Any time you encounter an investment concept that you have never heard of before, you can be pretty sure that it exists for at least one of the three reasons: (1) tax minimization; (2) marketability; or (3) liability. The use of the holding company structure is no different. A holding company is an investment tool of the wealthy that is useful if you want to lower taxes, transfer assets easier, or avoid liability.
For instance, let us that over the course of your life, you become one of those secret millionaires in Quincy, Florida that makes a lifelong fortune by investing in Coca-Cola stock. By the time you are middle-aged, you find yourself owning 10,000 shares of KO that pays out $14,000 in dividends every year.
Rather than reinvest directly into more KO shares, you decide that you want to buy a duplex to diversify and start collecting rental … Read the rest of this article!
In the investment arena of oil and natural gas partnerships, you see a lot of general partnerships crop up in areas that are being drilled (particularly Texas). You might wonder: Why don’t these people form limited partnerships so that they can shield their personal assets from liability in the event that an oil well has a massive tort or contract fallout?
The answer is that there is an extremely lucrative tax deduction called the “income of intangible drilling costs (IDCs) that enables general partnership investors with working interests in oil and natural gas ventures to deduct all of the income that comes from intangible drilling costs. You can also become eligible for this tax deduction if you agree to become a general partner without a working interest, but this comes with the humongous risk of subjecting your household’s balance sheet to personal liability arising from issues with your oil and … Read the rest of this article!
Paychex, Inc. is a payroll processor for 605,000 businesses in the United States and Germany that have between 10 and 200 employees. It is on the short list of stocks with excellent investment characteristics that I have yet to cover on the site. Since 1990, PAYX stock has created enormous wealth for its shareholders by compounding at a rate of 21.2% annualized—on par with the compounding rates of Warren Buffett at his best. If you invested $10,000 into PAYX back then, you would have $1.6 million today.
The investment thesis for Paychex relies on two factors:
Paychex has a remarkably stable customer base.
Paychex has extreme profit margins that have stood the generational test of time.
Low PAYX Customer Turnover, Steady Profit Base
The nature of payroll processing is such that Paychex only has a customer turnover rate of 0.8% each year. This makes intuitive sense. … Read the rest of this article!