Thursday, March 13, 2008

When Tax Selling Makes Sense

1--You buy a stock--highly recommended by analysts, in an industry you think has a bright future--and it takes a bloodbath. You're not sure what to do. Among other factors to consider: Could you deduct the loss? I bought Valero recently; it started plummeting, and I didn't know why. Susan Byrne of the Westwood funds once told me that if a stock she bought does poorly, she sells it, figuring other people know something she doesn't. VLO has continued to fall. Too bad there isn't a word for the pleasure you get from selling a stock for a loss before it falls even further.

2--I once bought a Royce fund--at the wrong time. I sustained a sizable loss. I sold it, and used the money to buy another, different Royce fund--several of them are very similar. Worked out nicely. I ate my cake and had it. I have a loss on Wintergreen right now, and I plan to sell it and buy a similar fund.

Here are some large value funds that are (a) very good (b) no load and (c) have similar R squareds. (I have losses in the first two.) You could sell any for a loss and buy confidently buy one of the others.

Fund R squared

Dodge & Cox Stock 82
Excelsior V and R 78
MainStay ICAP Sel Eq 83
GAMCO Westwood 84

3. People who never sell to harvest tax losses are subsidizing those of us who do--by paying taxes that they could easily have avoided.

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