In order to be a successful investor, one must, first, be adept at researching various industries and the companies within those industries; and then selecting those companies that have competitive advantages over the other companies within their industries. Many times, our stock brokers and other professionals will have performed the necessary research for us, and we then must make the final decision to buy or not buy a specific stock or other investment.


The second, and often missing, ingredient occurs on the backend – when is the most appropriate time to sell your stock? In one of the best books on investing ever written, “Common Stocks and Uncommon Profits,” the author, Philip Fisher penned, “It is only occasionally that there is any reason for selling at all.” That occurs when there is “a deterioration of a company’s underlying business.” Fisher held that there were only two reasons for an erosion of a company’s condition: inept management, which usually is the result of a change in the most senior leadership of a company, or a downturn in demand for the specific product or service provided by the company.


James K. Glassman recently wrote an intriguing article on this topic in Kiplinger’s “Personal Finance” magazine in which he opined one should only buy stocks with the intention of holding them for a long time – translated – at least 10 years or even longer. Glassman’s view is that successful investors should make a small number of purchasing decisions and almost no selling decisions. In that regard, he is following the advice of a well-known investor, Warren Buffett, who once said, “Inactivity strikes us as intelligent behavior.”


Glassman went on to state that the only two legitimate reasons for selling a stock are, first, to further diversify your portfolio. Say, you had once purchased 1000 shares of Acme Company at $2 per share, and through splits and growth you now have 3000 shares worth $12 per share. If that $36,000 total comprises considerably more than 15 percent of your total portfolio, it might be time to rebalance. The second reason for selling is simple: you need the money. I was in that situation in the mid-80s. I had left one employer and rolled over about $50,000 into an IRA. My broker was an absolute wizard, and in less than a year, the value had doubled. Fortunately, (or perhaps unfortunately), I needed money for my children’s education, so I had to sell half of my holdings – paying a tax penalty in the process. But, I had to have the money. Thankfully, my guy ran it back up to over $100,000 in the next 24 months, but that is another story. I was able to sell without second guessing myself.


Think you know what your marginal tax rate will be for 2013? That is the rate of tax you would pay if you earned one more dollar of income. The big bugaboo this year is the phase out of itemized deductions. These write-offs are reduced by 3 percent of the excess of your adjusted gross income over $250,000 for singles and $300,000 for married couples. No matter how much income you earn in 2013, the total haircut can’t exceed 80 percent of total itemizations. In addition, medical expenses, investment interest and casualty losses are exempt.


Personal exemptions are also subject to reduction. They are trimmed by 2.5 percent for each $2500 of AGI over the aforementioned thresholds. As a result, they disappear entirely once AGI exceeds $372,500 for singles and $422,500 for married couples. A family of four in the latter category will see its marginal tax rate increase by 4.2 percent. The 2013 AMT exemption has been set already at $80,800 for couples and $51,900 for singles, up from $78,750 and $50,600 for 2012. More tax tidbits next week.


Got a financial planning question for Greg? You may email him at greg@lifesolutionsonline.net.


Greg Roberts is a certified financial planner with 35 years of financial and estate planning experience.