The Sell-Off Strategy

[JBird]

Buffett's 2012 letter contained a section called "Dividends" which outlined the benefits of generating income from price appreciation as opposed to dividend payments. There are 3 primary benefits: 1) More potential capital value and more potential income 2) More control over the size and frequency of income, and 3) Far less tax liability than generating the same income from dividends.

 

Billionaires like Jeff Bezos, Larry Page, and Marc Benioff actually recognize this and are actively use the sell-off strategy. But it's still under-appreciated. I worked for Charles Schwab for six years and found that basically no one was taking advantage of the strategy's benefits. So as an advisor when they gave me $250 million to manage for 205 client households, I put the sell-off strategy to work. Clients were able to realize all 3 benefits and were far ahead of the dividend-focused strategies that are so prevalent today.

 

In my experience investors on this forum are a clever bunch and recognize the sell-off strategy as a useful one (shout out to Ericopoly). If you want to learn more about how to implement the strategy and disinherit the IRS along the way, I wrote a short book about it called Income on Demand. It's available on Amazon this week for 99 cents. Here's the link: https://geni.us/incomeondemand

 

Happy investing everyone!

 

 

[COBFInfinity]

I think what you're calling the "sell-off strategy" just means to sell stock for cash flow, instead of relying of dividend income. The obvious downside to that is it depends on stock valuations. It's a no-brainer to look backwards and say this worked better in recent years. The question is whether it will in the future. Will low yield, high potential growth stocks remain at such steep valuation multiples? That makes them good for selling, but maybe not very good for long-term returns.

[JBird]

Yes that's what the sell-off strategy means. Forget recent years, this strategy has worked better over the past 35+ years.

 

If you're an active investor, you own stocks that you believe are undervalued. If their appreciation produces unrealized gains, you now have income potential. You choose how much income you want and when you want it. You also get a tax break to whatever percentage your cost basis makes up your capital value. This strategy is not synonymous with high potential growth stocks. You choose your own basket of securities - could be zero coupon bonds.

 

If you're a passive investor, you own the index. The S&P 500 retained 64% of its earnings last year. Logic and past experience shows us that on average, every dollar retained produces more than a dollar of market value. It's the gift that keeps on giving.