Avoid letting tax liabilities dictate irrational holding
The guest argued that investors should not let the fear of capital gains taxes prevent them from selling overvalued or deteriorating businesses.
The argument
While acknowledging that interrupting tax deferral hurts compounding, the guest argued that holding a stagnant or declining business just to avoid a tax hit is irrational. He noted that even Warren Buffett expressed regret for not trimming Coca-Cola in the late 1990s when it traded at a 50-60x multiple due to tax-related inertia.
The thesis, stress-tested
✓ What validates it
- —
▸ Risks discussed
- ▸Paying capital gains tax immediately reduces the capital pool available for compounding in the next investment
Hear it yourself
"Even Warren Buffett recently, I didn't hear him specifically say this, but someone was quoting him. I was listening to a podcast, admitted that he wished he had taken some of his money off of Coke way back when when it hit, like, 56 you know, $50.60 time multiple back in the late nineteen nineties."
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