Forum Archive Index - November 2001

["second LIFE" <secondstep70@hotmail.com>]

Phaedrus,

You mentioned tax in this post. Obviously you get taxed on capital gains 
since you are a trader, but what can you claim as an expense to offset your 
taxable income?

I would expect brokerage to be the obvious expense, what about depreciation 
on computer equipment, power, rent, internet access, software expences...

Also, how have you set yourself up for tax purposes? Are you a sole trader, 
company, or just an individual.

I'm a long way from giving up my day job, but it is my goal. I'd appreciate 
any advice.

Second






>From: Phaedrus <Phaedrus@techemail.com>
>Reply-To: sharechat@sharechat.co.nz
>To: Sharechat@sharechat.co.nz
>Subject: [sharechat] Mary Holm
>Date: Sun, 18 Nov 2001 16:24:02 -0800 (PST)
>
>  I read Mary Holm's column regularly, and agree with a lot of what she 
>says. Every so often, though, she will make statements that are so totally 
>at varience with my personal experience that I wonder if we inhabit the 
>same planet.
>  The silliest thing I have read in a long time is her closing statement 
>that "The only way to win in the long term is to sit quietly with what 
>investments you've got" (!) This must take the passive investing approach 
>to a new low. Anyone holding a portfolio of poor quality stocks would be 
>particularly ill-served by this "advice". Their continued poor performance 
>would be absolutely guaranteed.
>  The dogmatic statement that there is "only one way to win in the long 
>term" is patently absurd. I have a friend who has successfully day-traded 
>the US market for years. I tried it, found it very stressful, disruptive 
>and unprofitable. Another friend is the quintessential value investor.  He 
>is very happy with his results, and the method suits him. I personally know 
>two successful "swing" traders. A near neighbour has made a living from the 
>market for years, using an approach that is so eclectic it defies 
>classification. It do not personally know any arbitrageurs, but that is yet 
>another way people make a living from the markets. All these people have 
>found a system that suits them, their personalities and their situation. My 
>preference is to use technical analysis to trade (medium term) stocks that 
>I have identified as good quality using fundamental analysis.
>  My path to technical analysis has been a very long one. I began as most 
>people do by buying whatever my broker advised. After several years of 
>mediocre performance, I changed my broker. Several more years of mediocre 
>performance followed. During this time I was studying classical fundamental 
>analysis, and learning to decipher balance sheets. Finally I felt ready to 
>make my own investment decisions. While I was no better than the brokers, I 
>was at least no worse. For me, the most frustrating thing was to see my 
>fortunes rising and falling (sometimes dramatically) with the tides of the 
>overall market. I was always 100% invested. I was a buy-and-hold man, 
>without any exit strategy at all. An example of my investment prowess was 
>CEM. I bought at $4.20, and was gratified to watch it rise steadily to 
>$9.50 over two years. I continued to hold as CEM went into what became a 
>very long downtrend. I finally sold at $1.42, about 5 years after I bought. 
>I lurched on, making every mistake in the book, plus a few more of my very 
>own. These were expensive lessons, but I learned them - paid my dues. I 
>obviously had to monitor my investments more closely, and be more active. 
>The easiest way to follow a shares price is with a chart. These provided me 
>with new view of market dynamics, and I delved deeper and deeper into 
>technical analysis. My overall results slowly improved to the extent that 
>after some years my gains were large enough and consistent enough to enable 
>me to give up my day job, and concentrate on what I most enjoyed. Trading. 
>I have done this for quite a few years now, and relish the lifestyle this 
>affords me. Now then, what hope do you think you have got of convincing me 
>that, in the words of Mary's headline "Charting Tactics are a Game for 
>Losers" ?
>    Mary states "Whenever markets are falling desperate people start 
>believing in all sorts of magic....."  Falling? From where I sit the 
>markets are all rising. I have just had the best 2 months profits I have 
>ever had, and if this continues (if) 2001 will be my best year ever. And 
>remember, I took part in the boom years of Chase and Equity Corp etc. Still 
>have my Chase share certificates, come to that!
>    Mary is mistaken when she speaks of chartists "Buying and selling 
>shares on the strength of forecasts"  Many TA systems (mine included) make 
>no attempt whatsoever at predicting future price movements - they are 
>totally reactive, responding only to the current situation, in a 
>predetermined manner.
>    I share Mary's suspicion and scepticism of "black box" systems. She 
>appears, however, to be judging the worth of all technical analysis on the 
>basis of attending a single black box sales pitch!
>    Whenever I see someone mentioning brokerage expenses as a significant 
>factor in trading, I wonder if they realise how much times have changed. I 
>was once paying 2.5% - now I pay 0.05% or less. How could anyone see that 
>as a significant expense? Similarly, I have never understood the problem 
>with paying tax on capital gains. The more tax I pay, the happier I am. 
>(True). Do people ever curtail any other types of income, on the basis that 
>they would have to pay more tax? Of course not.
>    I was deeply touched at the altruistic concern expressed in the letter 
>from the Christchurch gentleman over the impoverished retirements we have 
>coming, and can only but admire the strenuous efforts he has made to save 
>us from our folly. Writing to Mary Holm (an acknowleged opponent of 
>technical analysis) was a stroke of genius.
>    There is a rich irony here - this man claims to be a former money 
>market dealer. Did he trade Forex? Is there any other way to do this than 
>by technical analysis? In any event, Mary assures us that that it is not 
>possible to make a living doing this. Perhaps that is why he gave it up.
>
>                   Phaedrus.
>
>PS I don't mind being called a zealot, but irrational? That hurt.
>
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