CRAZY ROTTEN FORMATTING?
There are things about the Paleolithic way I post my column that cause unsightly browser quirks. If you see this page in a mishmash of fonts, try refreshing the screen a few times until it looks right. You’d think that each time you’d get the same thing. It’s the same HTML code, after all. (No?) But sometimes – not always – around the third or fourth or fifth try, it all comes out looking right. A mystery of the cyberverse.
Click here to add your name to those who want to see the awful Senate rules improved.
(Senators McCaskill, Durbin, and Whitehouse write: ‘The use of ‘anonymous holds,’ the arcane procedure that allows a single senator to secretly torpedo any piece of legislation, has skyrocketed in the last few years. And with its rise, our ability to pass strong legislation — and hold senators accountable for their actions — has nosedived.’)
DEPO – II
Ted Graham: ‘Thanks for yesterday’s suggestion to get out of DEPO. You might mention that if your gains are about to go long-term, it may make sense to hold off for that. I bought at $2.40 on 2/22/10, so others may be in the almost long-term situation.’
☞ Ah, the profits I have foregone letting the tax-tail wag the buy-sell-decision dog. But of course you’re right: if the stock is as likely to be higher as lower going forward (i.e., the market, acting as book-maker, has set the odds about right by arriving at the current price), then the tax differential can indeed tilt the decision toward holding.
As does the follow up I received from our esteemed Guru:
The company’s conference call made a strong case that they should derive some kind of significant value from this – there are contractual milestones of at least $85 million and Abbott, as late as November, was pursuing orphan drug status from the FDA presumably as part of its launch plans. DEPO said they are willing to take back the product if they get sufficient funding from Abbott to launch it themselves. By the end of the year, the data in hot flashes in women should be out and should be positive. I expect the stock will be more than 7 on that news. Until then, I’m going to let the dust settle. Abbott could drag this out for a while. We do have an upcoming PDUFA of Jan 30 for the drug. All indications are that they should get approval. Of course, if there were a delay in this approval, then it would adversely affect valuation.
Welcome to the wild world of biotech. I’ve never seen this specific situation before.
LESS AND I MAKE A BET
Less Antman: ‘The new Formula Investing funds you mentioned a week ago are not appropriate for taxable accounts because of the high capital gains distributions that will likely result. May I suggest that equally weighted index funds, which you also recommended in your current edition, are a more appropriate choice here? The Rydex S&P 500 Equal Weight ETF (RSP) has been in operation for nearly 8 years, and has outperformed the Vanguard 500 Index Fund (VFINX) over that time by 3.4% per year, which is impressive considering the fact that they invest in the exact same stocks, and the only difference is the use of equal weighting instead of weighting based on total market capitalization. As you note [in your current edition], transparent, back-tested results show that equal weighting has beaten market weighting by more than 2% a year since 1957. The expense ratio of RSP is only 0.4%, less than one-third the Formula Investing funds. But most importantly for the matter at hand, it has never made a capital gains distribution, meaning it has been as tax-efficient as the Vanguard fund. This month, Rydex added international and global ETFs that follow the same strategy, so I offer 4 ETFs to add to compare to the funds you suggested: RSP, EWEF, EWEM, and EWAC. When you add the Formula Investing funds to your retirement account, may I suggest you try the above for your taxable account? In fact, for do-it-yourself investors looking for one fund to cover all their stock needs, you could do worse than EWAC, which will hold more than 2,000 stocks spread around the globe, and I believe it will do better than the Formula Investing funds, even in retirement accounts, in the years to come, in part due to the expense advantage. I’ll offer you a wager: the Formula funds include 2 domestic and 2 international funds. I’ll put up 2 servings of RSP and 1 serving each of EWEF and EWEM against them, and bet that an initial investment at the close of the market today, untouched until the day the next edition of The Book goes to press, will do better at the Rydex ETFs than in the Formula funds, even in a tax-sheltered account. If I win, you extend my subscription to your daily commentary for a year, and if I lose, I extend your subscription to Ask Less for a year.’
☞ It’s on, baby. But I agree: because of taxes, a sensible strategy would be to use the Formula Investing funds for your retirement account and the equally-weighted index exchange-traded funds (ETFs) for your taxable stock market accounts.