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Higher capital gains rates looming in the wings are making it easy for investors to sell...

Higher capital gains rates looming in the wings are making it easy for investors to sell equities for a profit - but that move's not for everyone, Jason Zweig notes: Most of the time, the longer you can keep the taxman away, the better. As always, it's all about your investment horizon. If you're getting 8% a year, the capital gains rate doesn't top 23.8% and you're in for five years, you may as well hold, one analyst says.
Comments (12)
  • bearfund
    , contributor
    Comments (1534) | Send Message
     
    The problem with selling stocks is that after you've sold your stocks, you still have the same problem you had before you bought them.
    17 Nov 2012, 11:41 AM Reply Like
  • untrusting investor
    , contributor
    Comments (9934) | Send Message
     
    bear,
    Why is selling them a problem if you are planning buying them back again at lower prices?
    17 Nov 2012, 11:57 AM Reply Like
  • Tack
    , contributor
    Comments (13280) | Send Message
     
    Bear & UI:

     

    This week is an abject lesson in what the problem is for very many, probably most, people who sell:

     

    Wednesday saw mass panic selling in many yield issues that, of late, have attracted, not only their usual adherents, but many newbies in search of yield. BDC's, REIT's, yield-oriented ETF's all sold off furiously on volumes levels that in some cases exceeded ten times normal and saw prices in some cases fall more than 10% in a single day.

     

    Then, after a rather quiescent day Thursday, these same issues went to the moon on Friday, many recovering all their losses, some even more. It was an astounding day for these sectors, which were up massively, even at the market's nadir for the day.

     

    Now, I am sure there are a handful of clever traders and some of the long-time sector adherents that played this swing masterfully and reduced their cost basis on roundtrip trades and/or netted a quick profit. But, I'd bet there are far, far more folks, who having panicked out on Wednesday were still catching their breath when these same issues left them behind.

     

    Now, as bearfund suggests, those sitting in cash see their favorite issues at significantly higher prices than they just sold them. Now, they sit "yieldless," wondering whether to buy them back at higher prices than they just sold them or to wait and hope that they come back to them, when they may only run further away, creating an even bigger dilemma.

     

    For anybody wanting or needing income, speculating by oscillating between cash positions is a very perilous game, and one which only the most decisive investor can even attempt.
    17 Nov 2012, 12:15 PM Reply Like
  • The Fox
    , contributor
    Comments (645) | Send Message
     
    Bingo!!! Bearfund hit the nail on the head....
    17 Nov 2012, 06:01 PM Reply Like
  • wyostocks
    , contributor
    Comments (7873) | Send Message
     
    I guess the old strategy of buying low and selling high is dead.
    17 Nov 2012, 01:57 PM Reply Like
  • J Mintzmyer
    , contributor
    Comments (3659) | Send Message
     
    Seems really silly to sell your stocks out due to capital gains increases... Bearfund nails it on the head.... So what, are you gonna buy T-bills or CDs now? Senseless trading imo unless you have massive gains over many years...
    17 Nov 2012, 02:14 PM Reply Like
  • Tack
    , contributor
    Comments (13280) | Send Message
     
    J:

     

    In fact, the larger the gains are, the worse it may be to sell. Think of it this way:

     

    If one looks at one's portfolio as an "income engine," then, by selling, one immediately reduces one's invested principal by (at minimum) 15% of the capital gains. The larger the proportion of the portfolio represented by capital gains, the larger will be the reduction in remaining capital after taxes are deducted. Now, the investor has less money to generate income, as previously.

     

    It's precisely why trading and investment compounding is so much more advantageous in tax-free accounts because the remaining principal is not constantly reduced by rounds of taxation.

     

    The only reason to sell positions is if the issue in question no longer represents good value/risk versus other choices. Selling and buying back, merely to accelerate forward a slightly better tax rate, is a losing proposition.
    17 Nov 2012, 02:22 PM Reply Like
  • Ray Merola
    , contributor
    Comments (3304) | Send Message
     
    Having invested for some 30 years, a couple of thoughts went through my head after reading this news:

     

    1) Do not fear the tax man. Manage your investments essentially the same way regardless of prospective tax or political situations. While I am aware of tax issues and potential changes, I don't let them drive my decisions. Ever.

     

    2) It impossible to beat the market by "trading" it. Even arrogant. What are the chances of a person consistently outsmarting everyone else when every trade needs someone on the other side? What knowledge does the Trader have that trumps thousands of other people trying to do exactly the same thing?

     

    On the other hand, an Investor has a real chance to outperform the market. He / she studies data to find undervalued securities: well-managed, dividend paying, cash flow positive companies that have been neglected by Mr. Market. They are watched closely and held until they reach full valuation, or a reversion to the mean.

     

    I suggest that Benjamin Graham had it right.
    17 Nov 2012, 07:05 PM Reply Like
  • PrescottNasser
    , contributor
    Comments (3) | Send Message
     
    For long term investors who have considerable capital appreciation, I would think selling and waiting out the wash rule to re-buy would be a great strategy.
    18 Nov 2012, 02:30 PM Reply Like
  • Tack
    , contributor
    Comments (13280) | Send Message
     
    Pres:

     

    If compounding reinvested dividends is the strategy to build a durable long-term income engine, then, taking early capital reductions, via tax payments, is not a productive strategy unless one is able to rebuy the same securities at at a price that is at least as low as the sale price, reduced by the taxes paid per share. And, by needing to wait 30 days to rebuy, one is subject to entirely unpredictable market vagaries, which may see prices run higher in the interim. The chances of coming out better are rather slim.

     

    The best strategy, especially for long-term holdings, is to do precisely nothing.
    18 Nov 2012, 02:36 PM Reply Like
  • bearfund
    , contributor
    Comments (1534) | Send Message
     
    Moreover, changes in the capital gains tax rate mean exactly nothing if your plan did not already include selling your holdings.
    18 Nov 2012, 03:16 PM Reply Like
  • alsobirdman
    , contributor
    Comments (369) | Send Message
     
    Exactly, Tack. Which is why I did nothing last week other than buy a few of my favorite Oil and Gas stocks that got hammered in the panic. Unless something fundamentally has changed with the company, I never panic-sell. I only add more. Of course that is for my long-term holdings. I still have my favorites to play with.
    19 Nov 2012, 07:40 PM Reply Like
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