“Sitting on your ass is tax-efficient.” - Charlie Munger
Long hold periods = tax-efficient
If you own two consecutive investments making 3x MOIC (where you rolled all proceeds from the first into the second), you might think it would yield the same result as one investment doing 9x MOIC in the same hold period.
However, let’s assume a 35% capital gains tax rate (probably lower in most states):
Scenario 1:
$100 ➡️ 3x ➡️ $300
$200 gain ➡️ 35% tax ➡️ $70 tax
Interim net: $230
$230 ➡️ 3x ➡️ $690
$460 gain ➡️ 35% tax ➡️ $161 tax
Net: $529
Scenario 2:
$100 ➡️ 9x ➡️ $900
$800 gain ➡️ 35% tax ➡️ $280 tax
Net: $620
Counter-intuitively, the tax-efficient approach also generates more tax revenue for the government (example above yields $280 of income versus $231).
