fact by arguing that since he still holds the stock he bought 20
points higher, he has sustained no loss. (It's only a paper loss.)
That's being as realistic as a bald man, carrying a picture of his
high school head of hair, going into the barbershop for a shampoo. It
just isn't there anymore.
If you bought 100 shares at 35 and the stock is now selling at 20, you
are NOW out $1,500, plus commissions, and no amount of wishful
thinking can disguise that fact. The loss may be in a stock you should
have never bought in the first place. Or it may be in a stock which
once made sense but no longer suits your investment needs. Or it may
even be in a stock you'd like to continue owning, and should. It seems
that there is little argument about taking such losses in tune to
reduce your income tax bill. By "in time," of course, is meant a sale
anytime before the close of the stock market on Dec. 31.
And a sale it must be. Far too many investors think they can continue
to hold shares which have fallen in price and still claim a tax loss,
Not so. You may have bought stock in a "pie-in-the-sky" nursing home,
or restaurant or leisure products company when you felt you could
afford to take the risk. And it didn't work out. Now is the time to
face that fact.
Not only can the year-end tax loss maneuver help you reduce the income
tax bite but it can serve as a period of much-needed portfolio review,
prompted by the fact that if admitting one's mistakes is in itself a
virtue, the good to be derived can also spill over into an actual cash
savings. Of course, the loss may be in an investment grade stock which
did suit your needs when you bought it and, as a matter of fact, still
Many fine motor, utility, oil stocks, for example, remain investment
grade, still pay generous dividends, even at lower market prices. Even
so, if the tax loss can be helpful, consideration should be given to
taking that loss now even if you intend to (and, perhaps, should)
repurchase the stock after the required 31-day, waiting interval. Or
if, in order to retain an uninterrupted investment, you buy an
additional amount of the stock now and sell the shares on which you
have a loss 31 days later — BUT before Dec. 31.
The main point to be made here is that NOW is the time for a candid
review of the loss securities you hold. Try be honest with yourself in
answering: Was this stock a mistake in the first place? What really
are its chances of ever coming back? Even if I still like the stock
and am hopeful, shouldn't I take the tax loss by either buying more
stock now and selling out the original block after 31 days — or
selling now and buying back after 31 days?
It is a custom to adopt constructive resolutions for the New Year. In
investing, it is almost obligatory to take a long, hard, realistic
look at your portfolio losses — in time to recoup some of the money,
the stock market has taken away from you in recent months and years.