In case no one noticed, we are on a break-out at SJT.
Not that it does me any good except for score keeping. Couldn't sell it now due to taxes. If it pulls back, will just have to console myself with the income.
After thinking about the Royalty Trust tax problem for about 6 months, and analyzing the investment, its huge dividend, and its recapture consequences when the Trust is sold, I have finally come to the conclusion that, except in certain special cases, it is actually better to hold the Royalty Trusts (including the CanRoys) in a 401(k) or in an IRA than in a standard taxable account. Like IC4X has said, if you hold it in a standard account, then you should die with it, because the tax consequences for your heirs are much simpler...IC4X has already explained why. All these Oil & Gas & Coal Royalty Trusts are great investments for the long term.
I came to exactly the opposite conclusion and have shifted as much as possible out of IRA's into personal accounts. I'd be interested in your reasoning but here's mine. With SJT all of the income is essentially already sheltered by the depletion for a considerable time period. Yes that is recaptured if you sell. On the other hand if you own it in an IRA when you inevitably distribute the proceeds to your self it will all get taxes at the highest possible rate(even the cap gains portion which if held outside an IRA would be taxed at approx 1/2 that rate). With Canroys in an IRA you lose all of the 15% withholding(as opposed to approximately half in a personal account). In addition, some of the Canroys shelter a portion of the distribution as ROC(admittedly generally a minority of the yield).
I try to limit my IRA investments to taxable debt and other non qualifying income distributions and positions that I believe I am likely to liquidate within a year.
I'd be interested in your thought process.
The only downside to holding Canroys in a retirement account is that you permanently lose 15% of the dividend to withholding. I, myself, despite that do have Canroys in my IRA. If the yield is over 10% AFTER losing the w.h. and they're only paying out about 65% of earnings, it's still a great deal, plus in this environment there's plenty of appreciation as a bonus.
There have to be a lot of SJT investors out there who would like to take some gains with prices at this level, but who do not want to face the tax problems of the depletion.
Decreased volume in recent weeks indicate that the number of willing sellers is dwindling.
The depletion recapture does not bother me because all of my royalty trusts are in an IRA.
Somewhere along the line here the "greater fool theory" takes place as higher energy prices suck the life out of economic growth and whole sectors of the economy begin to suffer. Rising interest rates are already taking a toll on financials and some reit's and so forgive me please if I suggest that selling some of one's gains here, even if incurring taxes, may not be that bad an idea.
At least set some reasonable downside target from here to do so.
I too have big paper gains on energy positions most of which I acquired like SJT for a reasonable current yield not really expecting the kind of CG I've earned(on paper) the last year or so. While I would hate to lose the gains, my big problem is should I sell what do I do with the after tax proceeds(remember a lot of the profits would go to taxes-best case 20+% and worse case 40%). I would not touch Reits or long term bonds(because of a fear of rising interest rateseven with a weakening economy) and if you are getting out of energy because you think the economy is going to slow down then the equity market is no place to invest in. If all you are left with is money market type returns that's not very attractive. There is no question that if energy prices fall significantly SJT and other energy positions will decrease in market value but I think SJT distributions will still be at a relatively attractive level. In addition, while OPEC has proven that it can not increase supplies sufficiently to prevent substantial increases in energy prices, I know for certain that they can reduce supplies to keep prices at what would historically be considered a very high level(high $40's at least). Now that they know the world economy can clearly sustain prices at that level if not higher why do you think prices will drop lower? (Remember they've only been above $50 for a very short time). I'd love to hear some other suggestions but for now I'm going to continue to hold my positions. I'd appreciate hearing any down side protection methods others are using(I looked into puts on energy put they were too expensive to be a serious option).
You have a right to your opinion. I don't think, however, that a breakout to new highs is the place that I should sell.
I just was watching CNBC with some advisor who wrote a book; he was telling folks to short the oil market here. Wow...of course he might wind up being right and very gutsy, but more likely his followers are going to get run over by an 18 wheeler (oil powered of course).
I tend to take profits when I have some indication that a move is faltering, *not* when it looks like a new move may be just getting started.
<<Somewhere along the line here the "greater fool theory" takes place as higher energy prices suck the life out of economic growth and whole sectors of the economy begin to suffer. Rising interest rates are already taking a toll on financials and some reit's and so forgive me please if I suggest that selling some of one's gains here, even if incurring taxes, may not be that bad an idea.
At least set some reasonable downside target from here to do so. >>
I noticed. I'm pleased.
We could hit $50. at this rate pretty easily I imagine.
At some point the economy is going to say "uncle" though, and that worries me a bit, but meanwhile let's take advantage of good times in the oil patch.