Investment—Profiting from Tax-Loss Selling
One style of investment approach for a hedge fund manager is to find and profit from tax-loss losers during November and December and riding them through January . Tax Loss Selling Tax loss selling takes many poorly performing stocks to even more extreme lows nearly every year during the late fall: Mutual funds must realize such losses by October 31 st Others have until December 31 st However, in many cases these stocks represent business under significant duress . Aside from a moderate January bump as selling pressure is alleviated and as stockholders once again buy into these stocks, one would not expect such despised stocks to truly reflect, in short-run, any realization of longer-term or hidden value . Figure 1. After tax-loss selling in December, S&P500 recovered a bit in January. But, it fell even deeper in March (Source: Yahoo Finance) Caveats During bear markets, sometimes stocks bought amidst the vicious sell-off of mid-December were no ma...