J. Bakke: ‘My retirement account is a shambles. It’s all my fault, of course. It holds Apple (down 69%) AT&T (down 58%) and Barnes&Noble.com (down 71% — yeah, I know, this one’s my fault entirely), among others. There are also some diversified funds that have done fine, so I’m not a complete fool. (Thanks for recommending Tweedy Browne in your book, it’s my core IRA holding and has gained slowly but steadily this year.) Also, I had nice gains in Sun, EMC and Oracle, which I took earlier in the year, so it hasn’t been a complete wipeout.
‘There’s obviously no tax advantage to taking the losses. (I took losses in my taxable account already for tax purposes.) I have seen the light, learned my lesson, and will stick to diversified funds, indexes even, in the future. Well, mostly anyhow.
‘So here’s the question. I know I should swallow hard and sell off a lot of these losing positions and put the money where I’d rather have it. But human nature is making it tough. Is there some silver-lining way of looking at this to push me over the edge, eat some of these losses magnanimously and move on?’
☞ You mean, buy high, sell low? It may be the smart thing to sell AT&T now that it’s down from 61 to 18, but if I were you, I wouldn’t be able to do it, either. I’d hold them all for a while, not least because they may be coming under some year-end tax-selling pressure.
Craig: ‘My generous mother gave my brother and I each 200 shares of Broadcom today, for Xmas. Today – my first day of ownership – those shares dropped 14% in one day!!!! It’s horrible, but I couldn’t exactly feel as grateful as I should have, because of today’s result. How horrible of me. But why did the shares have to drop 14% in one effing day!!!’
Craig the next day: ‘I wept to you yesterday how a gift of Broadcom stock went down 14% the day it was given to me. This morning it’s gone up about the same amount it dropped yesterday! (same with IBM stock I own). Watching these vacillating stocks whip up and down makes me feel like a manic-depressive!!!!!!’
☞ Watching is a very bad way to invest. Figure out whether you want to hold the stock, and why, and then largely forget about it. Otherwise, sell it and invest in something you DO want to hold for the long term.
Mark McMillion: ‘If a company’s value is based on the projected stream of dividends (although I do realize that there are other methods of valuation, like hope, for dot-coms), then shouldn’t AT&T’s market cap drop considerably following their 83% dividend cut?’
☞ Well, first, as you suggest, not everyone spends a lot of time trying to figure out the present value of a company’s future stream of dividends. Second, as you know, the market anticipates. Built in to AT&T’s market cap, down by more than two-thirds in the last few months, was a lot of negative expectation. Finally, the projected stream of dividends goes out many years. AT&T hasn’t necessarily cut all future dividends by 83%. Some may think that, in a year or three, the dividend will be restored. (Others may think AT&T will be acquired by one of the Baby Bells.)
John Ebert: ‘Is it too late to sell some of my tech losers (LU, JDSU, AOL, MSFT) for a deduction on my 2000 taxes?’
☞ Legally, no. But often there is a January bounce, so I wouldn’t necessarily rush to sell ‘at any cost’ to get the tax benefit, as so many are doing these last days of the year.
‘ . . . And do you think these will all be significantly higher 31 days from now when I can buy back in? Should I be buying more of these now instead of thinking about selling?’
☞ No clue. Why not sell the two with the biggest loss, double up on the other two. Then in 31 days reverse. Unless you’re unlucky, you should roughly net out market effect.