy to give myself a picture when I first evaluate the company). It goes up at a very consistent 45-degree angle (maybe angling up even slightly more the last two quarters). TTM earnings of $3.52 is, of course, just above the $70 price line, and my July stock price line runs from $70 to $76 with a close at $73, so it’s evident that it’s very fairly priced.

Note also that the TTM earnings refer to March, as June earnings aren’t out yet. Thus the stock price is four months ahead of the TTM earnings. When the June earnings come out, the next point on the graph will be at about $3.75, which will be opposite $75.

4 – If the graph starts lower and then goes up to a higher page, I cut off the white border of the graph paper and scotch tape the two pieces together so they run together seamlessly, and just fold them in half for storage.

5 – Zillow, by comparison, has its TTM earnings half way up the bottom page at 53 cents (opposite a 20 times earnings stock price of about $10.60), then a huge amount of empty space and the actual stock price up near the top of the top page at $143 or so. Gives you a picture of a stock trading entirely on future promise.

6 – UBNT, which you asked about, is on the top page with TTM earnings of $1.77 as you said, and a stock price of $39. As $1.77 is across from a point between $35 and $36 and the actual price is $39 (with the July line running from $39 to $45), you can see it’s priced rationally.

And, like BOFI, UBNT also is based on March earnings, four months behind. When June earnings come out we can expect TTM earnings about $1.97, which will be just under the $40 price line. The four previous earning points are $1.77, $1.51, $1.23, $0.92, and the line is almost straight up, as opposed to BOFI’s more sedate, but still impressive, 45-degrees.

7 – I also find some blank place on the graph page for my tables of earnings, revenues and TTM earnings as described in posts 2003 and 2011.

Hope this helps

Saul

For FAQ’s and Knowledgebase
please go to Post #2848

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Saul,

THANK YOU!

Somehow I knew there would be cutting, taping, and folding. I appreciate the simplicity and common sense you apply in this crazy techno world and stock investing in general. The ‘values’ in the the tabulated numbers and graphed lines are great.

7 – I also find some blank place on the graph page for my tables of earnings, revenues and TTM earnings

Just a thought about my method; I have my tables and graphs going into a three ring binder. So I three-hole punch the ‘wrong’ side of the graph paper, recording the tabulated numbers there puts them opposing to and viewable with the graphed data on the log paper. IMO, the 3-ring binder is good for the storage part. However, it will require some additional creativity in the cut/tape/fold departments.

Speaking of Z, UBNT, & BOFI what are your thoughts heading into ER’s this week? To me, Z is up so much already, yet it feels like the sky may be the limit. Z’s numbers will have to be super-star status and I think they just might be. UBNT & BOFI seem to have ample room to move up and ground to recover. Their numbers need to be pretty good to keep this crazy market from taking a bite out of my balances today. However, they both should reach super-star-stock-status in the next couple years.

I will go at it again.
Here’s to more cutting and taping and folding on all our investments,
KLVanLiew

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