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Harvesting vs. Holding a stock

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If an investor loves a company like Amazon, Apple, Tesla, or Microsoft, should they hold a stock forever, or should they harvest their returns when the opportunity presents itself? 

Let’s take a real-time scenario and classic harvesting example here: 

Microsoft CEO Satya Nadella sold around 839,000 shares between November 22nd and 24th, 2021, at an average price of $342 per share, when he saw a 300% return in 4 years (please see the image below). The total proceeds amounted to $287 million. After paying 20% of long-term capital gain tax on $287M, Satya has $229.6M tax-free money. Due to inflation, war, and other market conditions, Satya might be just sitting on cash for the entire 2022 financial year.  Fast forward one year, and analyze what options does an intelligent investor like Satya has now? He can invest some of this money into value stocks that are beaten down, or if the MSFT stock price goes as low as $200/share (IIG feels there is a possibility in 2023 and MSFT 52wk low is $213 in 2022) Satya can acquire approximately 40% more MSFT shares (1.1 Million) than he had, even after paying taxes. 

On the other hand, many investors that love or work at MSFT may have NOT harvested. Remember even Bill Gates has approx. 1% stake in Microsoft. So we can love a company, but we should love our money first and we must harvest when we see the opportunity instead of holding a stock for longer.  

Not just Satya, many billionaires & CEOs offloaded their company’s stocks in 2021. While sitting on cash, they are finding and investing in the best value opportunities, like farmlands and value stocks, at beaten-down prices. So by harvesting the returns at the right moment, investors can multiply their investment exponentially. 

At IIG, our approach to investment management involves utilizing macroeconomic analysis to identify opportunities for portfolio optimization.

Through careful monitoring of market trends and conditions, we assist our clients in determining when it may be prudent to sell certain stocks in their portfolio in order to maximize returns. While it is not always possible to predict the precise point at which a stock has reached its peak, by staying attuned to market conditions and acting strategically, we can help our clients make informed decisions to reallocate their assets and improve the overall performance of their portfolios.

It is also worth noting that having a healthy amount of cash reserves is crucial during times of economic uncertainty, and our team at IIG will work with you to create a balanced portfolio that takes into account the potential risks and opportunities in the current market. Trust us to help you navigate the complex world of investing and achieve your financial goals.

Sources:

https://www.moneycontrol.com/news/business/satya-nadella-sells-50-of-his-stake-in-microsoft-ahead-of-capital-gains-tax-law-regime-7778731.html

https://www.wsj.com/articles/microsofts-satya-nadella-sold-half-of-his-shares-in-the-company-11638214243

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Linda Barbara

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