Sep
13
CISCO, Sold… Bought
September 13, 2007 | Comments Off
Today I sold the CISCO (CSCO) shares I had been holding since August 10th, 2005, when the economy was climbing again from the depths of the .com burst. CISCO supplies the equipment for the backbone of the telecomunications systems on which we depend: internet, voice, email, wireless carriers, etc. They have also been acquiring home/consumer oriented products: Linksys (home network equipment) and Scientific Atlanta (cable boxes). It has been a joyful ride from 18.46 to the price at which I sold it today: 31.98 (73% in two years is not a bad deal).
I think it was about time to sell it from my stock trading, taxable account. At a minimum, for the following reasons:
- Profit Taking: I had made more than I expected on it.
- Tax Considerations: It had been two years since I bought it, and I wanted to take advantage of the 15% federal long term tax rate (vs 30% or so that I would pay on short terms). With an anti-investor congress like the one we have now, and potentially an anti-investor President after the next election, I prefer to take my long term capital gains as I find them. Maybe I re-buy it on my taxable account in a few months again and start a new long term capital gain cycle with it.
- Portfolio Balancing: I also had more than my healthy threshold for individual stocks (I do not want to have more than $50,000 on any single stock).
On the other hand, I still think Cisco will keep climbing. It has stalled for a while, but I believe it will benefit in the long term from the growth in telecommunications that the world is experiencing, albeit slower than it had over the last two years. Cisco is still growing with a Price To Earnings / Growth ratio of about 1.3 (well before the 2.0 threshold). It also has a great track record and excellent management (Chambers is a guy who knows how to execute). Management is also bullish — more so than you would think about a company.
I strongly believe technology, especially CISCO will climb: Companies who depend on Cisco (telecommunication companies) are hiring like crazy. People are adding higher bandwidth capacities to the home. Cable video has been transforming from regular definition to high definition and video over IP. People are starting to transfer huge amounts of data over all kinds of networks: I can even get broadband speeds over wireless on my laptop anywhere I go. I believe we are in a second .com, and I want to stay with Cisco.
My solution was to buy 75% of my original position in my Individual Retirement Account (non-taxable IRA). That way I can take care of the three reasons I had to sell:
- Profit Taking: Took the profits, will distribute them among other investments, albeit I didn’t took all of the profits (some money invested back on it).
- Taxes: Take my long term capital gain rate. I can invest in my IRA, and let it grow there a while more.
- Portfolio Balancing: Bought a smaller position than I had.
NOTE: This strategy only works when you pay capital gain taxes. If it was a loss what I was taking on my taxable account, Wash Rules would have applied, and simply purchasing the stock on the IRA would not have saved me from it.
Related Posts:
Comments
Subscribe
