QUICK STRESS TEST
This is quite stupid, of course, but kind of fun.
SONY – NO BALONEY
Craig: ‘Looks like Barron’s has picked up the ‘Sony is a good value play line’ this week. Of course, your readers picked some up at $24.75 several weeks ago.’
☞ Click here to see the Barron’s story if you have an on-line subscription to the Wall Street Journal. With SNE now up 34% in 10 weeks, the question becomes whether to take a quick profit. I’m holding mine, but claim no special knowledge.
TAKE LOSSES AND GAINS IN SEPARATE TAX YEARS?
Jim Batterson: ‘This is just an idea and I thought I would run it past you. In the past, if I had, say, a $3000 capital gain, then I would look for a $3000 capital loss that I could take in the same year to offset it. That seemed to make sense. But now, say I’m in the top bracket, 35% or whatever it is, and I have both a $3000 capital gain and a $3000 capital loss, both unrealized. Doesn’t it make sense for me to take the $3000 loss this year, reducing my (35% taxable) ordinary income by $3000, and taking my capital gain next year, taxable at 15%? Instead of netting the two out and paying zero taxes, I’m saving $1050 the first year and paying $450 the second year, saving $600. This just seems too easy.’
☞ No, this is exactly right, and can be helpful to some folks. Note, though, that the favorable long-term capital gains rate applies only to assets held more than a year. And that it’s generally a mistake to let the tax tail wag the investment dog. By waiting to take the gain, you could see it disappear – or turn into a loss. Or, if you took the gain this year, delaying the loss to next year, that loss could grow wider.
Of course, it would be odd if you always guessed wrong about these things – that would be something of a talent in and of itself. Rather, over time, your decisions would probably even out. Sometimes, waiting til January to sell would cost you money, as the stock fell in the meantime; other times, it would actually improve your results, as the stock rose.
So it certainly makes sense to be aware of this strategy in the latter months of the year . . . but, I think, not to be so tickled by having discovered it that you wind up selling a stock you might do better holding – or holding a stock you might do better selling.
Perhaps a final thing to note is that to folks in the 35% tax bracket, $600 every couple of years is not that big a deal. They may routinely be trading in larger size, facing gains and losses of $15,000 or $50,000, say – all the more reason not to base decisions too much on that $600. Most people, by contrast, are in lower tax brackets – even after factoring in their state income tax – so for them, the advantage of this strategy shrinks or may even disappear.
Tomorrow – I’m almost sure of it – Crazy Hospital Charges