The Market Timing of Citizen Saverin

When Eduardo Saverin gave up his U.S. Citizenship in September 2011 — and subsequent discovery thereof in April 2012 — he insisted the move did not have to do with taxation.   He would owe an exit tax on the value of the holdings as of the time of the renunication however.

According to (a neat interactive graph at) Second Market, Facebook was trading at $31.66/share in September.  Assuming he was obliged for 15% of the value (his cost basis being trivial), that would put $4.75 of his stake due to be taxed (whether California would get its 10.3% cut as well is another question)

Facebook now trades at $19.  With 2.14 billion shares outstanding and Saverin’s stake in IPO documents filed with the SEC at 53 million shares he would not be a 5% owner and may have sold in the window that just opened.

Assuming the entire stake was sold around $20 it’s hard to have “hard feelings” about netting 1.5 billion or so after tax (given earlier sales) but certainly isn’t the citizenship-dumping haul he may have been hoping for with the appreciation he had expected and looked to benefit from by Singapore citizenship.  The haul from Facebook may appreciate with other securities, in a zero capital gain environment but surely not what he hoped for.

The IPO debacle that has been Facebook is probably overstated — had they gone public as a midcap, then surged and then had a 50% retracement it would be akin to many other large cap tech stocks.  But Saverin’s renunciation was the original sin of the IPO process.

There remains the intriguing schadenfreude, that Saverin did not sell, and sits with the looming tax bill waiting for the stock to “bounce back” but it does not.  Are his shares among the 1.2 billion looming in December instead?  Clearly one of the most transformative companies of our era, Facebook doesn’t deserve a single digit stock price to punish one disloyal citizen, but if it were to happen and hold there it would be a deliciously cold revenge to see both the gains and his citizenship wiped out.

Large Cap Tech LEAPS on August 31

The following is a list of the current base prices of AAPL, GOOG, MSFT and a few others for comparison including a possibly interesting play with HPQ as well followed by various January 2014 calls.

The mathematical dissection of which options have the best value compared to expected volatility I don’t think gives much of an incremental advantage in selection.  I’ve chosen for example 100 point increments in the strike prices of similarly priced GOOG and AAPL which demonstrates a bit more expected volatility in Apple than Google.

Apple, Google and Microsoft are in the very unusual situation of having immensely strong technological positions and insane amounts of cash.  Hewlett Packard anyone else with a scent of exposure to the PC market (DELL obviously) is also trading at historically low P/E ratios.  It is hard to imagine situations outside the more dire macroeconomic scenarios where both of these companies emerge as big losers (though a re-elected Obama administration that steps up taxation and doesn’t enable a repatriation of foreign cash holdings is sufficiently dire for them to wildly appreciate.)  The asymetric upside is good growth and increasing P/Es could lead to one or both doubling.

Of the three I would feel most comfortable with GOOG as a buy-and-forget play now which is of course an option.  Their market lock in feels strongest with the most innovative (most productive?  We’ll see) R&D and promising new fields to come.

One another play would simply be to get NASDAQ 100 calls.  The grossly undervalued large caps included the above named as well as CSCO and QCOM add up to approximately 50% of the index, though you get BIDU and WYNN and other plays that are not as salient to the thesis: do you feel lonely in the QQQ, Kraft Foods?   There are a number of companies in the index such as Amazon (3.5% of the index and IMHO grossly overvalued) The QQQ closed at 68.16 today; this idea train has already left the station this year but probably plenty of track ahead:

Chart for PowerShares QQQ (QQQ)

This looks a touch ahead of itself going into a volatile September; still, QQQ Jan 14 LEAPS now:

70 – 5.92

80 – 2.29

90 – 0.63

100 – 0.13

This strategy would have fallen short in companies like Microsoft and Oracle and others in the lost decade of stocks 2002-2012 but as the economy generally picks up and if Europe were to return from the brink would pay off big.  For my current positions short S&P if there is a steep downturn in September I would pull the trigger on a strategy such as this.

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