Great write up. I really liked your point about simplicity being a good thing for investors and for the robustness of the business. I’m skeptical of managements that complicate their capital allocation plans with investments in new ventures like this AI example, which are likely outside of their circle of competence
The Risk vs Reward between these two is glaring. I've been writing for some time that domestic thermal coal exposure is NOT the kind of thermal exposure investors should want or have in their portfolio. Most of NRP's revenues are generated from export sales.
We couldn’t agree more. Thanks for adding your thoughts. We highly recommend that all our subscribers consider subscribing to your work. Your’s was one of the first Substacks we officially recommended. You do great work.
Hi there, this may not be in the domain of the podcast and may relate more to your financial independence series, but would you consider discussing how tax implications relate to your investment evaluation process? I am thinking specifically of the MLP nature of NRP and also weather you choose to invest out of certain tax advantage accounts for certain investments.
As you know, we are not tax experts and we are both below average dudes. So take this with a truck load of salt.
We think about taxes quite a bit. Broadly speaking investment income is taxed less than earned income and so we’ve worked to get most of our income into the investment category while lowering our earned income over time. That said a good return is always the objective regardless of the taxe considerations because the power of compounding can grow the total such that even a large tax bill leaves you with the greatest gain.
On this topic, Buffet concluded that the objective is not to pay the least in taxes but rather to pay the largest tax bill at the lowest marginal rate. Meaning, we want to grow our wealth and passive income by as large an amount as possible even though we’d pay more in taxes than had we stashed the money in cash under the mattress. Don’t pay more than you must in tax but don’t shoot yourself in the foot to avoid taxes either.
More specifically, we do spin-offs and options trading in IRA accounts where we don’t have to worry about short term gains and we avoid K-1 producing companies in those same accounts. In our regular brokerage account we try and stick to long term positions that don’t generate short term capital gains and trading fees.
As you learn about the tax implications on your own finances your ability to spot tax-savvy CEOs also improves which makes you a better investor. This is a nice side benefit.
Thank you for the response! That philosophy makes sense and I appreciate the articulation. And thank you for the insight into the IRA vs brokerage strategies.
Btw, the "below average dudes" moniker is quickly losing is validity with each great episode you put out...
This is a very comprehensive piece. Really enjoyed reading it.
Amrita, we're thrilled that you enjoyed it.
Great write up. I really liked your point about simplicity being a good thing for investors and for the robustness of the business. I’m skeptical of managements that complicate their capital allocation plans with investments in new ventures like this AI example, which are likely outside of their circle of competence
Thanks Nero. Thanks for sending that Munger quote our way!
We share your skepticism. Also, simplicity in investing and life doesn't get the positive press that it should.
Thank you for sharing Mr Stahl SB.
Our pleasure. We’ve learned so much from him!
The Risk vs Reward between these two is glaring. I've been writing for some time that domestic thermal coal exposure is NOT the kind of thermal exposure investors should want or have in their portfolio. Most of NRP's revenues are generated from export sales.
We couldn’t agree more. Thanks for adding your thoughts. We highly recommend that all our subscribers consider subscribing to your work. Your’s was one of the first Substacks we officially recommended. You do great work.
Hi there, this may not be in the domain of the podcast and may relate more to your financial independence series, but would you consider discussing how tax implications relate to your investment evaluation process? I am thinking specifically of the MLP nature of NRP and also weather you choose to invest out of certain tax advantage accounts for certain investments.
Ezra, thanks for reaching out!
As you know, we are not tax experts and we are both below average dudes. So take this with a truck load of salt.
We think about taxes quite a bit. Broadly speaking investment income is taxed less than earned income and so we’ve worked to get most of our income into the investment category while lowering our earned income over time. That said a good return is always the objective regardless of the taxe considerations because the power of compounding can grow the total such that even a large tax bill leaves you with the greatest gain.
On this topic, Buffet concluded that the objective is not to pay the least in taxes but rather to pay the largest tax bill at the lowest marginal rate. Meaning, we want to grow our wealth and passive income by as large an amount as possible even though we’d pay more in taxes than had we stashed the money in cash under the mattress. Don’t pay more than you must in tax but don’t shoot yourself in the foot to avoid taxes either.
More specifically, we do spin-offs and options trading in IRA accounts where we don’t have to worry about short term gains and we avoid K-1 producing companies in those same accounts. In our regular brokerage account we try and stick to long term positions that don’t generate short term capital gains and trading fees.
As you learn about the tax implications on your own finances your ability to spot tax-savvy CEOs also improves which makes you a better investor. This is a nice side benefit.
Hope that helps.
Thank you for the response! That philosophy makes sense and I appreciate the articulation. And thank you for the insight into the IRA vs brokerage strategies.
Btw, the "below average dudes" moniker is quickly losing is validity with each great episode you put out...
Glad it was helpful.