1. always consider tax consequences first and foremost (because it's real cash). But don't let tax stop you making a good investment decision.I own a fair amount of stock in Spirit Aerosystems, which is in the process of being acquired by Boeing. Should I hold the stock through the acquisition process or sell it now for a guaranteed profit? I've never been through a buyout so not sure what to expect. And FWIW, I'm very bullish on Boeing and wouldn't mind getting more of its stock in the buyout.
Any experienced stock traders have any thoughts?
So:
- is this a capital gains tax free way into Boeing stock? (I don't know how the US system works)
Right now the Spirit stock has "option value" - which decreases rapidly with time:
- upside if there were to be a counterbidder (doesn't seem likely)
- downside if the deal were to be called off eg by FTC investigation (again, not likely)
So you do have to have a view on that. If the Boeing offer is cash or stock, then changes in the Boeing share price will factor in.
2. Beware the endowment effect, that your brain has already "owned" Boeing. If you wouldn't invest hard cash into Boeing stock at this price, then you shouldn't be taking Boeing stock as a payment.
On balance, it's usually best to take the cash, and reinvest in Boeing stock using that cash, if you believe in Boeing and want to invest in it. Boeing has just done a huge equity raise so the dilution of that should be in the Boeing stock price.
However if Spirit represents an easy way into Boeing from a Capital Gains Tax point of view (ie avoiding realisation) then you can do it.
On balance, when there is great uncertainty in a financial situation, I say "split the difference". i.e. half stays in, half you take off the table. It is much more painful to be 100% wrong than it is to only get 50% of the upside. There's quite a lot of expected utility theory that supports that maxim - it's not just folklore.
On the other hand, If taking the cash (100%) and running would materially affect your future plans - eg towards early retirement - then it's worth doing.
Statistics: Posted by Valuethinker — Fri Nov 08, 2024 4:38 am
