The mechanics of the perpetual daily losses that investors are subjected to when they buy or sell income-producing assets are sometimes challenging to explain. After all, the mechanics of the losses are not at all obvious. The underlying reasons for these losses are hidden, and the dangers of buying a dividend are not taught ANYWHERE.
So, I have been trying to come up with a fun and straightforward way to explain how these losses happen and to relate them to something more understandable. As I was on my morning run, I was thinking about this issue and came up with an analogy to compare stock market losses to a theatrical scenario of someone buying a candy bar.
So here it goes:
Have you ever been at the grocery store waiting to check out, and the candy bars that surround you in the checkout line trigger your sweet tooth? If you have a sweet tooth like me, sometimes your sweet tooth gets the best of you, so you pick up a Snickers bar. The price of the Snickers bar is $1.00.
The person in front of you finishes checking out, and you hand your candy bar to the cashier. They swipe your candy bar over the scanner, and then you prepare to swipe your credit card. But before you swipe your credit card, you look at the total, which is $1.06. The state you live in has a 6% sales tax. Therefore, $1.06 is the correct total, and you swipe your credit card.
The cashier hands you the receipt, and you quickly glance at it before putting it in your pocket. To your astonishment, you were actually charged $1.12. How could this be? You see a separate tax line item on the receipt that was not reflected in the total that you approved before you swiped your credit card.
You ask the cashier what the tax was for? The cashier tells you that this extra amount is the tax that the customer in front of you owed, but because of the way the store’s payment systems work, you are now responsible for paying their tax, as well as paying your own.
Your jaw drops in disbelief as you stare at the cashier astonished at what an insane system the store has. Just when you feel like things can’t get any weirder, the cashier opens your candy bar, takes a bite out of it, and then hands the candy bar back to you while thanking you for being a customer and signaling the next customer to come forward. You walk out of the store and tell yourself that you will never go back to that store again. In the future, when you want a candy bar, you will buy it somewhere else.
Let me ask, would you ever participate in a system where you pay someone else’s tax and then end up getting less than what you thought you purchased and deserve? I have news you for, if you have ever purchased any income-producing stocks or investment funds, you have been subjected to an almost identical process as described above in my candy bar analogy. A taxable investor in the stock market 1) pays tax on the income earned by the seller which results in a reduction of the buyers net worth and 2) buys a reduced number of shares because the price of the security was inflated – a result of treating dividends as assets instead of liabilities.
The good news is that you no longer need to operate in such a crazy system. FairShares has the intellectual property and the software needed to fix the antiquated last holder of record payment system so that you don’t have to pay someone else’s tax, and you end up buying exactly the amount of shares you deserve and are entitled to. Please share this article on your social media platforms. Send this article to the investment funds managing your money and ask them if the math in my blogs is correct. Ask them what happens when you “buy a dividend.” I have spoken to some of the most senior tax people on Wall Street, and all of them acknowledge the problem exists.
Still don’t believe me? Check out these blogs for the math, proving my analogy.
This blog describes how a buyer of an income-producing investment fund assumes the seller’s tax liability:
You Are Paying Someone Else’s Taxes – Why Buyers are Paying the Seller’s Taxes
This blog articulates how accruing dividends to the net asset value of an investment fund impares an investor’s buying power – causing them to buy fewer shares:
Author
Jeremy Roseberry
CEO