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Subject: IC941201: TAX QUESTIONS
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==================    IC941201: Investment Club  ======================

A. Tax questions
B. What if a security does not co-vary with the S&P? one more tax Q.
_______________________________________________________________________

A. Tax questions

> From: zheng@*****.edu>

Hi! Gray, This is the very 1st year I got into investing. And it's
going to be a bad year. My Japan and Asia mutual fund and some OTC
funds have all suffered. I would like to ask you,

1. If I do not sell them, can I claim capital loss in my tax return?
2. If I do sell some of them, is Nov.29 the last day to avoid wash sale?
3. Do I have to itemize my tax deductions to claim capital gain's loss?
4. My loss this years is already much more than the tax I need to pay,
   I estimate my tax to be $1,100. If I deduct my capital gain's loss to
   the $3,000 maximum, my tax would be like
   $1,100 - $3,000 = - $1,900
   do you think the government is to reimburse me the $1,900 on my tax
   return? 

=> Gray: 

1. no, the loss must be realized loss, i.e. closed positions.
2. no, my understanding is that it is a wash sale as long as you buy back 
   in 30 days. has no much to do with the end of the year. I believe the 
   rule applies to mutual funds also. Of course, if you close your position
   next year, I cannot claim capital loss this year.
3. probably, read the instruction for 1040??
4. you can deduct loss from gross income, not the tax. if your deduction is 
   over your gross income, you can roll $2000 loss over to next year.

-------------------------------------------------
B. What if a security does not co-vary with the S&P?

From: stacc0@quantum
Subject: Re: IC941121: Lecture Series(5) - Risk and Return 

Two questions:
1. What if a security does not co-vary with the S&P? Will that
result a low beta but still the security has a high market risk?
2. I heard that short term capital loss is tax deductible, how
short is to be considered short?

Thanks to the experts in advance.

=> Gray:

1. I am not sure I understand what the question is. All stocks should be
   correlated to S&P 500 to some extend. Big stocks (large number of shares
   outstanding, higher priced) stocks seem to have higher correlation with
   S&P 500 than small stocks.

   If a stock has low beta, it has low market risk. However, risk is not
   limited to MARKET RISK, there are other risks as well, such as business
   risk, related to the company.

2. short term is less than a year, but both short term and long term capital
   loss are tax-deductable (reduce the gross income), up to $3000/year (?).
   However, long term capital gain have an upper limit tax rate (28%?) for 
   people whose tax bracket is above 28%. The newly elected Republicans 
   are heard to look to lower the 28%.

==========================================================================
                           Disclaimers:

 a) Material on ICnet  is for general information only, and made available
    to  voluntary  subscribers  (subscription  is  free).    There  is  no
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    which is the  ftp provider) except yourself assumes any responsibility
    for any consequences of using the material.

 b) You are free to forward and copy the material  for private use. If you
    do forward, it is mandatory to let it ALWAYS GO  WITH DISCLAIMER.  Use 
    of the material for commercial  purpose without written consent of the 
    author is prohibited.

 c) Any past performance examples should  not be considered a guarantee of
    future   results.    Any  company mentioned   does    not constitute a
    recommendation by anybody.

 d) ICnet is a moderated group. Message may or may not be posted, and many
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    may be delay in posting your message.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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__________________________________________________________________________
     ALL INVESTMENTS INVOLVE RISK, STUDY CAREFULLY BEFORE INVESTING.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

From icnet-l@ifcss.org Thu Dec  8 21:22:12 1994
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Subject: IC941208: Lecture Series (6)
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==================    IC941208: Investment Club  ======================

1. Lecture Series (6) ........................................ Lei Xu
_______________________________________________________________________
   (be sure to read the Disclaimer in the end if you have not read)

Topic Six: Security Mispricing

      Finance scholars have long agreed that market is efficient in such a
sense that the market prices of all securities reflect the knowledge and
expectations of all concerned investors.  The competition among investors for
information ensures that the current prices of widely traded financial assets
are unbiased predictors of the future values of the securities.  Thus, it is
unthinkable to beat market to make a risk-free profit.  However, there have
been times, though transient, that investors do make sure profits with a zero
investment portfolio.  In a simplest case, suppose two transactions are
entered at two different places but involve the same underlying asset with
different prices.  For example, once a momentary disparity in gold prices
occurs in the Chicago and the New York markets and the price differential
exceeds all costs associated with the going transactions , an investor could
buy one contract of gold in one market and sell one contract in the other
market, locking in a sure profit with zero investment.  In this case, no risks
are involved since the long (buy) and short (sell) positions offset each
other.
      A zero investment portfolio means that the investor has to carry out at
least two transactions, in which a short position (sell) is taken towards at
least one asset and the proceeds is used to go long on (buy) one or more
assets.  In a more complicated case, assume there exist four stocks named A,
B, C, D which are traded with only four distinct and equally distributed
possible scenarios.
                             Scenario I         Scenario II        Scenario
III            Scenario IV
Probability                0.25                  0.25                    0.25 
                    0.25

      A                         -40                   30                      
40                          50
      B                          10                    70                     
  20                       -30
      C                           70                    -10                   
 10                         40
      D                          10                     20                    
 15                         15
A quick check reveals that an equally weighted portfolio of the stocks A, B, C
outperforms stock D in terms of the rate of return.
                                                Scenario I      Scenario II   
     Scenario III        Scenario IV
 Equally Weighted             
 Portfolio (A, B, C)                   26.6                   30              
        23.3                        20
  
       D                                            10                   20   
                  15                         15
Once this situation is spotted, any investor, no matter how risk averse, would
adopt a strategy to lock a risk free profit by taking a short position in D
stock to finance the long positions in stocks A, B, C.

                    Dollar Investment      Scenario I    Scenario II    
Scenario III    Scenario IV
      A              1000                           -400              300     
          400                  500
      B               1000                          100                700    
           200                  -300
      C               1000                          700                -100   
           100                 400
      D             -3000                         -300               -600     
          -450               -450
------------------------------------------------------------------------------------
Portfolio              0                        100                 300       
         250                  150

The above example shows that the initial net investment is zero, but a
positive profit is generated under any scenario.
The case described above can be stated in a way in which for any stock, the

       Expected return on stock = A + B (Factor 1) + C (Factor 2) +
.........+

The factor could be any economic factors in the marketplace such as oil price,
interest rate, etc.  Some stocks are more sensitive to some factors than
others.  In extreme, there could exist some stocks which have perfect
correlation with certain factors.  In this case, including this stock in the
portfolio is almost equivalent to buying that particular factor.  If there are
sufficient stocks, it is possible to construct a portfolio so diversified that
it has virtually zero sensitivity to each factor, and thus the portfolio is
risk free.  The return generated by such a portfolio is a sure profit.
      Though, the market is efficient, professional money managers do look for
such opportunities.  Their efforts are towards identifying the factors
affecting stock returns, and measuring the expected return on each of these
factors as well as the sensitivity of stocks to them.  In our case, it is a
sure thing that the selling and buying pressures around the stocks A, B, C, D
are to be very high within a short period of time, the price of stock D has to
come down, or/and the prices of stock A, B, C have to go up.  Soon, the free
lunch disappears.

==========================================================================
                           Disclaimers:

 a) Material on ICnet  is for general information only, and made available
    to  voluntary  subscribers  (subscription  is  free).    There  is  no
    guarantee of  accuracy in either text or numbers, so please read  with
    your own discretion.  Opinion expressed by any author is  his own, not
    necessarily  his  employer's.  Nobody on  the icnet-l or related (Hong
    Guang, Gray Zhu or their employers, or any other members, or ifcss.org
    which is the  ftp provider) except yourself assumes any responsibility
    for any consequences of using the material.

 b) You are free to forward and copy the material  for private use. If you
    do forward, it is mandatory to let it ALWAYS GO  WITH DISCLAIMER.  Use 
    of the material for commercial  purpose without written consent of the 
    author is prohibited.

 c) Any past performance examples should  not be considered a guarantee of
    future   results.    Any  company mentioned   does    not constitute a
    recommendation by anybody.

 d) ICnet is a moderated group. Message may or may not be posted, and many
    messages are combined into one post to reduce network traffic.   There
    may be delay in posting your message.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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  Managers:       Guang Hong, HONG@opus.mco.edu
                  Gray Zhu, grayzhu@panix.com
__________________________________________________________________________
     ALL INVESTMENTS INVOLVE RISK, STUDY CAREFULLY BEFORE INVESTING.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

From icnet-l@ifcss.org Tue Dec 20 01:14:26 1994
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From: Gray Zhu <grayzhu@panix.com>
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Subject: IC941219: Merry Xmas and Happy New Year
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           ***** MERRY CHRISTMAS AND HAPPY NEW YEAR *****

==================    IC941219: Investment Club  ======================

1. More about TAXES .......................................... Gray Zhu
_______________________________________________________________________
   (be sure to read the Disclaimer in the end if you have not read)


TAXES:

There are two ways you can make money from investing in securities.
The first is dividend (stocks) and interest (bonds and preferred
stocks) received from investments owned. The second is profit on the
sale of investments owned. The first is called INVESTMENT INCOME, the
second is called CAPITAL GAINS.

Investment income is always taxes as if it is your additional salary.

There are two kinds of capital gains depending on the holding period.
The rule states that if securities are sold which have been held for a
period of twelve months or less, the profit realized is deemed
short-term capital gain an is taxable as ordinary income at either
15%, 28%, or 31% depending upon what bracket the investor winds up in.
If securities sold at a profit were held one day and twelve months, or
longer, that profit is deemed long-term capital gain and is also
taxable as ordinary income (like salary) with a maximum tax rate,
however, of 28%, even if the investor's bracket is over 31%.

DEDUCTIBILITY OF CAPITAL LOSSES: Capital losses that are realized
(sold long positions or covered short positions) may be deducted from
capital gains in the year in which those losses are realized. Net
short-term and long-term capital losses (capital gains minus capital
losses) are fully deductible from taxable income in the year in which
realized, with a maximum permitted annual of $3000. If the losses are
over $3000, Those losses may be carried over and used to off-set gains
in the next year and, if there are no gains, also be written of
against ordinary income at a rate of $3000 per year until they are
used up.

Interest income from investment in U.S. government bonds is tax
deductable in the state and local tax level, and interest income from
municipal bonds is exempt (mostly cases) from federal tax, and also
exempt from local tax if your own the local government issued bonds.

WASH SALE and TAX SWAP: Wash sale is a rule which says if a investor
sell a security to realize a loss for tax purpose and buy the same
security or derivatives of the security back in 30 days, the loss is
not tax deductable. However, if making a deduction can possibly lower
tax by one bracket and the investor likes to hold the stock of at
least a similar company, a TAX SWAP may be a good choice. A tax swap
differs from wash sale is not buying back the same security but a
similar one in the same catagory and they behave similarly. For
instance, sell CRYSLER to realize a loss, and buy GM.

TAX SHELTERS: You have probably seen the statistics somewhere that out
of 100 Americans reaching retirement age, 97% of them are not
financially self sufficient. The U.S. government realizes this is a
important social problem, and offered incentives for people to invest
for their future.

* IRA Plan: Invest $2000/year and the investment is tax deductible.
* KEOGH Plan: 25% of "self-employment earned income" or $30,000, 
  whichever is less.

There are other investments which can be used as tax shelters. One of
them is to invest in real estate, where you can take advantage of the
tax deduction on the depreciation and make money through the actual
appreciation of the property. If you have no plan to buy house by
yourself, buying real estate limited partnership unit, such as the
so-called REIT (Real Estate Investment Trust), may be a choice.
However, there is sometimes substantial risk involved in the real
estate limited partnership investments.

==========================================================================
                           Disclaimers:

 a) Material on ICnet  is for general information only, and made available
    to  voluntary  subscribers  (subscription  is  free).    There  is  no
    guarantee of  accuracy in either text or numbers, so please read  with
    your own discretion.  Opinion expressed by any author is  his own, not
    necessarily  his  employer's.  Nobody on  the icnet-l or related (Hong
    Guang, Gray Zhu or their employers, or any other members, or ifcss.org
    which is the  ftp provider) except yourself assumes any responsibility
    for any consequences of using the material.

 b) You are free to forward and copy the material  for private use. If you
    do forward, it is mandatory to let it ALWAYS GO  WITH DISCLAIMER.  Use 
    of the material for commercial  purpose without written consent of the 
    author is prohibited.

 c) Any past performance examples should  not be considered a guarantee of
    future   results.    Any  company mentioned   does    not constitute a
    recommendation by anybody.

 d) ICnet is a moderated group. Message may or may not be posted, and many
    messages are combined into one post to reduce network traffic.   There
    may be delay in posting your message.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
                  ICnet - Investment Club on network
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__________________________________________________________________________
     ALL INVESTMENTS INVOLVE RISK, STUDY CAREFULLY BEFORE INVESTING.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


From icnet-l@ifcss.org Thu Dec 22 13:04:53 1994
Reply-To: icnet-l@ifcss.org
Originator: icnet-l@ifcss.org
Sender: icnet-l@ifcss.org
From: yix@pharmacop.com (Yixin Luo)
To: Multiple recipients of list <icnet-l@ifcss.org>
Subject: Re: Questions
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>                       Subject:                               Time:4:18 PM
>  OFFICE MEMO          Questions                              Date:12/20/94
>
>The market has been declining in last few months. I'd like to ask some
>questions to the experts on the net.
>1. Is the raise of interest rates by the Federal government the major reason?
>What are the other reasons?
>2. When interest rates change, what kind of consequences should investors
>expect to see in different industries? It would be great if someone can give
>some introduction on the relations among industries.
>3. How would the change of interest rates in US affect the economy in other
>areas?
>Thanks. Tao


#1  Interest rate does contribute  heavily to the recent decline of  the US
stock market, there other reasons as well,  the year end stock sellout due
to tax purposes, the profit taking after a long   bullmarket...

#2  When interest rate goes up,  more people sell their stock and put their
money into bond market
because the bond yield goes up with the interest, stock market as a whole
takes a down trend. Those companies (many utility companies for example)
that have lots of long term debt have to pay a higher interest, their stock
is going to get affected more than others.  Industries rarely interacts
with each other, if I read your question rit,   a takeover in software
companies for example may cause a uptrend in that sector, but will not
affect, say, the semiconductor sector(even if you can reason that they may
be related to each other).

#3 the fluctuation of US interest rate is going to affect other contries,
especially those who have close ties to the economy here, mexico for
example.   But whether the mexico fund will go up or down tomorrow is
really hard to tell because the relation is just too indirect.

#4 where is the disclaimer?

Yixin  Luo
Pharmacopeia Inc.
(609) 987-1086
yix@pharmacop.com






From icnet-l@ifcss.org Fri Dec 23 11:47:11 1994
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Originator: icnet-l@ifcss.org
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From: Gray Zhu <grayzhu@panix.com>
To: Multiple recipients of list <icnet-l@ifcss.org>
Subject: IC941223: Possible Bear Market Ahead
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==================    IC941223: Investment Club  ======================

1. Possible Bear Market Ahead .......................... Xiaogang Leng
_______________________________________________________________________
   (be sure to read the Disclaimer in the end if you have not read)

> From lengx@droid0.vssi.trw.com Fri Dec 23 11:27:29 1994
> Date: Fri, 23 Dec 1994 09:21:31 -0700
> From: lengx@droid0.vssi.trw.com (xiaogang leng)
> Message-Id: <9412231621.AA17217@droid0.vssi.trw.com>
> To: grayzhu@panix.com
> Subject: Bear market
> 
> Dear fellow investors:
> 
> Recently, the stock market has been volatile and quite a few people
> are wondering the future of the market. I have been following macro
> economy with a modified model (see Martin Zweig's Winning On Wall
> Street). This model has been showing sell signals since the mid of 
> August. Besides, an article on the Investors Business Daily surveyed
> quite a few famous news letter writer including Martin Zweig, all of
> them expressed the extremely bearish point of view. My feeling is that
> the stock market is going to have a crach in the next a few months to
> a year. I would personally prefer to putting 70% of my investment in 
> cash. Why risk our hard-earned money? This is only my point of view.
> It does not serve as a recommendation of selling your stocks. I may
> be wrong.
> 
> Xiaogang Leng
> 

==========================================================================
                           Disclaimers:

 a) Material on ICnet  is for general information only, and made available
    to  voluntary  subscribers  (subscription  is  free).    There  is  no
    guarantee of  accuracy in either text or numbers, so please read  with
    your own discretion.  Opinion expressed by any author is  his own, not
    necessarily  his  employer's.  Nobody on  the icnet-l or related (Hong
    Guang, Gray Zhu or their employers, or any other members, or ifcss.org
    which is the  ftp provider) except yourself assumes any responsibility
    for any consequences of using the material.

 b) You are free to forward and copy the material  for private use. If you
    do forward, it is mandatory to let it ALWAYS GO  WITH DISCLAIMER.  Use 
    of the material for commercial  purpose without written consent of the 
    author is prohibited.

 c) Any past performance examples should  not be considered a guarantee of
    future   results.    Any  company mentioned   does    not constitute a
    recommendation by anybody.

 d) ICnet is a moderated group. Message may or may not be posted, and many
    messages are combined into one post to reduce network traffic.   There
    may be delay in posting your message.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
                  ICnet - Investment Club on network
__________________________________________________________________________
  SUB/SIGNOFF to: LISTSERV@IFCSS.ORG, with mailbody as:
                  SUB ICNET-L Firstname Lastname or: SIGNOFF ICNET-L
  Post mail to:   ICNET-L@IFCSS.ORG
  Anonymous ftp:  at ifcss.org, in direcctory: /org/icnet
  Gopher:         /org/icnet on ifcss.org, /ifcss/org/icnet on cnd.org
  Managers:       Guang Hong, HONG@opus.mco.edu
                  Gray Zhu, grayzhu@panix.com
__________________________________________________________________________
     ALL INVESTMENTS INVOLVE RISK, STUDY CAREFULLY BEFORE INVESTING.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~








