Steve Bujenovic: “What to do now. I bought 100 shares of a large funeral service company called Service Corp. (SRV) two years ago at $35/share and now the stock is $2.50. (How this company failed I still can not understand because the last I checked people are still dying in record numbers.) Question: Should I admit defeat, sell and collect my $250 or keep my pride and stick it out? (I try not to think about the $3200 already lost.)”

Knowing nothing about the company – but assuming you bought this stock in your own taxable account, not an IRA — I’ll tell you what I often do in situations like this. I’m not saying it’s smart, but it’s what I do. I’d buy another 100 shares, wait 31 days to satisfy the IRS’s “wash sale” rule, then sell the first 100 shares for a tax loss.

You will be left with a $3200 tax loss that could chop your tax bill several hundred dollars.

If SRV goes to zero, you’ve lost $3,500 instead of $3,200 – pretty much the same thing. But if it should gradually recover — and especially if you tucked away 200 or 300 shares as tax-selling later this year drove it down even further – then a few years from now, you might have recouped your loss.

Is this rational? Only slightly. But on the remote chance the stock does do well, you will not feel like killing yourself (and becoming an SRV customer) for having bought at the top and sold at the bottom.

 

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