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Making the most of tax loss selling


As we approach the end of the financial year, don’t put off selling the chronic under-performers that are weighing you and your investment portfolio down.

We are coming into the end of the financial year. This is a good time to assess your capital gains tax situation for the year so far and work out if you have a net capital gain from stocks sold. If so, you should also be looking through the portfolio for any stocks with losses attached that you could sell and crystallise a loss to offset paying any tax on the gains.

You know the stocks, those crappy little holdings you didn’t sell when it was obvious you should sell. Those stocks that you shut your eyes to and hoped against hope they would rebound miraculously … but they kept falling. Those stocks. Those small illiquid cock-ups that shout “Idiot, idiot!” every time you see them in your ‘portfolio’. All those short term trades that became long term ‘investments’. Yes them … the crap.

Now is the time to think about selling them, especially the illiquid ones because by the time everyone else wakes up to their capital gains tax situation in the last two weeks of June these stocks will have been pumped already making your emotional turmoil even harder to squeeze a trade out of. So better you assess and sell now before the bloodbath starts, which it does every year, in every small trading stock that has gone down this year.

Selection is personal

I have had an email asking which stocks are likely to be most affected by tax loss selling, From your point of view, it is simply which stocks are in your portfolio, have not performed well this year and are small and illiquid and likely to get sold off by tax loss sellers. There are no ‘good’ stocks to take a loss on generally … just your own stocks. The stocks to sell are staring you in the face.

I could print you a list of the worst performers this year but it wouldn’t help. It’s personal. What do you hold that you could sell and what do you hold that other people will sell?

The only ‘game’ to play here is as a trader buying stocks that are small illiquid bad performers if they have been pummelled running into the last week of June. Stocks that are trading favourites always have a lot of stale holders. They are killed in June and often resurrect in July. There’s a trade in there for the brave.

Hints for taking a loss

It is one of the hardest things for a broker to convince himself, let alone a novice trader, to take a loss. So to help with the process we have developed arguments to persuade you (they don’t seem to work on ourselves). If you are having trouble taking a loss, not enjoying your trading, are getting emotional and the stock is still in your possession … read this list. You will put the sell order on before you get to the end:

Hopefully you hold good long term stocks and won’t have to take a loss, but when you do, read this again and see if you can get to the bottom of the list before you have put on the order to sell.

About the author
Marcus Padley is a stockbroker and founder of the Marcus Today share market newsletter. He has been advising institutional clients and a private client base for over 32 years.
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