Sell Your Losers?

“I would be interested in your thoughts on selling a losing stock. One where you don’t expect the loss to turn around for, say, at least a year. Is it best to sell and write off the loss or hang on and keep the paper loss from becoming real? I am assuming here that you don’t need the money for the near term.”

Gosh. I didn’t think anybody but me had any losers these days.

Well, one thing you can do is sell it now, for a tax loss; then wait 31 days and buy it back. (You have to wait 31 days or the I.R.S. will deem your sale-and-repurchase a “wash sale” and disallow the loss.)

At a deep discounter, the cost of selling-and-buying-back would be negligible, though the “spread” between bid and asked could cost much more, especially if the stock is illiquid. Not to mention that the stock just might zoom in those intervening 31 days, to spite you, making it expensive to buy back. (So another tack is to buy the extra shares first, doubling up, wait 31 days and then sell your original shares for the loss. The risk with that, of course, is that the stock could keep falling and you’ll now lose twice as much as it does.)

The presumption in either case is that you think this stock represents a really good value at today’s price. Otherwise, why not just sell it and buy one that you think does? (Or, if you can’t find a really good value, just sit on the sidelines for a while?)

One other alternative: Stop trying to beat the averages by doing this yourself and buy shares, instead, in low-expense no-load mutual funds. Most of them won’t beat the averages, either; but at least they’ll save you time.