All Forum Posts by: Christopher Smith

The decedent's interest is stepped up to FMV, so his or her element of depreciation recapture would be wiped out. So you will effectively have a split basis in the property.

I assume when you say Joint Tenant you are saying JTWROS

Fear is a wonderful marketing tool.

My PMs would deduct it.

If you are already having a hard time agreeing on basic structuring issues, perhaps a partnership isn't the best vehicle.

I was the lead partner in a 5 person investment partnership and outside of financial ownership interests (where everyone was equal all the way across the board), I requested and received final say so on all operational and tax matters which was fully memorialized in the partnership agreement. 

My way to avoid that problem has generally been to be liberal in terms determining when offering the property for rent begins (earlier v later), a justifiably high asset capitalization threshold and making full use of the expensing exceptions to capitalization for small taxpayers.

Am I investing heavily now? No. I have a plan at work that I contribute evenly to at all times (and have done so for years) so it gives me a benchmark return I can use for comparison. But for all my investments outside of my plan at work, I'm mostly accumulating cash.

Of all my foundation holdings (stocks I fully intend to hold indefinitely) the only one I've added to recently, and then only a few additional shares so far is Alibaba. It's down roughly 30 percent (I've been buying at sub 225) from it's 320 high. Also the same for a couple of China internet tech based ETFs.

I will add progressively larger and larger amounts if/when Alibaba drops further buying heavily sub 200. Lots of hot air being blown around with the notion that the Chinese Govt is out to destroy Jack Ma, and cut the company down to size. I think that is very overblown, as it's underlying long-term fundamental economics are still incredible.

Now against my better judgement I have been buying into NIO on the bigger dips. Very speculative, and I would not recommend anyone else doing it.

It's very loosely speaking a Chinese Tesla, but if you buy it now it's incredibly expensive on a revenue basis and still losing money, so the risks are enormous. It has risen even faster than Tesla (not good from my perspective), but it's earlier in the game than Tesla so maybe it will work out for me. 

When I do something as speculative as NIO I strictly limit my investment which means initially significantly less than 1 percent of net worth max. I've been in the Chinese markets for years and they have been good to me, but I understand that it's a very mercurial beast and use that to my advantage.

With regard to Tesla and Cathie Woods. 

First Cathie, I'm reluctant to chase the latest red hot hand as most investors who do so don't fair well long term as they pay an absolutely insane high price to buy into them. For example, Tesla has a PE ratio of over 1,000 (and that is after a large drop in the stock price from 900 to 650), so you pay $1,000 for $1 of current earnings.  

At this point that is one heck of a bet on absolutely out of sight future growth. If you were in from the beginning great you've clearly made out big time, if you're just buying in now I personally think you're paying a king's ransom for a still genuinely uncertain future bet. 

I'll give you a real world example. I bought into a Chinese internet retailer at 5, it's now around 450 (10 for 1) split adjusted. 

Boy am I really glad I bought in at 5, but would I buy in now at 450, not very likely. While I still own it, the market it competes in has become insanely competitive so the risk reward profile to me just doesn't justify any new money. It's a game of probabilities and the likelihood that this stock will continue to replicate it's past performance is close to zero yet the buy in price is still crazy high.

The one stock I bought late into was Amazon, but I did so only AFTER a 50 percent drop (during the initial Covid days), but I did that with trepidation as it's PE was around 100 which to me is insanely high. 

It's roughly doubled since I bought in last March, but I feel much better about having added Facebook and Google and Apple and Alibaba and Microsoft after their 50 percent drops as they have very reasonable earnings multiples (around 20 at the time) and long term  track records of out of sight earnings. They aren't the hot hand of the moment, but their long term odds to me are much much better. Plus they have all also doubled since my last buy in.

So I can't tell you not to bet the farm on 57 Red, it might really pay off and make you ultra rich, however long term the house usually wins when you start chasing shooting stars.

Not 100% sure what you mean by passthrough stuff. If you're referring to eliminating the tax basis step up for assets that are part of your taxable estate that is possible, but of course changes in the law are always possible. Its all speculation at best at this point, but from what I have heard the estate tax increases will be targeted at the very rich, what that means who really knows, taxable estates over 100 million, 50 million? I may not make that limit, but again its all conjecture at this point. I think the chances of getting rogue radical tax increases through the Senate will be much harder for the liberals than most anticipate.

With regard to ROI, its best to compare apples with apples. I assume your RE ROI is based on the utilization of a highly leverage position and your stock ROI is not. On an equal footing (both without leverage) stock returns are much much higher than RE returns, but most folks are not comfortable making stock investments with the added risk of leverage, and perhaps appropriately so.

Can you obtain a 15 to 20% ROI with stocks? I have (and without the benefit of leverage), but the average investor will likely never reach those percentages, they might be lucky to get 8 to 12%, and that would require a level of discipline the average investor probably does not possess.

I was able to do it mostly acquiring the highest quality growth stocks (e.g., Facebook, Apple, Amazon, Alibaba, Microsoft, Google and a handful of very well managed REITs and other stocks like STOR and maybe MPW), and "most importantly" by buying very heavily into them during mass panic sell offs, either market general sell offs like the end of 2018, the COVID crash, or stock specific sell offs that can occur for any number of reasons. 

That however takes having sufficient ready cash on hand, but most of all a rock steady emotional constitution when the rest of the world is running down the street naked with their hair on fire screaming that the world is coming to an end (so run for your life and sell everything that you own). But hey that's what creates real opportunity, the blood in the streets thing.

My RE I did the same way, I bought heavy into the post 2008 RE wipe out, started acquiring CA properties at the end of 2010 through mid 2012, and then added some out of state properties shortly after that as West Coast prices had become to pricey for my liking. The CA properties (all nearly new in some of the best neighborhoods) were at about 1/3 of their previous post 2008 crash highs. 

I bought with cash as it very easily permitted to step in front of all those who had to borrow at the time, and to do it with a substantially lower bid price. I have achieved an unleveraged return of about 25% over the last 8 to 10 years. That rate will start to drop (really already has, notwithstanding the recent price surge) as post crash rates of return moderate for asset classes. However, I've cleared several million, have positive cash flow and significant profits after deprecation on all properties so I can live with a moderating RE ROI at this point.

Under current law, the tax basis of any assets that pass through your taxable estate is adjusted to their date of death Fair Market Value. So any unrealized gain (or loss) on such assets is wiped out. 

I use a variation on Buffett's strategy to avoid paying any meaningful tax on my stock portfolio.

1) I invest primarily in high growth stocks and ETFs so currently taxable dividends are minimized.

2) I only invest in securities I intend to hold indefinitely so currently taxable capital gains are minimized. Losses on the other hand can be currently harvested to benefit from the loss deduction. Since I'm exceedingly selective upfront because I intend to hold all my stocks indefinitely my losses have been very few and far between.

3) All the capital appreciation on my stocks will be wiped out in my estate so my lifetime taxes paid will be negligible.

4) A Roth works too, however I don't qualify and conversion of my regular IRA would be tax cost prohibitive.

5) All my current and future cash needs are funded from RE portfolio and work. RE portfolio also allows me to cash fund additional stock investments with significant pre tax money (i.e., the depreciation sheltered component).