In chapter four of Sven Carlin’s book, “Modern Value Investing: 25 Tools to Invest With a Margin of Safety in Today’s Financial Environment,” the author observed that almost a century had passed since Benjamin Graham laid out the foundational principles of value investing.
In his book, published in 2018, Carlin wrote that while Graham’s principles still stand, there are investing concepts that have emerged with the potential to improve returns and reduce risk:
Taxes Stock price movements Optimism The theory of reflexivity Corporate governance Dividends and buybacks Wall Street
Sometimes, it is in your best interests to pay taxes
According to Carlin, investors should not be afraid to pay taxes. He creates a theoretical scenario in which you buy a stock at $100 because it is a bargain. A year later, the stock is up to $200 and your profit would be $80 after paying a capital gains tax of $20.
Having risen to $200, the stock is likely no longer a bargain, and its price could drop again. In addition, there may be an opportunity cost; if you hold the first stock just to avoid the tax of $20, then you may miss out on an opportunity to make $50 or $80 on another mispriced stock.
As Carlin wrote, “It is extremely important to be knowledgeable about the taxation system related to investments in the country you live.”
Stock price movements
Stock prices do not always stay attached to the underlying business reality. As an example, Carlin cited the case of Pfizer (NYSE:PFE), which sells pharmaceuticals and thus has relatively stable revenue and earnings, despite what the economy is doing.
However, the price of its shares crashed, along most of the rest of the market, in 2008 to 2009. “In a stock market panic, most investors just sell