It can be a difficult process. Investors don’t want to succumb to emotion, but it may be time to part with laggards. Selling losers is a time-tested strategy—and you can always buy them back in the new year.
This is a stock-trading story. And stock trading can be difficult to understand. It’s even more difficult to make a living at it. The ranks of traditional Wall Street traders who execute orders for institutional clients are dwindling as machines take over.
That’s why value investors try to look over the long term, taking trading fluctuations out of the return equation. It might seem like folly to trade around positions, but there are a few instances when getting aggressive makes sense.
“Sell losers [is] obviously always a theme,” one veteran brokerage trader tells Barron’s. “Check mutual fund year-end dates. Not everyone is on a December calendar, and that tends to spread out the impact of that trade a bit.”
Individual investors have a Dec. 31 year-end. That’s why selling losers makes sense for one big fundamental reason: taxes. Investors can harvest losses to gain a deduction used to offset any short-term or long-term capital gains. Investors need to be out of a position for 30 days to qualify for the benefit. (And they can’t have acquired the stock in the 30 days before the sale.)
Still, the market is supposed to be efficient. Arbitrary calendar dates shouldn’t matter. Except they do. People build their lives around calendars. After all, New Year’s resolutions are a thing,…