Are the New Junk Price Guidelines Actually That Nice?

On this podcast, Motley Idiot analyst Invoice Barker and host Ricky Mulvey focus on:

• The Federal Commerce Fee’s ruling on junk charges.
• What killed a merger between Kroger and Albertsons.
• How youthful buyers can put together for the subsequent bear market.

Then, Motley Idiot host Alison Southwick and private finance skilled Robert Brokamp supply some tips about tax loss harvesting.

To catch full episodes of all The Motley Idiot’s free podcasts, take a look at our podcast middle. To get began investing, take a look at our newbie’s information to investing in shares. A full transcript follows the video.

This video was recorded on Dec. 17, 2024.

Ricky Mulvey: Say goodbye to junk charges. Properly, a few of them, anyway, for now at the least. You are listening to Motley Idiot Cash. I am Ricky Mulvey, joined immediately by Invoice Barker. Invoice, respect you being right here.

Invoice Barker: Thanks for having me.

Ricky Mulvey: That is one thing I am enthusiastic about is a purchaser of issues, is a purchaser of tickets and sometimes lodge rooms. The Federal Commerce Fee introduced what it’s calling a last junk price rule. This hits reside occasions, accommodations, trip leases. Mainly, should you’re a lodge, you can not simply add a resort price on to the top of the reserving. You possibly can nonetheless cost it. You simply have to inform your prospects up entrance. There’s some weirdness in right here, Invoice. There is no actual uniform enforcement. The rule can even turn into efficient 4 months from now, notably, when there’s a new presidential administration within the White Home. Does this position change a lot? Is that this one thing I ought to be enthusiastic about?

Invoice Barker: Properly, excited is an attention-grabbing alternative. I believe that your future experiences could be much less annoying relatively than really all that a lot better. I do not suppose it is bought any actual aggressive change within the panorama for corporations. They cost what they cost, and so they’re nonetheless going to cost the quantities they cost, however they will record the value sooner in your transaction expertise with the very similar to, I suppose, a fuel station does. Whenever you see the value for fuel, it is the value you pay. It isn’t all that nice to take a look at excessive costs for fuel, however you aren’t getting an extra shock after you have began pumping. We forgot the taxes. We’ll let you know about these on the finish. They let you know initially, and there you might be. Your annoyance comes early on within the equation.

Ricky Mulvey: I am excited as a result of I am taking any win I can. When you’re promising me that I will be much less aggravated about issues within the subsequent few months, I will take it. I will take that win, Invoice. I’m excited. I stand by that assertion.

Invoice Barker: It would not elevate all of it the way in which as much as a promise that your annoyance might be perfected right here. However I believe there are experiences like Europeans come to the US and so they eat at our eating places, and they’re really aggravated that on the finish of the meal, the value that they thought they had been paying is you then get tax and tip added onto, effectively, the tip is not added, though it is put in entrance of you relatively aggressively at occasions. The tax isn’t included on the menu value as it’s in Europe. They discover that to be an annoying little transactional expertise, whereas we’re used to it. On the finish, I’ll then additionally pay tax and doubtless tip as effectively. It would not actually change, I believe, any of the costs that anyone goes to finish up paying. However your annoyance will come once you see how excessive the value is straight away relatively than pondering, Oh, it is a fairly good value and being shocked later that no, it isn’t.

Ricky Mulvey: The truth that it is simply disclosure and never altering costs. That is why I suppose I am placing phrases in your mouth. I am guessing a take. We’re not seeing a number of change in lodge reserving shares like Expedia, reserving.com. They’re down a bit of bit, so is the broad market. Additionally, not one of the main lodge chains have actually reacted to this information, together with Hilton and Marriott. They’re simply shrugging it off.

Invoice Barker: It is only a presentation concern. They are not going to alter their backside strains because of this. However on the margins, possibly, once you present a better value, possibly folks spend a bit of bit extra time. Possibly they suppose, I will have a look at Airbnb a bit of tougher on this one than the lodge as a result of Airbnb they add some value on high of what you first thought you had been paying, nevertheless it’s not a resort price.

Ricky Mulvey: I will see if I get in bother for this one. I will be curious if this impacts any automobile makers, in the event that they need to transfer ahead with that within the years forward. Some time again, I used to be taking a look at, like, leasing I used to be simply taking a look at totally different automobile leases since you get an enormous tax profit should you do an EV, particularly in Colorado. I checked out Tesla, and it is listed at 70 bucks a month. What they’ve completed with that invoice is that they embrace within the estimated fuel financial savings, and so they exclude the taxes and costs concerned with paying for the automobile. Then it goes up by about twice the quantity, at the least for the bottom finish mannequin. I’m wondering if that might be affected within the years forward.

Invoice Barker: Tesla itself, I would not anticipate that the incoming administration goes to go exhausting on Tesla’s. Transactional decisions, however we’ll see.

Ricky Mulvey: Daring assertion. You heard it right here first. Let’s take a look at this Kroger and Albertson story. I need to make amends for it. Final week, a federal choose in Oregon blocked what was going to be an enormous merger, $25 billion merger between Kroger and Albertsons. Kroger and Albertsons had been saying that this is able to assist them compete towards Walmart in Amazon, the choose saying not so quick, my good friend. You’re a grocery retailer, and that’s distinct from different grocery retailers as a result of you possibly can go to a Walmart and purchase a TV and a winter coat, that type of factor. We even have this mess now the place Albertson’s is suing Kroger, saying it did not do sufficient to get the deal via. You did not divest from sufficient shops. Possibly you had been simply sandbagging the entire time. No matter, we’re mad, and we wish $6 billion. Beginning with the primary story, although, Invoice, had been you shocked to see this deal disintegrate?

Invoice Barker: Not underneath the present administration. Properly, it fell aside. The FTC lodged a grievance, and the choose sought the FTC’s method. That’s, partially, one thing that one might need anticipated given how poorly the divestiture of, I believe Albertson’s acquisition of Safeway was and the divestiture there. The variety of models that had been spun off, it was dealt with very badly. Quite a lot of them did find yourself closing as a result of they spun off the poor performing ones to any individual that wasn’t actually adequate operator to maintain them going. It did lead to much less competitors. That was one thing to control this time round. I believe there’s a case that Kroger didn’t do every part it may to be sure that this ended up going via by divesting a better variety of models. I believe there’s not that a lot shock that it did not undergo. I believe there’s at the least a case that Kroger has a few of the blame for that.

Ricky Mulvey: The cash supposed for the merger on each side goes for use for inventory buybacks. Kroger mentioned it is going to repurchase $7.5 billion price of shares after a two 12 months pause. Albertson saying that it should repurchase about $2 billion price of shares. In each instances, that is rather less than 20% of their respective market caps, and that’s aggressive. Whenever you see that aggressive buyback after a failed merger, is that this a superb use of money?

Invoice Barker: It most likely is a fairly good use of money. Kroger has a good historical past of shopping for again. Share is about 2% a 12 months, roughly. That was on pause throughout this. However I believe that should you’re not in a position to broaden your operations, and it would not make monetary sense to attempt to broaden them, then to run them effectively and return cash to shareholders within the type of each dividends and share buybacks is commonly good capital allocation by good administration groups, and Kroger’s completed a fairly good job. I believe that given the value, I believe shopping for again shares is sensible, and might be one thing that shareholders are trying ahead to.

Ricky Mulvey: Properly, I am a Kroger shareholder myself, and on the one hand, I believe it is great to make my shares extra precious and provides me an even bigger slice of that pie as they purchase again shares. It additionally appears to me that possibly that is going to upset some grocery consumers and regulators, grocery retailer unions, particularly at a time when it isn’t simple, however you possibly can level at excessive meals costs. I grocery store as effectively. My grocery invoice has gone up, and also you even have unions to cope with, particularly in Kroger’s case, the place it would paint a bit of little bit of a goal on their again.

Invoice Barker: That is an business the place you do not actually have a carte blanche to simply do no matter you need with no matter money you may have readily available. That is going to be met with definitely on the authorities consultant degree, a response of, effectively, should you’ve bought all this cash, it’s best to simply be charging much less. That is how we wish issues to be or paying your staff extra or each. That is not how each enterprise runs, and Kroger would not have margins which can be obscene or something prefer it. They would not actually be aggressive in the event that they did. It is only a very excessive quantity enterprise the place you make a bit of bit on every sale. When you do every part proper, you have bought some cash left over, and I am certain the workers and the unions want to have as large a bit of that as they’ll. However this isn’t uncommon for an organization to make some earnings and do one thing for its shareholders with these earnings.

Ricky Mulvey: I need to zoom out a bit of bit on buybacks as a result of that is one thing that may, it is gotten warmth. It can also reward shareholders of corporations for terribly lengthy durations of time. It may be a superb use of capital for mature corporations. You have a look at an organization like AutoZone, which has primarily steadily eaten itself alive, going from 150 million shares excellent within the 12 months 2000 to about 17 million immediately. That is a inventory that is completed terribly effectively for the shareholders which have held it for many years. That is one thing that I need to discover. I need to discover corporations which can be going to eat itself alive and reward me for holding onto these corporations for probably a long time to return. Invoice, what ought to I be in search of if I am in search of corporations that may inform me these long run buyback tales?

Invoice Barker: Properly, I believe, as you identified, the absence of regulatory or buyer fu might be one thing that you just need to placed on that record. Apple has purchased again a number of its shares, Lowe’s corporations which have good competitors for his or her merchandise and will not be on the targets of regulators as a result of it is a totally different method of returning cash to shareholders, dividends or buybacks. It is extra tax environment friendly method for the long run shareholders. However it will probably enhance scrutiny. It places an exclamation level on the truth that you may have cash that you do not need to reinvest in your corporation or rent extra staff or pay extra for these staff or scale back costs. AutoZone has been extremely efficient. They have good competitors. No one appears to really feel like AutoZone’s repurchase of its shares is one thing that’s harming its prospects.

They have an excellent historical past with it. As I discussed, Lowe’s, Apples, O’Reilly. Corporations which have good managements and will not be simply asserting, our value is unhealthy as a result of we missed, our quarterly steering, and our inventory has been walloped by that. We’ll purchase again shares. These are bulletins that it’s best to take with a grain of salt as a result of a number of occasions the businesses which can be making these bulletins are simply attempting to help the inventory value, however have issues that the enterprise goes via that won’t enable them to ever execute these introduced buybacks.

Ricky Mulvey: The value of an engine filter additionally hits a bit of totally different than the value of eggs once you see value will increase for both of these. As we shut out last story, James McIntosh has a column that I loved studying in immediately’s Wall Avenue Journal, speaking about how the market feels toppy, and as we have a look at a number of these, take 2025 outlooks with the a number of grains of salt that it’s best to. However I believed he made a fairly compelling case that he feels unhealthy as a result of everybody feels nice. The shares of customers anticipating inventory costs to rise subsequent 12 months is at an all time excessive, and importantly, company insiders haven’t been dashing to purchase again their very own inventory. He writes, none of those factors are proof that the market should fall, not to mention that it’ll occur quickly. Nobody has an ideal document, and on some measures such because the American Affiliation of Particular person Traders Survey, issues aren’t so excessive. However I do not need to be a part of a crowd shopping for right into a slim story when costs, valuations, and hope are already extraordinarily excessive, and insiders aren’t keen to purchase it again with their very own cash. Looks like a superb time to take some cash off the desk. Do you suppose McIntosh is onto one thing right here, or is that this a bit of Day commerce?

Invoice Barker: I do not suppose it is day commerce. I believe it’s a good reminder that shares don’t go straight up, and the truth that folks have loved very wholesome returns from the market within the final two years and a lot of the final 5 implies that you are shopping for shares after they’ve already risen that as a mathematical equation reduces what your complete returns might be sooner or later. The upper the value that you just purchase one thing on the decrease your returns might be. I believe that individuals get very excited when the financial system goes effectively and shares have been doing effectively and earnings are forward of development. It feels when earnings are forward of development that there could be a brand new development or the development sooner or later might be quicker development. What really occurs is shares compound earnings per share between 6-7% a 12 months. Not 10%, not 12%, not 15%. Chances are you’ll be taking a look at particular person shares that compound at charges like that after which some that compound at present at way more than that. However as a complete, shares do not compound earnings per share at 10% or something near it. The equations that lead folks to imagine that 20% returns are one thing that they’ll anticipate sooner or later, are equations which have allow them to down prior to now.

Ricky Mulvey: When you’re a more moderen investor, and possibly you bought concerned available in the market prior to now few years, and I believe it was mainly outdoors of the yen carry commerce fiasco. You have not seen shares happening that a lot. Whether or not it is subsequent 12 months, whether or not it is 2026, 2027, any future 12 months, there might be a bear market. There might be a correction within the inventory market. What do you advocate to newer buyers about how they’ll put together themselves for that?

Invoice Barker: Newer buyers, youthful. There is a distinction between youthful and older on new buyers. Youthful buyers ought to be rooting for decrease inventory costs. They need to be rooting for low inventory costs for a very long time in order that the cash that they put right into a Roth IRA or firm 401K, they’ll purchase extra shares at decrease costs, and 30, 40, 50 years later, once they want that cash for retirement, they may have way more than in the event that they had been shopping for at greater costs. It’s counterintuitive once you’re a more moderen investor to need costs to not run away. It feels good once you simply begin investing. I simply made 10% within the final couple of months, and due to this fact I am getting richer. You might be, however most of your investing is but to return, and it should hopefully have a long time to compound, and in that case, your finest investments would be the ones which can be made on the lowest costs with the longest time to reward you.

Ricky Mulvey: Invoice Barker, respect being right here. Thanks on your time and your perception.

Invoice Barker: Thanks for having me.

Ricky Mulvey: Up subsequent, Alison Southwick and Robert Brokamp share some tips about tax loss harvesting should you plan on slicing some losses earlier than the top of the 12 months.

Alison Southwick: You already know the previous saying, When life offers you lemons, make lemonade. Properly, this 12 months has been largely a candy little beverage for buyers, because the S&P 500 has gained virtually 30%. However regardless of the market hitting all time highs, you should still have some lemons in your portfolio. Nonetheless, all isn’t misplaced. If these investments are in a taxable brokerage account, you possibly can promote them and decrease your tax invoice.

Robert Brokamp: When you take a capital loss, it is first used to offset capital good points in your portfolio or in your taxes, I ought to say. Then if there are any losses leftover, you utilize these to scale back your taxable revenue as much as $3,000 a 12 months. When you nonetheless have some leftover losses after that, you possibly can carry these ahead to future years so long as you are a residing respiratory taxpayer.

Alison Southwick: Now, to profit from your underwater investments, we’ve got 5 ideas for you, beginning with #1, tax loss promoting is not only for shares.

Robert Brokamp: Actually, any funding you may have, any inventory, bond, mutual fund, ETF, or choice contract that’s beneath the value you paid will be offered to scale back your 2024 taxes. Sadly, you can not declare a taxable loss on property held for private use like a home or a ship. However something in your portfolio, typically talking, is eligible. Just a few prospects are, in fact, any inventory that’s beneath the value that you just pay. When you purchased bonds in the previous few years, these are nonetheless method beneath their all time highs in 2021, so that you may be capable to really do some tax loss harvesting along with your bonds. Small Cap indexes have only recently regained their all time highs, however not all of them. For instance, MicroCaps have not. I personally owned the iShares MicroCap ETF Ticker IWC, and that’s nonetheless beneath its all time excessive. Charges, bonds, they went down when rates of interest went up as rates of interest have come again down, they’ve recovered a bit of bit, however they’re nonetheless beneath their all time highs. Have a look at your account for any funding that’s underwater, you might need extra prospects than you suppose.

Alison Southwick: Subsequent piece of recommendation is to promote now, however wait earlier than shopping for again.

Robert Brokamp: Now, should you determine to promote an funding to take the loss in your tax return, you possibly can’t purchase it again inside 30 days of the sale date. In any other case, the loss is taken into account a wash sale, and a loss that violates the wash sale rule might be disallowed. That’s, you will not be capable to enter it on Schedule D to offset your good points or strange revenue this 12 months. Now, should you lose your calendar and unintentionally purchase the funding again inside 30 days, the disallowed loss is added to the fee foundation, so you ultimately do get form of a tax profit, however you are most likely not undertaking what you wished to this 12 months. Additionally that 30 day clock begins the day after the sale. We’re speaking calendar days, not coaching days. After all, when you’ve got no intention of shopping for again the funding, then you do not have to fret about any of this wash sale Hullabaloo.

Alison Southwick: Quantity 3, this one’s disappointing. No dishonest allowed? Are you about to inform me the entire methods I may cheat however will not as a result of it is no longer allowed?

Robert Brokamp: Properly, I will simply say that lots of people attempting to give you methods to get across the wash sale rule, they need to take that loss however nonetheless have some form of publicity to the inventory. However the backside line is the IRS has been round this block, and so they just about outlawed something that you just’re attempting to think about. Listed below are some methods to violate the wash sale rule. In different phrases, do not do this stuff and ensure your partner would not both. You purchase the funding 30 days or much less earlier than you unload the unique unprofitable funding. The wash sale rule actually covers 61 days. It is the day you offered the funding the 30 days after and the 30 days earlier than. You might be shopping for an funding that’s considerably an identical, and I put that in quotes as a result of that is the IRS language. There’s some debate about what considerably an identical means, however I will simply use a fairly clear instance. You possibly can’t promote a REIT index fund supplied by Vanguard after which instantly purchase a REIT index fund supplied by iShares.

These are considerably an identical investments. You possibly can’t purchase the funding in one other account, together with your IRA, one other tax advantaged retirement account, or your partner’s account. One other technique to violate the Wash sale rule is you purchase a name choice on the funding. For different choices methods, it will probably get a bit of difficult. Do your homework earlier than mixing tax harvesting and choices, or lastly, you purchase an funding that could possibly be transformed into shares of the offered funding, akin to a convertible bond or most well-liked inventory.

Alison Southwick: Subsequent piece of recommendation is you will have purchased extra shares than you suppose.

Robert Brokamp: You could have made a number of purchases of an funding, possibly intentionally as a result of simply through the years, you have purchased extra shares otherwise you’ve been reinvesting dividends each quarter. In that case, your holding has multiple value foundation. It is doable you may have a mixture of each good points and losses. Simply as a private instance, I am a very long time shareholder of Starbucks. I’ve owned it since 2008, however it’s beneath its all time excessive of round $126 reached in July of 2021. I have been reinvesting dividends all alongside the way in which. A few of these reinvestments made in 2021 and in 2023 are underwater. Whenever you’re perusing your portfolio for losses, do not simply think about the primary time you buy shares and even the typical value foundation. You might need some losses in there that you do not keep in mind.

Alison Southwick: The ultimate Bro professional tip is to specify which shares you might be promoting.

Robert Brokamp: Now, that is essential. When you’ve decided which shares you’d prefer to promote, do not simply click on the promote button in your dealer’s web site, particularly should you’re simply promoting a portion of the holdings. You need to perceive your account suppliers choices for assigning a price foundation and holding interval to the investments, after which select the tactic that is finest for you earlier than you promote. It often will be completed on the corporate’s web site, possibly in writing, typically not over the cellphone, and also you might need chosen a technique once you really signed up for the account. It is simply essential to know the way you determine the shares you need to promote.

As a result of in any other case, in the case of shares and ETFs, the default methodology is first in, first out. That’s you promote the shares you have held the longest. However chances are high should you had shares for a extremely very long time, these are good points. It is most likely the newer shares which can be the losses. You need to have the ability to select the precise shares you are promoting. Do not go along with the default. It is also the identical with most different investments. I will simply spotlight a bizarre factor about mutual funds.

The default for a lot of mutual funds is definitely common value, which is, as you guess, the overall value of all of your shares divided by the variety of shares, however you do not have to go along with that methodology. Select one other methodology. Once more, particular shares is healthier. However the factor about mutual funds is as soon as you have chosen a technique, you must persist with that for so long as you maintain that holding. Then my last thought on tax loss harvesting is, up till 2011, monetary companies companies had been required to simply report the gross proceeds of gross sales to the IRS. Nonetheless, now, additionally they should report the fee foundation and holding interval.

Brokers are doing a greater job of retaining data. The IRS has that data for something that you just purchased since 2011. When you personal investments earlier than 2011, you may discover that your dealer would not have the fee foundation data for particular shares, so you are going to should unearth it your self out of your account statements or simply have a look at the historic costs. Plus, it is at all times doable that the data your dealer has is improper. Even FINRA, which is the self regulatory group run by the monetary companies business, recommends that buyers usually evaluation their account statements for potential inaccuracies. It is essential to maintain previous account statements and commerce confirmations, in addition to documentation about your chosen disposition methodology.

Ricky Mulvey: As at all times, folks on this system could have pursuits within the shares they discuss. The Motley Idiot could have formal suggestions for or towards. Do not buy or promote shares based mostly solely on what you hear. All private finance content material follows Motley Idiot editorial requirements and will not be permitted by advertisers. The Motley Idiot solely picks merchandise that it will personally advocate to associates such as you. I am Ricky Mulvey, thanks for listening. We’ll be again tomorrow.