Conversation
Notices
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senexx
Re: Mining tax !pol some are complaining all ready that they've lost money because shares have dropped on this news. I say unless they sold their shares or are about to retire they have lost absolutely nothing.
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paddy
@senexx I understand that the market cap of the resource sector has fallen by about $20b (market adjusted). I think that is not too different from the projected tax revenue over the next few years.
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paddy
@senexx Are you suggested mark-to-market is not a good way to estimate gains and losses? Or something else?
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senexx
@paddy The complaint is all about a share price fall, unless you sell those shares (if possible), you have lost nothing, you still own the same number of shares. Market gains and falls mean nothing unless you sell as far as I can tell.
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sean
@senexx falls do mean something: if a share price falls today, it means if you now sell you will get less than you got yesterday. Also, if you bought on margin, you would get a margin call and have to fork our some money. !mkt /cc @paddy
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senexx
@sean I've all ready made the point twice that it only matters if you sell. No idea what a margin or margin call is but I think that finally explains an episode of Family Ties to me. Margin Calls do not strike me as a rational idea based on the extremely little I know.
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mark
@senexx the market price of shares you hold (even if you don't sell) reflects the value today of likely future dividends and the final sale price (by your heirs if it takes that long). A fall means you've likely lost some of that future income. Make sense? /cc @sean @paddy
about 4 months ago from web-
senexx
@mark Yes that makes sense except it is the wrong way to look at it. You cannot consider the future in present tense. It is not logical. You know the risks you take on the share market and that stocks fluctuate.
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senexx
@senexx I do accept that you may not get dividends you would otherwise get (another part of the share market I don't understand)
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senexx
@senexx This is a little tangential I think but its like when the price of oil skyrockets when there is a firefight in the middle east. This is nonsensical. Firefights are the norm there it should make zero difference.
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mark
@senexx suppose I buy for $1 one of 20 raffle tickets with a $30 prize. everyone knows the risks in a raffle, but I can still give a value to my ticket. If the prize is suddenly reduced to $10, surely you agree I've lost something (the potential to win $20 more than I now can)
about 4 months ago from web-
senexx
@mark No I don't. It doesn't matter what the prize is in this case, all you need to know is you have a 5% chance to win or increase your money if you like. Also the prize drop I believe is illegal.
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senexx
@senexx The risk of a raffle is insignificant alongside the sharemarket, lotto, etc. I don't know the odds of "winning" on the sharemarket but lotto odds are incredibly high. Often mockingly called taxes on the ignorant.
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mark
@senexx the raffle in my example wasn't a "tax on the ignorant" (it took in $20 for tickets and spent $30 on the voucher, so it gave money to the participants)
about 4 months ago from web
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mark
@senexx okay, what if the prize (which was $30 voucher at Woolworths) turns out to be worth nothing (Tesco acquires Woolworths and announces it won't recognise vouchers -- legal under fineprint of voucher). Have I lost something now?
about 4 months ago from web-
senexx
@mark Yes. That is the only time you can lose on the sharemarket without selling. I know we didn't use the stockmarket as an example here but I agree with the principle.
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mark
@senexx ok, we lost something when the $30 voucher became worthless. Now suppose prize was a $10 voucher and $20 cash, and that my raffle ticket was two tickets (one for voucher, one for cash) with the same number on them.
about 4 months ago from web -
mark
@senexx I lost money on the voucher ticket (it's identical to the situation where it is all voucher), but the overall situation is identical to the prize being reduced to $10
about 4 months ago from web
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magpie
@senexx What @mark is referring to is, indeed, a mainstay of financial economics: it's called Efficient Market Hypothesis. I doesn't make much sense to me, either; but it's accepted by most economists (not all). /cc @sean @mark
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sean
@magpie it's quite different to the efficient market hypothesis. Here we are debating whether someone who has had unrealised gains/losses has *really* gained or lost. EMH says that the market price accurately reflects all price-relevant information. /cc @mark @paddy !mkt
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mark
@sean I think @magpie & @senexx are grasping after something important; knotty bit is what "unrealised loss" means; just because the market gives a price doesn't mean that 's true value. But 1st we have to convince @senexx unrealised losses exist even in principle /cc @paddy
about 4 months ago from web-
senexx
@mark So far, as far as I can see the only true "unrealised loss" is when there is a takeover bid and shares become null and void or however that works.
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senexx
@senexx and where a sale is made where the shares are worth less than when they were bought. The rest of "unrealised losses" are fictional. So am I stubborn? Can you understand my stance? Have I made progress towards understanding your view?
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sean
@senexx one problem with your stance is that it privileges the your purchase price as special. There is certainly uncertainty about future dividends and share prices, but if the market falls from $10 to $6 why is it still correct to value your investment at $10?
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senexx
@sean You don't. You are using the wrong figure for values. The value is in the "No. of shares". I didn't even notice the grammar, watching BONES now
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mark
@senexx in the opposite direction, do you consider a stock-split to be a gain? Stock-split example: company gives 1 new share to all shareholders for each share they hold; they each now have double the number of shares but the market price (approximately) halves. /cc @sean
about 4 months ago from web-
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mark
@senexx (warning: this tweet may contain irony) I suggest you look at the ASX announcements, buy shares before they split and sell them afterwards. Under your definitions, you'll make numerous guaranteed gains.
about 4 months ago from web-
senexx
@mark Irony noted btw. I didn't understand why their would be such a split in the first place. My response was based on what I could understand. You get more shares without having to pay out any money. That's a gain.
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sean
@senexx some info on stock splits here: http://bit.ly/cLgUrQ Shares give you a "share" of company profits. If there are 1000 shares each gets 0.1% of profits. After a 2 for 1 share split each gets 0.05% of profit. You now have 2x as many shares but have gained (& lost) nothing.
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sean
@senexx what does it mean to value your investment in terms of "number of shares"? The argument that the share price will rebound is very optimistic. On that basis, if I buy shares for $10, perhaps I should immediately value them at $12! /cc @mark
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senexx
@sean You shouldn't value them at all until the time you cash out. In the meantime you own exactly the same property whether its worth $10, $12, $5 or $100. Shares should be considered a long term investment.
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mark
@senexx I think "you own exactly the same property" is key. If company X holds 5 identical mines & govt takes 1, as X shareholder you've lost property (1 mine) and share price drops 20%. If govt instead says it will take 20% all future mine output, you've also lost surely?
about 4 months ago from web
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danny
@sean buy at $10, instantly revalue to $12... Isn't that what some of the dodgier corporate investment companies were doing?
about 4 months ago from web
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mark
@senexx You say only true "unrealised loss" is when...shares become...void. How is having half your shares being void different to all your shares becoming rights to half as much future income? /cc @sean @magpie
about 4 months ago from web-
senexx
@mark Because it doesn't matter if you haven't cashed out. In all likelihood they'll rebound.
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danny
@senexx You're confused, but I'm not sure why and suspect any analogies I could come up with wouldn't work any better than Mark and Sean's.
about 4 months ago from web-
danny
@danny what if you own a property and the government takes an extra 10% of the rental income as a "landlord super tax"? (But that's no good as an example, because no one buys property for the rent these days, only for Ponzi capital gains :-)
about 4 months ago from web
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paddy
@mark Hard to know how to value an asset other than by market without introducing significant book or other biases.
about 4 months ago from web-
mark
@paddy IMHO market prices are due more respect than any other in most circumstances, and active investors should be very wary of deviating from mark-to-market. But it's also important to understand the underpinnings, which @magpie & @senexx have been questioning here
about 4 months ago from web-
stableboy
@mark I think that the alternative @senexx is proposing is that, absent a transaction, the only numeraire is the thing itself. A pig is worth one pig not 8 ducks or 240 dollars. A dollar is worth a dollar, a pound a pound. /cc @paddy
about 4 months ago from web-
mark
@stableboy wow, here I was thinking that @stableboy didn't have opinions. But yes, that seems to be @senexx 's position. Of course one would like to evaluate potential transactions without necessarily executing them, which is rather difficult without non-identity numeraires.
about 4 months ago from web-
stableboy
@mark @senexx yes, I must have overheard someone saying that while cleaning out the stables
about 4 months ago from tweetie
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magpie
@sean Did you read this? "the market price of shares you hold (...) reflects the value today of likely future dividends and the final sale price (...). A fall means you've likely lost some of that future income" /cc @senexx, @mark
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sean
@magpie I did read that, but I think the key discussion here is more basic. Regardless of *why* the share price moved (change in expectations, panic, etc), if you suffer an "unrealised" loss actually a loss or not. /cc @senexx mark
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mark
@magpie my argument to @senexx re future income does rely on (a very weak version of) EMH, but @sean is right that this isn't the only way to justify mark-to-market. With enough liquidity assumptions (on both market and valuer's other assets) we need not consider future income.
about 4 months ago from web-
magpie
@mark Fair enough. Although, I tend to side with @senexx 's views: I don't think miners have really lost anything just because mining shares briefly went south, or, more precisely, they don't have reason to whinge. /cc @senexx @sean
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zebra
@magpie @senexx The share price will recover to its previous level but will it recover to the level it would have been at without the extra tax? Imagine another country w/o the tax and same initial share price. Do you think share price same again after, say, 12 months?
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magpie
@zebra Why not? Arguing about conterfactuals is tricky. Historians call Stalingrad, WWII turning point. What if in a parallel universe the Germans won? Can you safely conclude they also won the war? Say, Columbus never made it to America. Ergo, we'd be speaking quechua.
about 4 months ago from web-
zebra
@magpie it's not really a counterfactual - more a hypothetical example to prove that the share price will be lower than it would have been. Otherwise Earnings don't affect share price so why do investors look at P/E ratios?
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magpie
@zebra I know Excel charts are frowned upon by our guest. Apologies: I've got little choice and hope to have avoided most of the worst crimes people make with them (except the Y-axis intersection) :o) /cc @senexx http://ur1.ca/00n4j
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sean
@magpie here is a modified version of the chart with a common index scale to make the indices more directly comparable. Both indices are set at 100 on Friday 30 Apr (before the RSPT announcement). Diff now less than 0.1%. /cc @senexx @zebra http://ur1.ca/00uiq
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mark
@sean don't annoy the @magpie we all know where that leads: http://mulestable.net/notice/7629 BTW excellent chart that rather skewers the "miner's have lost" claim.
about 4 months ago from web-
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sean
@magpie @mark he is concerned that outdoing you in chart design may be something better done in disguise where magpies are involved
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magpie
@sean Nothing that a good tutorial couldn't fix! But what does it have to do with http://mulestable.net/notice/7629 ?
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mark
@magpie Strange, the link I meant to send was http://mulestable.net/notice/7618 That should make it clearer Thanks @sean for clarifying for me
about 4 months ago from web-
magpie
@mark In my old age I'm becoming more forgiving... Besides, now I can hold @sean at ransom: he's given his word, after all. Tutorial! Now, a failure providing the tutorial would be a grudge-worthy matter. /cc @sean
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about 4 months ago from web
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sean
@magpie and here is the promised tutorial: http://www.stubbornmule.net/2010/05/graphing-using-r/
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magpie
@senexx That's possible, although a bit of an overkill: why are WE here affected by, say, the Greek thing? Or, like the press/TV pundits say, it may be a "market correction" ;-) /cc @zebra
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zebra
@magpie market price of risk. Whether a single number exists is debatable but in global markets it explains why Greek bonds affects Aussie shares.
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sean
@zebra @magpie I would also say that a default in Greece would have knock on effects(e.g. losses for UK, German & other banks, defaults in other countries) which would be bad for world growth which would affect Australian co.s !mkt
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senexx
@zebra I guess this is more addressed to @magpie than me? Otherwise I'm not sure what prediction you are talking about.
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sean
@senexx you have said it twice, but I still don't agree! If you bought shares for $10 and they fell to $6 and you sold them, you'd agree you've lost $4 per share. What if you have a change of heart and buy them again for $4, would you now say you've lost nothing? !mkt
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sean
@senexx a margin call is when you borrow to buy shares. The shares act as collateral for the loan (like a house for a home loan), but you have to maintain a specified loan-to-value ratio (typically around 70%). If the shares drop you have to pay a "margin" to get back to 70% LVR.
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senexx
@sean One of the most irrational things I've ever heard. I can see why gamblers would wish to do it though.
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sean
@senexx since the original point was re mining tax, an argument that nothing has been lost on share drops might be made to defend the tax. To me that is the wrong tack. All sorts of information/news can affect share prices. That should not stop govt policy, i.e. who cares! !mkt
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mark
@sean I agree totally re mining tax arguments. In this case shareholders of mining companies lose and all other tax-payers benefit (if we only consider direct impacts -- of course change in tax-generated distortion my have additional impacts)
about 4 months ago from web -
senexx
@sean It doesnt matter what affects the share price it only matters if a transaction is completed including the voiding of shares. This is what Wayne Swan said on the tax http://www.treasurer.gov.au/DisplayDocs.aspx?doc=economicnotes/2010/018.htm&pageID=000&min=wms&Year=&DocType=
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senexx
@sean Of course it doesn't because that was a different point. The point being petroleum industry showed considerable growth after an imposed tax
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sean
@senexx oh, I see. I'm a bit confused now. Are you arguing that unrealised losses don't matter full stop or they don't matter in this case because the market is responding irrationally and will bounce back?
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senexx
@sean In the case of the mining tax because the market is responding irrationally and will bounce back.
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sean
@senexx the Treasurer's argument does not really prove the point one way or the other: given what's happened to commodity prices since those taxes were introduced, one could well argue that share prices would have grown even more without the taxes.
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sean
@senexx given all that, I still have no problem with the tax. My own view would be that it is completely reasonable for the share price to fall in the face of the tax, in which case shareholders have lost *value*, but that's life in a redistributing society. /cc @mark
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senexx
@sean I think that's a reasonable view but once again only matters if a transaction/trade occurs. Its an assessment tool but practical realities are not sorted unless there is a transaction where the value really does matter.
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sean
@senexx that's the bit I still don't follow...I think that the pig farmer is right to consider his pigs less valuable, whether or not he trades them for sheep. Resources stocks, likewise, are less valuable whether or not they are traded for cash. /cc @mark
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senexx
@sean I didn't really follow your pig/sheep analogy. My brain started to think in barter economy & pegged currency angles.
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sean
@senexx in the analogy pigs=shares (what you own) and sheep=money (the terms in which you are valuing, even if you aren't actually trading pigs/shares for them)
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senexx
@sean That's the same argument everyone has presented previously in various guises. I stand by my previous comments.
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sean
@senexx I know it's the same argument, I was really just wanting to confirm that, in the farm analogy, you have the view that the farmer has no basis to consider his pigs have lost value as a result of the arrival of other pig farmers, at least not until he trades pigs for sheep.
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senexx
@sean and I fully grant it matters when a trade occurs amongst all the other carefully worded caveats I have given. And I do realise value can be derived from the trade of those shares too buy/sell.
about 4 months ago from web
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sean
@senexx all policy changes have winners and losers. Just because there are losers doesn't mean that it's bad policy. !pol
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