Ricky Mulvey (3:13)

Fact that it's just disclosure and not changing prices. That's why I guess I'm putting words in your mouth. I'm guessing a take. We're not seeing a lot of change in hotel booking stocks like Expedia booking.com, they're down a little bit. So is the broad market. Also, none of the major hotel chains have really reacted to this news, including Hilton and Marriott. They're just, they're just kind of shrugging it off.

Allison Southwick (3:34)

Bill?

Bill Barker (3:35)

Yeah, it's just a presentation issue. They're, they're not going to change their bottom lines as, as a result of this. But at the margins, maybe, you know, the, when you show a higher price, maybe people spend a little bit more time. Maybe they think, oh, you know, I'll look at Airbnb a little harder on this one than the hotel because Airbnb, I mean, they add some price on top of what you first thought you were paying, but it's not a resort fee.

Ricky Mulvey (4:06)

Yeah, I'll see if I get in trouble for this one. I'll be curious if this affects any car makers, if they want to move forward with that in the years ahead. A while back, I was looking at, like, leasing. I was just looking at different car leases because you get a big, like, tax benefit if you do an ev, especially in Colorado. I looked at Tesla and it's like, oh, it's it. It's listed at 70 bucks a month. And what they've done with that bill is they include in the estimated gas savings and they exclude the taxes and fees involved with paying for the car. And then it goes up by about twice the amount, at least for, like the lowest end model. I wonder if that will be affected in the years ahead.

Bill Barker (4:42)

Tesla itself, I wouldn't expect that the incoming administration is going to go hard on Tesl Tesla's transactional choices, but we'll see.

Ricky Mulvey (4:54)

Bold statement. You heard it here first. Let's look at this Kroger and Albertson story. I want to catch up on it. Last week, a federal judge in Oregon blocked what was going to Be a massive merger, $25 billion merger between Kroger and Albertsons. Kroger and Albertsons were saying that this would help them compete against Walmart and Amazon. The judge saying, not so fast, my friend. You are a grocery store and that is distinct from other grocery retailers because you can a Walmart and buy a TV and a winter coat, that kind of thing. We also have this mess now where Albertsons is suing Kroger, saying it didn't do enough to get the deal through. You didn't divest from enough, enough stores. Maybe you were just sandbagging the whole time. Whatever. We're mad and we want $6 billion. Starting with the first story though, Bill, were you surprised to see this deal fall apart?

Bill Barker (5:44)

No, I wasn't. Not under the current administration. Well, it fell apart. The FTC lodged a complaint and the Judge sought the FTC's way. And that is in part something that one might have expected given how poorly the divestiture of, I think Albertson's acquisition of Safeway was. And the divestiture there, the number of units that were spun off, it was handled very badly. A lot of the men did end up closing because they sort of spun off the poor performing ones to somebody that wasn't really good enough operator to keep them going. So it did result in less competition. And so that was something to keep an eye on this time around. And I think there is a case that Kroger did not do everything it could to make sure that this ended up going through by divesting more a higher number of units. So I think that there's not that much surprise that it didn't go through. And that's, I think there's at least a case that Kroger has some of the blame for that.

Ricky Mulvey (7:00)

The money intended for the merger on both sides is going to be used for stock buybacks. Kroger said it will repurchase $7.5 billion worth of shares after a two year pause. Albertson saying that it's going to repurchase about $2 billion worth of shares. In both cases, that's a little less than 20% of their respective market caps. And that is aggressive. When you see that kind of aggressive buyback after a failed merger. Is this, is this a good use of cash?

Bill Barker (7:32)

It probably is a pretty good use of cash. Kroger has a decent history of buying back shares about 2% a year, more or less. That was on pause during this. But I think that, yeah, if you're not able to expand your operations and it doesn't make financial sense to try to expand them then to run them efficiently and return money to shareholders in the form of both dividends and share. Buybacks is often good capital allocation by good management teams and Kroger's done a pretty good job. So I think that given the price, I think buying back shares makes, makes sense and is probably something that shareholders are looking forward to.

Ricky Mulvey (8:18)

Well, I'm a Kroger shareholder myself and on the one hand I think it's wonderful to make my shares more valuable and give me a bigger slice of that pie as they buy back shares. It also seems to me that maybe this is going to upset some grocery shoppers and regulators, grocery store unions, especially at a time when it's easy, not easy, but you can point at high food prices. I grocery shop as well. My grocery bill has gone up. And you also have unions to deal with, especially in Kroger's case where it might paint a little bit of a target on their back.

Bill Barker (8:48)

Yeah, this is an industry where you don't really have a carte blanche to just do whatever you want with whatever cash you have on hand. This is going to be met with certainly at the government representative level, a response of, well, if you've got all this money you should just be charging less. That's how we would like things to be. Or paying your employees more or both. And that's not how every business runs. And Kroger doesn't have margins that are obscene or anything like it. So they wouldn't really be competitive if they did. It's just a very, very high volume business where you make a little bit on each sale and if you do everything right, you've got some money left over. And I'm sure the employees and the unions would like to have as big a chunk of that as they can. But this is not unusual for a company to make some profits and do something for its shareholders with those profits.

Ricky Mulvey (9:54)

I want to zoom out a little bit on buybacks because this is something that can, you know, it's gotten heat. It also can reward shareholders of companies for extraordinarily long periods of time. And it can be a good use of capital for mature companies. You look at a company like Autozone, which has essentially steadily eaten itself alive, going from 150 million shares outstanding in the year 2000 to about 17 million today. That's a stock that's done extraordinarily well for the shareholders that have held it for decades. This is something that I want to find. I want to find companies that are going to eat itself alive and reward me for holding onto these companies for potentially decades to come. So, Bill, what should I be looking for if I'm looking for companies that can tell me those long term buyback stories?

Bill Barker (10:43)

Well, I think as you pointed out, the absence of regulatory or customer furor is probably something that you want to put on that list. And Apple has bought back a lot of its shares. Lowe's, companies that have good competition for their products and are not on the, you know, the targets of regulators because it's just, you know, it's a different way of returning money to shareholders, dividends or buybacks. It's more tax efficient way for the long term shareholders but it can, you know, increase scrutiny. It puts an exclamation point on the fact that you have money that you don't want to reinvest in your business or hire more employees or pay more for those employees or reduce prices. So AutoZone has been incredibly effective. They've got good competition. Nobody seems to feel like AutoZone's repurchase of its shares is something that is harming its customers. And so they've got a great history with it. As I mentioned, Lowe's, Apples, O'Reilly, I mean, companies that have good managements and are not just announcing, oh, you know, our price is bad because we missed, you know, our quarterly guidance and our stock has been, you know, walloped by that and so we're going to buy back shares. Those are announcements that you should take with a grain of salt because a lot of times the companies that are making those announcements are just trying to support the stock price but have concerns that the business is going through that may not allow them to ever execute those announced buybacks.

Ricky Mulvey (12:33)

I guess the price of an engine filter also hits a little different than the price of eggs when you see price increases for, for either of those. As we close out final story. James McIntosh has a column that I enjoyed reading in today's Wall Street Journal talking about just how the market feels toppy. And as we look at a lot of these, you know, take, take 2025 outlooks with, with the multiple grains of salt that you should. But I thought he made a pretty compelling case that he feels bad because everyone feels great. The shares of consumers expecting stock prices to rise next year is at an all time high. And importantly, corporate insiders have not been rushing to buy back their own stock. He writes, quote, none of these points are proof that the market must fall, let alone that it will happen soon. No one has a perfect record and on Some measures, such as the American association of Individual Investors survey things aren't so extreme. But I don't want to be part of a crowd buying into a narrow story. When prices, valuations and hope are already extremely high and insiders aren't willing to buy it back with their own money, this feels like a good time to take some money off the table, end quote. Do you think McIntosh is onto something here or is this a little day trading?

Bill Barker (13:44)

I don't think it's day Trady. I think it is a good reminder that stocks do not go straight up. And the fact that people have enjoyed very healthy returns from the market in the last two years and most of the last five means that you're buying stocks after they've already risen. That as a mathematical equation, reduces what your total returns will be in the future. The higher the price that you buy something at, the lower your returns will be. So I think that people get very excited when the economy is going well and stocks have been doing well and earnings are ahead of trend. It feels when earnings are ahead of trend that there might be a new trend or the trend in the future will be faster growth. What actually happens is stocks compound earnings per share at about 6 between 6 and 7% a year, not 10%, not 12%, not 15%. You may be looking at individual stocks that compound at rates like that and then some that compound currently at much more than that. But as a whole, stocks don't compound earnings per share at 10% or anything close to it. So the equations that lead people to believe that 20% returns are something that they can expect in the future are equations that have let them down in the past.

Ricky Mulvey (15:25)

So if you're a newer investor and maybe you got involved in the market in the past few years and you've, I think it was basically outside of the yen carry trade fiasco, you haven't seen stocks going down that much. Whether it's next year, whether it's 2026, 2027, any future year, there will be a bear market, there will be a correction in the stock market. What do you recommend to newer investors about how they can prepare themselves for that?

Bill Barker (15:52)

Newer investors younger and let me, there's there's a difference between younger and older. On, on new investors. Younger investors should be rooting for lower stock prices. They should be rooting for, for low stock prices for a long time so that the money that they put into a Roth IRA or company 401k they can buy more shares at lower prices. And 30, 40, 50 years later, when they need that money for retirement. They will have much more than if they were buying at higher prices. So it is counterintuitive when you're a newer investor to want prices to not run away. It feels good when you just start investing, you know, I just made 10%, you know, in the last couple of months and therefore, you know, I'm, I'm getting richer. You are. But most of your investing is yet to come and it's going to hopefully have decades to compound. And in that case, your best investments will be the ones that are made at the lowest prices with the longest time to reward you.

Ricky Mulvey (17:03)

Bill Barker, appreciate you being here. Thank you for your time and your insight.

Bill Barker (17:06)

Thanks for having me.

Ricky Mulvey (17:14)

All right, up next, Allison Southwick and Robert Bro Camp share some tips on tax loss harvesting if you plan on cutting some losses before the end of the year.

Robert Bro Camp (17:28)

You know the old saying, when life gives you lemons, make lemonade. Well, this year has been mostly a sweet little beverage for investors as the S&P 500 has gained almost 30%. But despite the market hitting all time highs, you may still have some lemons in your portfolio. However, all is not lost. If those investments are in a taxable brokerage account, you can sell them and lower your tax bill.

Allison Southwick (17:56)

Yep, this is how it works. So if you take a capital loss, it's first used to offset capital gains in your portfolio or on your taxes, I should say. And then if there are any losses left over, you use those. Reduce your taxable income up to $3,000 a year. If you still have some leftover losses after that, you can carry those forward to future years as long as you're a living, breathing taxpayer.

Robert Bro Camp (18:17)

Now, to make the most of your underwater investments, we have five tips for you. Starting with number one, tax loss. Selling isn't just for stocks.

Allison Southwick (18:26)

Yeah, really any investment you have, any stock, bond, mutual fund, ETF or option contract that is below the price you paid can be sold to reduce your 2024 taxes. Unfortunately, you cannot claim a taxable loss on property held for personal use like a house or a boat. But anything in your portfolio, generally speaking, is eligible. So a few possibilities are of course, any stock that is below the price that you paid. If you bought bonds in the last few years, those are still way below their all time highs in 2021. So you might be able to actually do some tax loss harvesting with your bonds. Small cap indexes have just recently regained their all time highs, but not all of them. For example, microcaps haven't. I personally own the iShares micro cap, ETF ticker, IWC and that is still below its all time high. REITs, sort of like bonds, they went down when interest rates went up. As interest rates have come back down, they've recovered a little bit, but they're still below their all time highs. So look at your account for any investment that is underwater. You might have more possibilities than you think.

Robert Bro Camp (19:25)

All right, next piece of advice is to sell now, but wait before buying back.

Allison Southwick (19:29)

Now if you decide to sell an investment to take the loss on your tax return, you can't buy it back within 30 days of the sale date. Otherwise the loss is considered a wash sale and a loss that violates the wash sale rule will be disallowed. That is you won't be able to enter it on schedule D to offset your gains or ordinary income. This now if you lose your calendar and accidentally buy the investment back within 30 days, the disallowed loss is added to the cost basis. So you eventually do get sort of a tax benefit, but you're probably not accomplishing what you wanted to this year. Also, that 30 day clock starts the day after the sale. So we're talking calendar days, not training days. And of course you know, if you have no intention of buying back the investment, then you don't have to worry about any of this wash sale hullabaloo.

Robert Bro Camp (20:10)

Alright, number three, this one's disappointing. No cheating allowed. Are you about to tell me all of the ways I could cheat but won't because it's now allowed?

Allison Southwick (20:19)

Well, I'll just say that a lot of people try to come up with ways to sort of get around the wash sale rule. Like they want to take that loss but still have some sort of exposure to the stock. But the bottom line is the IRS has sort of been around this block and they, they pretty much outlawed anything that you're trying to think of. So here are some ways to violate the wash sale rule. So in other words, don't do these things and make sure your spouse doesn't either. So you buy the investment 30 days or less before you unload the original unprofitable investment. So the wash sale rule really covers 61 days. So it's the day you sold the investment, the 30 days after and the 30 days before you buy an investment that is substantially identical. And I put that in quotes because that's the IRS language. There's some debate about what substantially identical means, but I'll just use a pretty clear example. You can't sell a REIT index fund offered by Vanguard and then immediately buy a REIT index fund offered by iShares. Those are substantially identical investments. You can't buy the investment in another account, including like your ira, another tax advantaged retirement account, or your spouse's account. Another way to violate the wash sale rule is you buy a call option on the investment. For other option strategies, it can get a little complicated, so do your homework before mixing tax loss harvesting and options. Or finally, you buy an investment that could be converted into shares of the sold investment, such as, you know, a convertible bond or preferred stock.

Robert Bro Camp (21:47)

All right, next piece of advice is you may have bought more shares than you think.

Allison Southwick (21:52)

Yeah, if you may have made multiple purchases of an investment, maybe deliberately because just over the years you've bought more shares or you've been reinvesting dividends every quarter, right? In that case, your holding has more than one cost basis. So it's possible you have a mix of both gains and losses. Just as a personal example, I'm a longtime shareholder of Starbucks. I've owned it since 2008, but it is below its all time high of around $126 reached in July of 2021. I've been reinvesting dividends all along the way, so some of those reinvestments made in 2021 and in 2023 are underwater. So when you're perusing your portfolio for losses, don't just consider the first time you purchase shares or even the average cost basis. You might have some losses in there that you don't remember.

Robert Bro Camp (22:38)

All right, and the final BRO pro tip is to specify which shares you are selling.

Allison Southwick (22:46)

Now. This is crucial, right? If you've determined which shares you'd like to sell, don't just click the sell button on your broker's website, especially if you're just selling a portion of the holdings. You want to understand your account provider's options for assigning a cost basis and holding period to the investments, and then choose the method that's best for you before you sell. It usually can be done on the company's website, maybe in writing, generally not over the phone. And you might have chosen a method when you actually signed up for the account. It's just important to understand how you identify the shares you want to sell, because otherwise, when it comes to stocks and ETFs, the default method is first in, first out. That is, you sell the shares you've held the longest. But chances are if you had shares for a really long time, those are gains. It's probably the more recent shares that are the losses. So you want to be able to choose the specific shares you're selling. Don't go with the default. It's also the same with most other investments. I'll just highlight Kind of a weird thing about mutual funds. The default for many mutual funds is actually average cost, which is, you know, as you guess is the total cost of all your shares divided by the number of shares. But you don't have to go with that method. Choose another method. Again, specific shares is better. But the thing about mutual funds is once you've chosen a method, you kind of have to stick with that for as long as you hold that holding. And then my final thought on tax loss harvesting is up until 2011, financial services firms were required to just report the gross proceeds of sales to the irs. However, now they also have to report the cost basis and holding period. So brokers are doing a better job of keeping records. So the IRS has that information for anything that you bought since 2011. If you own investments before 2011, you might find that your broker doesn't have the cost basis information for specific shares. So you're going to have to unearth it yourself from your account statement statements or just look at the historical prices. Plus, it's always possible that the info your broker has is wrong. Even finra, which is the self regulatory organization run by the financial services industry, recommends that investors regularly review their account statements for potential inaccuracies. So it's important to keep past account statements and trade confirmations as well as documentation about your chosen disposition method.

Ricky Mulvey (25:05)

As always, people on the program may have interests in the stocks they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and are not approved by advertisers. Motley fool only picks products that it would personally recommend to friends like you. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.