The Long Term Investor

I had to look....early....at my account today. It has been a FUN market over the past four days. AND....it continues today. So far I am perfect today.....all stocks UP. My leaders NVDA and HD.

It is nice to see HD with a gain over 2% today. They are another company that has been disrespected lately. Great management, a great business model, great business execution.......and....totally dominant in their business area. Exactly the type of company that I want to own for the long term.

 

Today was a KILLER day. A broad based RALLY in all the market averages. Of course....I participated nicely....with all eight stocks in the green. I had three stocks up more than 2% today.....NVDA, HD, and AAPL.

I was surprised to get beat by the SP500 today.....by 0.31%.......but....dont really care since I made good money. No reason to get greedy.

EDIT: COST ended the day in the red.

 

The APPLE earnings.

Apple beats estimates thanks to iPhone and services, but records fourth consecutive quarterly sales decline

https://www.cnbc.com/2023/11/02/apple-aapl-earnings-report-q4-2023.html

(BOLD is my opinion OR what I consider important content)

"Key Points

• Apple reported fourth-fiscal quarter earnings on Thursday that beat analyst expectations for sales and earnings per share, but revealed that overall sales fell for the fourth quarter in a row.

Apple reported fourth fiscal quarter earnings on Thursday that beat analyst expectations for sales and earnings per share, but revealed that overall sales fell for the fourth quarter in a row. Every hardware business outside the iPhone declined year-over-year, with big drops in the iPad and Mac segments.

Apple highlighted stronger-than-expected 16% growth in its online services division to make up for weakness in hardware sales.

Apple shares fell about 2% in extended trading.

Here’s how Apple did, versus LSEG (formerly Refinitiv) consensus expectations:

• EPS: $1.46 per share, versus $1.39 per share expected
• Revenue: $89.50 billion, versus $89.28 billion expected
• iPhone revenue: $43.81 billion, versus $43.81 billion expected
• Mac revenue: $7.61 billion versus $8.63 billion expected
• iPad revenue: $6.44 billion, versus $6.07 billion expected
• Wearables revenue: $9.32 billion, versus $9.43 billion expected
• Services revenue: $22.31 billion, versus $21.35 billion expected
• Gross margin: 45.2% versus 44.5% expected

Apple didn’t give formal guidance, but CFO Luca Maestri usually provides data points on the earnings call. Analysts are looking for $122.98 billion in revenue for the December quarter, which would be a return to year-over-year growth in Apple’s most important quarter.

Net income was $22.96 billion, versus $20.72 billion in net income a year ago. For Apple’s entire fiscal year, it reported $383.29 billion in sales, down about 3% from Apple’s fiscal 2022. Quarterly revenue declined less than 1% in the September quarter.

The company’s iPhone sales were in line with Wall Street expectations and increased more than 2% from last year. It was the only hardware line for Apple to show growth in the quarter, and the period only included about a week of iPhone 15 sales.

Apple CEO Tim Cook told CNBC that the iPhone 15 was doing better than the iPhone 14 did during the September quarter last year.

“If you look at iPhone 15 for that period of time and compare it to iPhone 14 for the same time in the year-ago quarter, iPhone 15 did better than iPhone 14,” Cook told CNBC’s Steve Kovach. He added that Apple’s more expensive Pro and Pro Max iPhones were supply constrained because of high demand.

Apple’s Mac and iPad businesses both suffered during the quarter. Maestri, Apple’s CFO, had warned on a call with analysts after third-quarter results that iPad and Mac sales would fall by double-digit percentages.

Mac sales came in below Wall Street expectations, falling nearly 34% on an annual basis. Apple held an unusual nighttime launch event for its new MacBook Pro laptops and iMac desktop last month. While sales of the new devices aren’t included in the quarter, Apple was signaling that new products could boost sales once again thanks to its new M3 chips.

Cook told CNBC that the Mac comparison is to “an all-time record” fourth quarter, which followed a huge supply disruption and pushed what would have been third-quarter sales into the last quarter of 2022. “So, the comparison point here is very difficult,” he said.

“I think the Mac is going to have a significantly better quarter in the December quarter. We’ve got the M3, we’ve got the new products, and we don’t have the compare phenomenon on a year-over-year basis,” Cook said, referring to an unusually strong market for Macs in 2022.

Cook said that that overall market for personal computers is “challenging.”

Revenue from iPads was also down big, declining 10% from the same period last year. Apple did not announce new products ahead of the holiday season this year.

Apple’s services business was a bright spot. Apple recorded $22.31 billion in services revenue, outpacing analyst expectations and increasing over 16% on an annual basis.

Apple’s services division includes online subscriptions like iCloud storage and Apple Music, as well as warranties from AppleCare. A big chunk of Apple’s services business comes from its deal with Google for the default search engine on Apple’s browser, Safari, which has been highlighted in recent weeks as part of the Department of Justice antitrust case against Google. That payment to Apple is worth an estimated $19 billion this year.

Cook said services components including App Store sales, advertising (including the Google deal), iCloud, payment services, and Apple Music did well in the quarter and hit an internal Apple record, signaling continued growth.

“Every main service hit a record,” Cook said.

Maestri also noted in a statement that Apple’s installed base of devices, or the number of iPhones, Macs, and iPads currently in active use, reached an all-time high during the quarter, although Apple did not give an exact number. Analysts say that growth in Apple’s installed base signals future growth in its services division.

Cook said that Apple had over a billion paid subscriptions, which include both Apple’s own services as well as apps on the App Store that bill on a recurring basis.

Apple’s wearables business unit includes headphones like the company’s AirPods as well as Apple Watch sales. It, too, shrank year-over-year, dropping over 3% on an annual basis.

Apple’s business in Greater China, its third largest market, is under the microscope as investors worry about increased competition from Huawei. Greater China sales were basically flat year-over-year, and Apple reported $15.08 billion from the region, which includes Hong Kong and Taiwan.

Apple said it would pay a dividend of 24 cents per share this month and said the company had spent $25 billion during the quarter on share repurchases and dividends."

MY COMMENT

I would call this a BEAT. EPS....Revenue.....iPhone Revenue.....iPad Revenue.....Services.....and Gross margins....were all nice BEATS. The only items that were not beats were.....Mac Revenue and Wearables.

Of course there is plenty to nit-pick here.......Sales were down by 3%....etc.

I prefer to look at the company as a whole compared to nit-picking little categories of the earnings.

No doubt the markets tomorrow will not agree with my take oF this being a good earnings BEAT. All in all....I dont think there were any big surprises here.

 

Four hours to reach a verdict.......super fast.

Sam Bankman-Fried found guilty of defrauding FTX customers, investors, and lenders

https://finance.yahoo.com/news/sam-...ustomers-investors-and-lenders-001855503.html

MY COMMENT

A lesson to any investor. You have to do your due diligence.

Never trust anyone....especially with big sums of money.

For example when I bought my $1.8MILLION dollars of income annuities. I refused to send the funds to the annuity broker. I had no idea who they were, their financial condition or if I could trust them or their business. I had no idea how they would react to being handed $1.8MILLION dollars. So I told them I would only send the funds to each of the insurance companies directly.

Even at that point I did not trust anyone....I verified the phone numbers for each insurance company....the employee the funds were being sent to....and the company address...etc, etc, etc. I also verified all the details of the policies and premiums directly with each insurance company. AND....I independently verified all the information.....even the insurance companies...... were telling me. I was extremely paranoid about the whole thing.

 

Poor SBF.....that was a massive loss with the jury. They were out for about four hours......but probably actually deliberated less than an hour or two. They would have gone in......spent about a half hour to an hour reviewing the instructions and electing a fore-person. They had dinner at some time as part of the four hours. So they probably convicted him in about 1-2 hours of actual deliberating.

Obviously they had absolutely ZERO debate about guilt. At least they got a free dinner....although it was probably just pizza.

 

Another good sign the FED is done. Stick a fork in them......and move on.

U.S. payrolls increased by 150,000 in October, less than expected

https://www.cnbc.com/2023/11/03/job...-by-150000-in-october-less-than-expected.html

(BOLD is my opinion OR what I consider important content)

"Key Points

• Nonfarm payrolls increased by 150,000 for the month, against the consensus forecast for an increase of 170,000. That was a sharp decline from the gain of 297,000 in September.
• The unemployment rate rose to 3.9%, the highest level since January 2022, amid a sharp decline in household employment.
• From a sector standpoint, health care led with 58,000 new jobs. Other leading gainers included government (51,000), construction (23,000) and social assistance (19,000).
• Manufacturing posted a decline, mostly due to the auto strikes.

The U.S. economy saw job creation decelerate in October, confirming persistent expectations for a slowdown and possibly taking some heat off the Federal Reserve in its fight against inflation.

Nonfarm payrolls increased by 150,000 for the month, the Labor Department reported Friday, against the Dow Jones consensus forecast for an increase of 170,000. The United Auto Workers strikes were primarily responsible for the gap as the impasse meant a net loss of jobs for the manufacturing industry.

The unemployment rate rose to 3.9%, the highest level since January 2022, against expectations that it would hold steady at 3.8%. Employment as measured in the household survey, which is used to compute the unemployment rate, showed a decline of 348,000 workers, while the rolls of the unemployed rose by 146,000.

A more encompassing jobless rate that includes discouraged workers and those holding part-time positions for economic reasons rose to 7.2%, an increase of 0.2 percentage point. The labor force participation rate declined slightly to 62.7%, while the labor force contracted by 201,000.

“Winter cooling is hitting the labor market,” said Becky Frankiewicz, chief commercial officer at staffing firm Manpower Group. “The post-pandemic hiring frenzy and summer hiring warmth has cooled and companies are now holding onto employees.”

Average hourly earnings, a key measure for inflation, increased 0.2% for the month, less than the 0.3% forecast, while the 4.1% year over year again was 0.1 percentage point above expectations. The average work week nudged lower to 34.3 hours.

The Fed uses wage data as one component of its inflation watch. The central bank has opted not to raise interest rates at its past two meetings despite inflation running well above its 2% target. Following Friday’s jobs data, markets further reduced the probability of a rate hike in December to just 10%, according to a CME Group gauge.

Markets reacted positively to the report, with futures tied to the Dow Jones Industrial Average adding 100 points.

From a sector standpoint, health care led with 58,000 new jobs. Other leading gainers included government (51,000), construction (23,000) and social assistance (19,000). Leisure and hospitality, which has been a leading job gainer, added 19,000 as well.

Manufacturing posted a loss of 35,000, all but 2,000 of which came because of the auto strikes. Transportation and warehousing saw a decline of 12,000 while information-related industries lost 9,000.

“After years of incredible strength, the labor market could finally be slowing. The topline miss, plus downward revisions and higher unemployment, deliver a strong message to [Chair] Jerome Powell and the Fed,” said David Russell, global head of market strategy at TradeStation. “Further tightening is now highly unlikely, and rate cuts could be back on the table next year.”

In addition to the October slowdown, the Bureau of Labor Statistics revised lower its counts for the previous two months: September’s new total is 297,000, from the initial 336,000, while August came in at 165,000 from 227,000. Combined, the revisions took the original estimates down by 101,000.

Job creation skewed heavily to full-time workers, reversing a recent trend. Full-time jobs grew by 326,000, while part-time tumbled by 670,000 as summertime seasonal jobs wrapped up.

The report comes at an important time for the U.S. economy.

Following a third quarter in which gross domestic product expanded at a 4.9% annualized pace, even better than expected, growth is expected to slow considerably. A Treasury report earlier this week put expected fourth-quarter GDP growth at just 0.7%, and 1% for the full year 2024.

Fed policymakers have deliberately tried to slow the economy in order to tackle inflation. On Wednesday, the Fed’s rate-setting committee chose to hold the line for the second consecutive meeting following a series of 11 hikes since March 2022.

Markets expect the Fed is likely done raising, though central bank officials insist they are dependent on incoming data and still could hike more if inflation doesn’t show consistent signs of falling.

Inflation data has been mixed lately. The Fed’s preferred gauge showed the annual rate fell to 3.7% in September, an indication of steady but slow progress back to its goal.

Surprisingly strong consumer spending has helped propel prices higher, with strong demand giving companies the ability to charge higher prices. However, economists fear that rising credit card balances and increased withdrawals from savings could slow spending in the future."

MY COMMENT

A good report for investors.....assuming.....you can trust any of this data as being accurate. A big assumption.

 

The rally continues....for now. Yes....the bull market is alive and well. If we end in the green today it will be........gasp......five days in a row.

Extreme negativity can only hang in there against actual FACT for so long.

In addition we are seeing the Ten Year Treasury yield at.....4.515%. There is only so long that the manipulative short term traders can pump up the yield before it collapses back to where it legitimately should be.

 

I like this holiday gift idea. And....to continue with Smokie mentioning Buffett above.

Warren Buffett Is Undeniably Frugal, But For Christmas He Gives Each Family Member $10,000 Along With His Favorite Candy And Funny Personalized Christmas Cards

https://finance.yahoo.com/news/warren-buffett-undeniably-frugal-christmas-163840700.html

(BOLD is my opinion OR what I consider important content)

"Warren Buffett, the renowned investor and CEO of Berkshire Hathaway, has earned a reputation for his thrifty lifestyle and practical approach to finances. Yet, during the holiday season, Buffett reveals a different side of himself, one marked by generosity and a unique approach to gift-giving. From practical items such as dresses and chocolates to envelopes filled with cash, Buffett’s gifts are a reflection of his values of practicality, gratitude and a hint of humor.

A hallmark of Buffett’s holiday gift-giving is his tradition of gifting cash and stocks. In 2019, Mary Buffett, who was previously married to Warren’s son Peter, disclosed to ThinkAdvisor that Warren used to give each family member $10,000 in hundred-dollar bills. Recognizing the family’s propensity to quickly spend the money, Warren altered his approach. On one memorable Christmas, he gave $10,000 worth of shares in a company he had recently invested in, presenting the recipients with the option to either cash in the shares or retain them as an investment. This gesture was a testament to Warren’s astute investment acumen and his wish to instill a sense of financial prudence in his family.

Opting to gift shares over cash was a strategic decision that not only provided the recipient with a valuable asset but also served as a subtle lesson in the importance of making sound financial choices. By giving shares from a company in which he had recently invested, Buffett demonstrated his confidence in his investment decisions. This approach to gift-giving underscored his desire to pass down his investment knowledge and principles to his family, encouraging them to adopt a long-term perspective and consider the potential growth of their assets, as opposed to the immediate satisfaction derived from spending cash.

Just as receiving shares in a company provides the opportunity to be part of its future success, investing in a startup at the ground level can offer the potential for significant returns if the company takes off. This parallel highlights the importance of considering long-term potential and being strategic with financial decisions.

In addition to giving stocks, Buffett has maintained another Christmas tradition: giving dresses to the women in his life. In the 1960s, he would frequent Topps, a dress shop in Omaha, Nebraska, and provide the store clerk with a list of dress sizes for all the women in his family, showcasing his practical method of holiday shopping.

Buffett also sends boxes of See’s Candies, one of Berkshire Hathaway’s best investments, to dozens of relatives and friends each year. These boxes come with his annual Christmas card, which often features Buffett in humorous or playful scenarios. For example, his 2013 card featured Buffett dressed as Walter White from "Breaking Bad" with the message "Have yourself a Meth-y Little Christmas." In 2018, the card was a photo of Buffett wearing a t-shirt with the words, "The Next Charlie Munger" and the message "Aiming High In 2019" on the card. Another year, Munger and Buffett were dressed in black suits and cowboy hats with the caption "Butch & Sundance" and the message "You're right, it's not Newman and Redford."

Through these unique and thoughtful gifts, Buffett brings a touch of his personality and values to the holiday season, making Christmas a little brighter for those around him."

MY COMMENT

I like this little article because it reminded me of my later childhood. When I was in college my parents would give me 3-5 shares in various companies as part of my birthday and Christmas gifts. The stock shares were in addition to the more traditional gifts that we got. This was intentional on the part of my parents....of course. They were training us at an early age to be investors and handle money.

As a parent there are many ways you can educate and teach your kids about saving and investing.

 

I note that APPLE stock has come back some and is now down by.....only.....1.39%. I would not be surprised if it ends the day in the green.

 

Here we are today about mid morning in the markets and I am having another very good day in my account. ALL the big averages are nicely up.

I have a single stock down right now.....AAPL.....down by (-1.25%). Not bad considering the negativity toward their earnings BEAT yesterday.

We just have to hold on till the close and avoid the late day and/or Friday FADE.

 

YEP.....so true.

Bad news for the economy is good news for the stock market... as long as it doesn’t get too bad

https://www.cnbc.com/2023/11/03/bad...-market-as-long-as-it-doesnt-get-too-bad.html

(BOLD is my opinion OR what I consider important content)

"Key Points

• Stocks rallied sharply after the Labor Department said nonfarm payrolls rose by 150,000 in October — 20,000 fewer than expected.
• Slow, controlled growth is something the markets and the Fed are seeking in the current climate, negative growth

Friday’s market reaction to the jobs report comes down to a simple premise: Bad news is good news, as long as it isn’t too bad.

Stocks rallied sharply after the Labor Department said nonfarm payrolls rose by 150,000 in October — 20,000 fewer than expected but a difference attributable pretty much completely to the auto strikes, which appear to be over.

For the Federal Reserve, the relatively muted job creation coupled with wage gains near in-line with expectations adds up to a scenario in which the central bank doesn’t really have to do anything. It can just continue to let the data flow in, without having to move on interest rates as it evaluates the impact of its previous 11 hikes.

“The Fed finally got what it’s been looking for — a meaningful slowdown in the labor market,” said Mike Loewengart, head of model portfolio construction for Morgan Stanley’s Global Investment Office.

“We’ve seen one or two head fakes in this direction before, but the fact that this report followed other weaker-than-expected economic data points this week may encourage investors who have been waiting for a less-hawkish Fed,” he added.

Markets reacted in more ways than one to the report. Traders in fed funds futures reduced the probability for a December rate hike to less than 10% and now see the first cut coming as soon as May, according to CME Group tracking.

However, that cut could be the really bad news, as it likely would signal the Fed’s concern that the economy is slowing so much that it needs a boost from monetary policy. Slow, controlled growth is something the markets and the Fed are seeking in the current climate, negative growth is not.

“Investors who are eager for the Fed to be cutting rates should be careful what they wish for,” Michael Arone, chief investment strategist at State Street Global Advisors, said in an interview earlier this week.

Despite market pricing, it seems like cuts aren’t around the corner if recent statements from Fed officials are any indication. Fed Chairman Jerome Powell said Wednesday that cuts have not been a part of the conversation among policymakers.

“It seems like that’s still a ways off in my mind,” Richmond Fed President Thomas Barkin said during an interview Friday on CNBC’s “Squawk on the Street.” “You could imagine scenarios where demand comes off and you have to do something. You could imagine a scenario where inflation is starting to settle and you want to lower real rates. Both of those imaginary things still feel pretty far out the distance.”"

MY COMMENT

The continued talk and media push to try to say rate cuts are on the way in 2024 is way premature. Personally I would like to see rates remain in the historic normal range for some time. It will give us more room to cut when we stumble into the next economic disaster at some point in the future.

The extreme, aberrational, low rates of the past 15 years are not good for a healthy economy....even if they were great for stock investors.

As a long term investor......"I feel good"........cue James Brown.

For the most part 2022 is now forgotten. Think back to how dismal things were a year ago. We have made a lot of progress since than in the markets......in spite of out of control government spending.....the constant attacks by government on the greatest American companies.....and the stupidity of the FED.

 

A KILLER day and a KILLER week for us long term investors that sit and simply capture the gains.

I ended the day today with seven of eight stocks in the green. My lone red stock....AAPL.....was only slightly down today by (-0.52%) I also beat the SP500 today by 0.48%.

Five UP days in a row....we are on a little roll. Pump it up....and....carry it on to next week.

 

AND.....some of the largest one week gains I have seen lately.

DOW year to date +2.76%
DOW for the week +5.07%

SP500 year to date +13.51%
SP500 for the week +5.34%

NASDAQ 100 year to date +38.10%
NASDAQ 100 for the week +6.49%

NASDAQ year to date +28.78%
NASDAQ for the week +6.61%

RUSSELL year to date (-0.03%)
RUSSELL for the week +6.26%

For my entire portfolio I am now at +32.68% year to date. Last week I was at +24.72%. So I improved this week by +7.96%.

 

HAVE A GREAT WEEKEND EVERYONE.....LETS HIT IT HARD NEXT WEEK.

 

The markets today.

Stocks rise as jobs growth cools more than expected

https://finance.yahoo.com/news/stoc...rowth-cools-more-than-expected-133705314.html

"Stocks rose Friday as investors weighed a cooling in jobs growth that could reinforce hopes that the Federal Reserve is done with its rate-hiking campaign.

The Dow Jones Industrial Average (^DJI) gained about 0.7%, or more than 200 points, while the S&P 500 (^GSPC) added nearly 1%. The tech-heavy Nasdaq Composite (^IXIC) gained roughly 1.4%. It was the best weekly performance for all indexes in 2023.

The US economy added 150,000 jobs in October, undershooting the 180,000 reading expected, with auto industry strikes a factor, the Bureau of Labor Statistics said. The unemployment rate ticked higher to 3.9%.

The health of the labor market is a key input for Fed policymakers, and the signs of a slowing economy should support the case for the central bank to hold off from another rate hike this year.

Tech stocks recouped earlier losses after disappointing results from Apple (AAPL). While Apple's earnings beat estimates in its quarterly report after the bell, the iPhone maker was cautious in its outlook for growth, saying it expects sales of iPads and wearables to "decelerate significantly."

Investors are weighing what that could mean about the resilience of consumer, and whether the series of disappointing earnings this season might feed into the Fed's assessment of how its tightening is dampening the economy."

MY COMMENT

Everyone needs to just relax and let the markets do their thing. Let the negativity dissipate. There is little to nothing standing in the way of stocks right now.........except for skittishness and fear.

The auto strike....done. The FED.....done. The Ten Year Yield....falling like a rock. Earnings......more than half done and doing very nicely. The Middle East.....a non-issue for stocks. The recession....not happening.

A perfect baseline of conditions for a good SANTA CLAUSE rally to year end. BUT....people have to relax and let it happen.

 

I like this little article.

S&P: The Taxman Cometh For Active Investors

https://www.fa-mag.com/news/s-p--the-tax-man-commeth-for-active-investors-75307.html

(BOLD is my opinion OR what I consider important content)

"It’s well known the taxman takes a bite out of active investment returns—now somebody has measured how big that bite really is.

When the annualized performance of active large-cap core funds in aggregate was compared against the S&P 500 index, it underperformed by over 1% over a one-year period ending December 31, 2022. But the active funds fell up to 3.5% behind annually over five- and 10-year periods.

That’s the finding of the first ever “SPIVA After-Tax Scorecard” from S&P Dow Jones Indexes.

“Even before taxes are considered, active managers operating in broad U.S. equity categories have found it difficult to match the returns of capitalization-weighted benchmarks like the S&P 500,” wrote the S&P Dow Jones researchers. “Some were able to. But even for an investor who can identify those few managers with market-beating potential, to participate in that outperformance, they must also hope that their eventual performance is not unduly diminished by taxes.

“The results of this scorecard highlight that, at least in broad U.S. equities, and at least over the last 20 years, taxes would have made a considerable impact on the average returns of actively managed funds, and that the task of selecting an active fund that outperformed after tax was almost (if not completely) impossible.”

For over two decades, S&P Dow Jones Indexes has released SPIVA Scorecard reports comparing performance over time and after fees and expenses for passive and active products. This is the first time a scorecard compared the after-tax performance of index funds with actively managed funds across investment categories and time spans.

Proponents of passive index investing say its lower costs counter any advantages active managers bring to the table with security selection and timing.

Because passive indexes change only through periodic rebalancing and reconstitution, index funds tend to trade less than their actively managed peers, sell fewer securities outright, and thus incur lower taxes. Since they involve long-term holdings, index funds also often experience a more predictable pattern of redemptions than active products.

SPIVA’s data bears this out: In an average calendar year, an active equity fund distributes an average of more than 7% of its net asset value to investors in the form of capital gains. Over the 20-year period ended December 31, 2022, the average active fund’s annual capital gains distribution was volatile—swinging from a post-financial crisis low of around 2% in 2009 to a post-pandemic high of nearly 14% in 2021. All of these distributions came with tax consequences.

In the typical presentation of SPIVA reports, active and passive products are compared by their relative underperformance, after fees, to a benchmark like the S&P 500. For the year that ended December 31, 2022, 50.29% of all domestic active equity funds underperformed the benchmark index—but after taxes were taken into consideration, 55.31% underperformed. Similarly, over the same period, 54.3% of large-cap core equity funds underperformed their benchmark on a pre-tax basis, while 68.28% underperformed after taxes—a difference of nearly 14 percentage points.

Over longer periods, the divergence between pretax and after-tax annualized returns widens over three- and five-year periods, then narrows again over 10-, 15- and 20-year periods. For example, over five years, 88% of all domestic active equity funds underperformed their benchmark before taxes, while 95.2% underperformed after taxes. But over a 20-year period, 92.1% underperformed before taxes and 96.9% underperformed after taxes.

Looking again at large-cap active core funds, over five years 84% underperformed before taxes and 97.4% underperformed after taxes, but over 20 years 96.4% underperformed before taxes and 98% underperformed after taxation.

When the researchers turned their methodology on S&P 500 and S&P 1500 index funds, they found that the difference between pretax and after-tax returns over time held steady on an annualized basis at under half of a percentage point across the equity categories studied. For example, annualized over a 10-year period ending December 31, 2022, S&P 1500 funds returned 12.4% before taxes and 12% after taxes. Similarly, S&P 500 funds returned just under 12.6% before taxes and more than 12.1% after taxes.

The percentage-point difference between pre- and after-tax returns for active funds over the same 10-year period was three to five times greater than for the indexes: There was a 2.9 percentage point difference for all domestic funds against the S&P 1500, and there was a 1.5 percentage point difference for large-cap core funds benchmarked to the S&P 500.

The timing of capital gains distributions takes a toll on active investors, according to the report. When the researchers plotted out average capital gains distributions against both the performance of the S&P 500 and a fund’s pretax performance against its benchmark, it also found that some of the highest levels of capital gains distributions occurred in years where a fund was already underperforming before taxes, or when the S&P 500 itself was recording negative or only slightly positive returns.

In other words, the tax bite was often the biggest in the years where a fund—or the domestic equity universe in general—failed to deliver returns to investors.

“Over the past two decades, S&P DJI’s SPIVA Scorecards have shed light on the chances of selecting outperforming funds both before and after fees,” the authors said. “However, in part because individual circumstances differ, data on after-tax returns has been less widely available. The results presented in this new scorecard are a first step toward a more accurate reflection of the experiences of many investors, for whom taxes are an inevitable piece of the puzzle.”"

MY COMMENT

I used to post on a board that had a lot of commentary by short term traders and very active stock investors. They would often post their winning results. One thing I noticed is that I NEVER saw a single one of them take into account the impact of taxes on their trading activity.

Want to be a short term trader......or market timer...with a holding period of less than a year. WELL...you are going to pay short term capital gains taxes....the same as regular income tax rates.....on all your gains. That is a real killer.

Paying those kinds of big taxes on your gains makes it nearly impossible to beat a long term SP500 investor.

Of course....one reason that most people never talk about the taxes generated by market timing, active trading or short term trading.....is the fact that they are dealing in very small amounts of money. They are not big investors. They were dealing in such small amounts of money that the impact on taxes was minimal.....so it was easy to simply ignore it and rationalize their trading.

it is an eyeopener to deal with large amounts of money in a taxable brokerage account. Even passive long term investing can skew your tax bill.....even with long term capital gains rates......when the dollars are big enough.