“Well, CGT is going to get triggered eventually, so better at 20% than your 45% marginal rate when the next Government gets in”, I mumbled
But that aside, let me tell you a story..
In the first year of my career, there was a little company growing like a weed in the South African sun – Macadams
It wasn’t tech. It wasn’t media. They manufactured large industrial ovens
Franchises were all the rage because sanctions meant none of the international franchisors could operate in SA, so we started our own
O’Hagans Irish pub chain,
Debonair Pizzas,
Spur (sit down) burgers
Steers take-aways
and don’t forget
Nando’s peri-peri chicken – oh yes, Nando’s started in South Africa !
Pie shops were also popular because pies can be profitable – the quality of ingredients is hidden from sight so you can boost the margins with more mushrooms, less chicken. More kidney, less “steak”
You could get heavy handed on the gravy and the thick cut pastry. And what’s the cost of a few peas and carrots?
Pies use lots of electricity, but that was plentiful and cheap back then when “loadshedding” was your diet after eating too many pies…
Of course pie shops need ovens so Macadams’ sales “rose” accordingly – tripling in four years with earnings per share growing seven fold
and then came new “growth drivers” – exports to China & pie shop expansion through Africa
Imaginations went wild – these new “avenues of growth” required a larger factory and extra columns in Excel (or was it Lotus123?)
+30% p/a forever – had there been rocket emojis, they would have launched
One of the employees at the company I worked for, owned shares in Macadams which he’d bought for pennies and his unrealised profits had risen faster than shortcrust pastry at 180 deg
“Why don’t you sell?”, I asked
“Pies; sorry share prices don’t rise forever” (I like to think), I said
“The factory is running at full capacity and getting new factories up to speed is easier in spreadsheets than reality“
“I will in six months” he replied, because by then I’ll have owned the share for five years and I won’t have to pay any Capital Gains Tax” (those were the rules back then)
But then the recession hit
and the factory expansion stumbled
and the new ERP system bugged
and maybe people figured out the pies were just peas, carrots and the odd kidney, in lots of gravy
Because it was as though someone opened the share price door midway through a bake causing it to “flop” -90% in 5 months – from R18.61 to R2.45
and along with it, ALL my colleague’s Capital Gains
Of course he never had to pay any tax, but I’m sure he wished he had
So maybe focus more on the 80% of the gains you get to keep
than the 20% you have to pay
Especially since it’s NOT ONLY your gains at risk
but your Capital too