Tax the Acorns for Oak Trees

Your unrealized gains. September 05, 2024 [WEBSITE]( | [UNSUBSCRIBE]( Imagine if a tree had to shed some of its fruit before it was ripe—simply because it might produce a good harvest. Tax the Acorns for Oak Trees CHRIS CAMPBELL Dear Reader, Brace yourself! Washington's newest cash grab—the unrealized gains tax—is back on the table. Yes, I know. They claim it’s “just for the rich”—just like they did with the income tax in 1913. And yet… History reveals that taxes never stay in their lane. They spread, creeping from the wealthy down to the middle class, and beyond. But even if this tax only hit the ultra-wealthy, the consequences would ripple through the entire economy. How do we know? Nature. Before we go there, though… Our Publisher, Matt Insley, has an important announcement. He wants to tell you something you might not know about James. And why Matt just put $100,000 of his own money in it. [Click here]( or the “play” button below to see how this even started. Everything is Cycles Nature gives us the clearest example of why taxing unrealized gains might be a bad idea. Like nature, markets run on cycles of growth, decay, and renewal. Timing is everything. Imagine if a tree had to shed its fruit before it was ripe—simply because it might produce a good harvest. That’s what an unrealized gains tax does: it forces the tree to lose some fruit early, before it has the chance to fully develop. You might say this is an apples to oranges comparison. Perhaps you’re right. Here’s a better one: It’s like making a bear burn through its stored fat—by building catapults for chipmunks to fight hawks, no less—all before hibernation. But it’s worse than that. If you invest, you’re hit with an unrealized gains tax. If you don’t invest? You’re hit with inflation tax. Either way, you lose value on your potential. The bear can hunt for more, only to be taxed on the catch before winter. Or sit still and let its stash rot as it waits. Either way, our bear is screwed. And there’s no way he’s planning effectively for a bad winter. Growth Requires Time Growth happens when it’s ready—when the bush has drawn enough nutrients, when the season is right, when the conditions are optimal. If you cut that cycle short, you disrupt not just the thing’s potential, but the potential of everything it touches. Which, whether we’re talking about nature or finance, is a lot. But what if we're just talking about the animals who have plenty of potential to pass around? You know, the “ultra” rich. Well, some of those rich - not all - are so because they produce more than the average bear. They’re not just sitting on piles of honey and milk—they’re creating businesses, jobs, innovations, and wealth for others. So while you might feel justified in taxing an oversized pack of rabid wolves, you’re also taxing the bees—the ones pollinating the economy with growth and wealth. Switching gears to investing, there’s one thing to consider… As our own Davis Wilson points out in his article below, even in the world of bees… Not all wealth is created equal. And understanding that - whether we’re talking wolves or bees - is the key to becoming a better investor. Take, for example, Elon Musk. Read on. Urgent Message From The Publisher I just went on camera and recorded a 2-minute video clip making a major announcement. Depending how you respond to this opportunity, it could alter the course of your life forever. Of course, the choice is yours to make, but it’s important you see this short clip before September 9th at 1:00 PM. You’ll understand everything once you see this important announcement. [CLICK HERE NOW]( Elon’s Big $123 Billion Valuation Problem DAVIS WILSON Not all profits are created equal. What I mean is if both an AI company and a traditional auto manufacturer earn $1 million in profit, the AI company will likely be valued higher by investors. That’s because the future growth of the AI company is likely higher than the auto manufacturer. In other words, the AI company will trade at a higher “multiple.” Here’s the price/earnings (PE) multiples of some AI and auto manufacturing stocks: AI companies are valued at an average of 36x earnings whereas auto manufacturing stocks are valued at an average of 8x earnings. If both an auto manufacturer and an AI company earn $1 million in profit, the auto manufacturer will be valued around $8 million while the AI company will be valued around $36 million. This is “back of the napkin” valuation 101. I bring this up because this morning, Tesla announced full self-driving would soon be available in Europe and China. The stock shot up as high as 7% on the news. Elon Musk has been very vocal recently about why he thinks Tesla’s stock shouldn’t trade like a traditional auto manufacturer. From the valuation 101 lesson above you can probably understand why. Tesla earned $15 billion in profit last year. If it were valued like a traditional automaker, Tesla’s valuation would be somewhere around $120 billion. ($15B multiplied by an 8x multiple) That would be well below the company’s current $736 billion valuation. So why is Tesla’s market cap approximately 15x the size of Ford and GM, and 3x the size of Toyota, despite Tesla selling just a fraction of the cars compared to these companies in 2023? You guessed it. Investors are expecting big innovations out of Tesla in the AI, autonomous driving, and robotics departments. So, much to Elon’s delight, the company trades more in line with companies like Nvidia and Uber versus traditional auto manufacturers like Ford, GM, and Toyota. This morning, when Tesla announced full self-driving would soon be available in Europe and China, investors were reminded of the company’s impressive technology and sent shares higher by 7%. [Contrast this to a few weeks ago when Tesla delayed its planned robotaxi event. The stock immediately dropped 9% as investors repriced the stock to trade more in line with traditional automakers.] You can see why Elon is so vocal about Tesla being more of an AI company versus a traditional automaker. The man owns 20% of Tesla. At Tesla’s current valuation his stake is worth $147 billion. If Tesla traded at 8x earnings, like traditional auto manufacturers, that stake would plummet to $24 billion - a $123 billion difference! Thankfully, news stories like the one earlier today help his cause. To find out whether the stock can continue to trade this high, all eyes are on the company’s robotaxi event on October 10th. As always, we’ll bring you the coverage straight to your inbox. Best, Davis Wilson For Altucher Confidential Rate this email Like Dislike Thanks for rating this content! Looks like something went wrong. Please try to rate again. 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