Financial analysis

BUT CONSIDER ADDING a small deduction [delta] or unearned income u, as shown in red. If u=0, then [delta] just gets taken off of the personal service tax, in the 50% bracket since

PERS(TC-[delta]) TAX(TC-[delta]) -TAX(--------------------------) TOTAL

is very close to 0, provided PERS ~~ TOTAL, which it does. BUT if [delta]=0, then u is taxed at the high end of 63% because the term

PERS*(TC+u) PERS*TC ------------------- ~~ ----------------TOTAL +u TOTAL

Since u is very small compared to TC or TOTAL and is added to both. [Noted in green ink] u just doesn't affect the ration much here... [/note]

So: benefit of paying interest for margin money is only 50%, but any new taxable unearned income is taxed at 63%. Of course if both u + [delta] exist, then the tend to cancel, and so in this sense, [delta] would provide a 63% advantage, marginally.

[noted in green ink] NOT ANYMORE...[/note]

WHAT TO DO... STRATEGICALLY

GOALS: KEEP MONEY LIQUID (no annuities) for downpayments AVOID TAXES: use tax-free bonds or long term growth funds AVOID THINKING ~ STOCKS -- use funds SIMPLIFY ACCOUNTING... Use CMA [noted in red ink] keep free money in TAX-EXEMPT POOL [/note] GET CASH IN WASH or anywhere CMA. PERSONAL CHECKING + CONTINUITY and banking anytime in Calif -- keep WF REAL MONEY all in one place. -- Put IRA in CMA so I can do anything I want with it GET LEVERAGE... Use CMA for margin money for investment. ANYTHING I DO IN STOCKS MUST BE LONG TERM, DUE TO TAX BRACKET OF 63%. ANY LONG TERM is just .4*.63 = 25% -- No New Issues [noted in red ink] Great! [/note] Key: keep income high so I don't have to even consider either 1) short term trading 2) Non tax-free bonds Make $$ at something you like doing, not FINANCE.

[Notes in left margin] Also keeps money in high interest [next to "REAL MONEY all in one place."] Checking with money earning in TAX-free is Fabulous. P(1-.25) ---------- = 2 P(1-.63)

where P is capital gain so capital gain from short term must be twice that of long term!

[noted in green ink above with line] 1-(.4)(.5) ------------ = 1.6 NOW '82 [/note] 1-.5

BARRON'S + STOCKS vs BONDS [noted in green ink] (I didn't find anything new in Barrons, except to reconsider NEW ISSUES; prev page.) [/note]

I read through a Barrons and it felt like seeing an old friend. All the things I had explored in Fall '80 and Spr '81.

Lots of invesment advice, esp. on indiv. companies BORING (or industries... CONFUSING too) Ads for advisory service Professional Tape Reader Value Line Inv Survey + OTC Special Situations Daily Graphs TRENDLINE + others Standard & Poor's stuff Brokers ads (esp. Discount) Insiders, New Issues, + others Trans-Lux ad! Personal Computer Software CURRENT CORP REPORTS section All market data. [note in left margin] Looks like my box of trading souvenirs! I'm glad I spent several weeks studying this stuff to know how to conceptualize it, even if I won't use it. [/note]

But I did see ad for Mutual Fund comparisons, by United Selector Service. It said '80 was not a good year. This is supported by Oppenheimer Fund Graph showing Decline. But Value Line Bond Fund [noted in red ink] just use CMA II [/note] says it is at bottom, as York Harris at ML said. So it looks like now would be a good

time to buy lots of tax free bonds [noted in green ink] YES! [/note], and spend the next few months studying mutual funds a while till I find one to hold for a year.

I do feel like I understand Bonds well enough to move ahead on them, and the timing is right. But I need more time to study up on mutual funds.

* * *

All this simplies life for me considerably. The trader stuff is all put away, and I can concentrate all my banking/finance in two simple ways: Wells Fargo and any company which has CMA-like service. Dean Witter is only other one so just shop + compare products + prices.

And it frees me up to concentrate on what I do well: managing software development. There is plenty of income and I don't need lots for business use due to lack of business skills.

Notes on 1981 taxes

1) There is nothing you can do about having so much income, and fortunately almost all of it is Personal Service, so it is only taxed at 50%. 2) Other income would be taxed higher. It was stupid to have T-Bill income paid last year. That goes at 63%. That will be an extra (.63-.50)*600 or $78. Not too bad I guess 3) Didn't report any to Cal since a) In early '81 I thought I'd hit it big w Trader later on, and I wanted cash available for this. b) Later it was Spr + Summer + I wasn't thinking c) Later it was Fall + I had to think strategically about the future.