Jay writes: “I have been in stocks for 7-8 years now. Earlier I was in options also, but after a year learned my lesson. (Enough said there.) I have been pretty good in stocks with moderate gains and very few losses. I don’t invest for long, and usually get out after a moderate gain (i.e. holding for 1 month to 6 months). I usually pick stocks after researching; by that I mean finding out what exactly they do, their p/e ratio, debt, cash they have, how well they have been doing earning-wise, etc.
“Recently, I had been hearing news on these Internet stocks, that how they have been doing really good. Their returns were great. And so, I wanted a piece of those returns. So, in late April I bought couple a of stocks: PVTR ($5.25)- PIVOT RULES – building a new online store to sell golf apparel, and TRAC – TRACK DATA CORP(for $8). The day I bought, they came out with the good news of going online, etc. So, then I waited for my quick returns. (Mind you, this was the first time I did this.) Today PVTR is at 2 1/16 and TRAC is at 4 13/32. I hold about 300 shares of PVTR and 125 shares of TRAC. Given a choice now, I would NOT invest or shouldn’t have invested in those companies. My question to you is, is it a good idea to hold these till they go back up or should I get out and save the rest of my money? Also, these web board messages are so confusing. All these people post on those messages and they at times can influence those decisions also. (I personally look at yahoo message boards for individual stocks).
“I am 27 years old with a wife going through college and not earning, so I don’t have that much cash to begin with. Usually, I am invested 100% and i.e. about $10,000.
“Give me your advice on those 2 stocks. Thank you!”
I know nothing about these stocks. If you’ve analyzed their prospects and believe they’re great companies, hold them or buy more. Or find other stocks you think represent great value and sell these to get the tax loss. (Your losses will cancel out taxable gains. Any excess losses up to $3,000 can be written off against your ordinary income each year, with the balance carried over.) But, Jay, I think you’re pitting your skills against some very savvy players by investing the way you do – and handicapping yourself badly by adopting a strategy of selling quickly. All your gains will be subject to ordinary income tax (both state and federal). Better to find investments you believe in for the long term and let them grow tax-deferred – or at least until you qualify for long-term capital gains rates. (I suppose if you’re in a very low tax bracket, this part doesn’t much matter – yet. But as you prosper, it will, so keep it in mind.)