Congrats on Your Profits. Now Give Them Away.
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Say goodbye to 2006.
The end of the year is bittersweet for shareholders of iMergent (AMEX: IIG), GigaMedia (Nasdaq: GIGM), China Development Group (Nasdaq: CTDC), and Gametech (Nasdaq: GMTC) -- four of the 50 stocks on the major U.S. exchanges that have gained more than 150% since Jan. 1.
It's not all about the small caps, though. MasterCard (NYSE: MA) has more than doubled in just seven months. Apple Computer (Nasdaq: AAPL), up 18% for 2006, has gained more than 1,000% since the beginning of 2003.
Shareholders in any of these businesses now face an age-old question: What next? After all, buying and holding is wise; buying and ignoring is not.
You probably aren't lying on a bed throwing handfuls of cash in the air. (Or at least you shouldn't be.) No, you're probably contemplating your next move in a stock that has rewarded you handsomely.
You could ...
1. Keep your stake and let your winner(s) run.
2. Pare back your position to rebalance your portfolio.
3. Sell and take your money off the table.
Stop, drop, roll
Let's start with No. 1. To let your winners run, you must believe that your original investment thesis still holds, and you should have sufficient diversification in your overall portfolio -- i.e., iMergent, a $350 million company, shouldn't be the only stock you own. If you can't stand by the stock, you should consider selling at least part of your position.
Nos. 2 and 3, however, raise an entirely different problem. If you sell, you need another place to put your money to work -- and who knows whether there will be another huge run-up in the cards?
As you mull these over, consider a fourth option: donating your appreciated stock to charity.
Give it away? Are you nuts?!
Seriously, donating appreciated stock -- a la Warren Buffett's gigantic pledge earlier this year of Berkshire Hathaway B shares -- makes tax sense for you and shares your wealth with those less fortunate. While Buffett is worth exponentially more than you and I, it's worth following his example. Consider: According to The New York Times Magazine, Buffett's pledge is, on an inflation-adjusted basis, to "more than double the lifetime total given away by two of the philanthropic giants of the past, Andrew Carnegie and John D. Rockefeller, put together."
You can read up on the nitty-gritty of donating stock here. In a nutshell, though, a charitable donation:
- Gives you a tax deduction for the full market value of the stock.
- Lets you avoid a capital-gains tax when you sell.
- Allows the recipient charity to get more bang from your buck.
'Tis the season
And let's not take this for granted: Besides those tax breaks, you're doing good and effecting change in the world.
So as you review your current holdings and get ready for the year ahead, consider taking a page from Buffett's book of giving. To find five worthy organizations helping to make the world a better place, click here to read about and donate to our Foolanthropy 2006 charities.
To learn more about Foolanthropy and our five charitable organizations, follow this link.