<h3>By Michael Osteen</h3>
As the old saying by Benjamin Franklin goes, “In this world nothing can be said to be certain, except death and taxes.” &nbsp;

At the least, equity investors should be aware of some of the tax rules and how they pertain to your investments. &nbsp;

The concept is simple. When you trade stocks and have a gain you are vulnerable to capital gains tax. The key is to understand how those capital gains are treated in regards to the types of accounts that are available. &nbsp;

Generally speaking, you can break them down into two basic categories: those stock trades within a tax-deferred account and those in a regular brokerage account.&nbsp;

Tax deferred accounts like Individual Retirement (IRAs), Simplified Employment Pension (SEPs) and Self-Directed Rollover IRAs, to name a few, allow you to defer paying the capital gains tax until you make withdrawals. &nbsp;

The advantage is when you start withdrawing you are taxed at the rate of your income tax bracket which typically is lower since you are retired and no longer working. This enables the total principle and the gains to compound and grow in the account over time. &nbsp;

The power of compounding has been best summed up by Albert Einstein, who said, “Compound interest is the eighth wonder of the world.&nbsp; He who understands it, earns it … he who doesn’t … pays it.” &nbsp;

Also, with these you don’t have to be concerned with the usual tax implications when making stock trades provided you keep the funds inside the account.&nbsp;

Regular brokerage accounts are offered by many firms today like Vanguard, Scottrade and many others allow you to trade various types of investment vehicles including common shares of stock. &nbsp;

These accounts are subject to short-term and long-term capital gains taxes when a capital gain is realized.

Be sure you understand the impact on your trades in this situation. In general the difference between the short-term and long-term tax rate can be about 13 percent or more depending on specifies.&nbsp;

Thus when you think of the long-term effects of compounding on reduced income taxes incurred today, you begin to see the advantage of holding your stock positions for over a year and longer.&nbsp;

For us at Port Wren Capital, as value investment researchers, we always look towards the long-term horizon.&nbsp;

It offers investors many advantages not only in taxes and compounding, but in creating value. &nbsp;

Effectively, the strategy of value investments are buying a company that is selling below its intrinsic value today and waiting for Mr. Market to recognize its true value and knowing that value in created in the long-term and not in the short-term. &nbsp;

As described by Morgan Housel, a former columnist at The Motley Fool and The Wall Street Journal, “… value is ultimately created in the long run.&nbsp;

"That’s where scale takes off and compounding works its magic – over years and decades, not months and weeks. The key is recognizing that the long run is just a collection of short runs, and capturing long-term growth means managing the short run effectively enough to ensure you can stick around for the long time.” &nbsp;

Based on my experience, typically, and naturally there are numerous variables involved, expect a minimum of about two years before Mr. Market starts to discover an undervalued company. &nbsp;

Be sure to speak with your tax advisor who is the experts on taxes, before this year’s filing deadline of April 18. &nbsp;

To find out more about setting up brokerage trading accounts and value investing research, just email me.&nbsp;

<i>Michael Osteen, MBA, is chief investment strategist with Port Wren Capital LLC with a 252 percent 3-year total gain (36.04 percent annualized) performance using independent value investment research.&nbsp;</i>

<i>Email him at michael@portwrencapital.com.</i>