General Comments / Chat, page-2514

What do you think of this strategy?

(Numbers/ dates etc used below are for discussion purpose only and hence approximations used. There are assumptions based on SP, duration of holdings prior to sale, buyout timeline and buyout price.)

Let’s say I have 100K RAC shares bought at $2 bought in Nov 2020.

Scenario1: I hold my 100K shares till buyout say June 2022 for a buyout price of $30.

Then my profit is: $30-$2=$28 * 100K= $2.8Mn

Taxable profit (at highest tax rate, approx 50%) after holding for 12 months= $2.8Mn /2 = $1.4Mn at 50%= 700k

So my profit after tax= $2.8Mn-0.7Mn=$2.1Mn

Scenario2: Sell all my shares and buy them back with aim to have more units.

I sell my 100K shares on 31/3 at SP of $3.5. Total value = $350K

On 8/4 when the SP is $3, I buy back the shares: $350K/ $3= 116,667 shares

(So now I have additional 16,667 shares compared to scenario 1 where I just sit on my holdings)

At buyout, in June 2022 for a buyout price of $30:

My profit is: $30-$3.5=$26.5 * 116,667 shares= $3.1Mn

Taxable profit (at highest tax rate, approx 50%) after holding for 12 months= $3.1Mn /2 = $1.55 Mn at 50%= 775k

So my profit after tax= $3.1Mn - 0.775Mn= $2.32Mn.

However, in scenario 2 I would also pay tax on the sale at $3 (sold on 8/4) and my initial purchase price is $2 bought around Nov 2020.

So, for 100k shares the profit is $3-$2=$1*100k shares= 100k

Shares held less than 1 year, so full amount is taxed at 50% (approx). So tax= $50k

Net profit = $2.32Mn-0.05Mn= $2.27Mn

In scenario 2 I gained 170K more than in scenario 1.

So per above example is it better to be in scenario 2 where one opportunistically sells and buys back at lower price to gain more shares despite having to pay CGT in short term? Let me know your thoughts.