Rooting for stock to go down to sell?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
markcoop
Posts: 1516
Joined: Fri Mar 02, 2007 7:36 am

Rooting for stock to go down to sell?

Post by markcoop »

If you own individual stocks that you'd prefer not to have (assume you acquired the stock pre-boglehead days), but still want that money invested in stocks (say, TSM), I seem to be conflicted as to what I prefer to happen. If I have a negative cost basis, then I can sell, take the tax loss, and then buy what I really want to own. Seems like the best of all worlds. However, that also seems ridiculous. I should want it to shoot up and sell it for a large gain. Now if the stock is moving in lock-step with TSM and both are down, then it makes sense. But stocks rarely move in lock step with TSM. Of course, I shouldn't be rooting for something to happen and just invest as I see fit.
Mark
barnaclebob
Posts: 5586
Joined: Thu Aug 09, 2012 10:54 am

Re: Rooting for stock to go down to sell?

Post by barnaclebob »

If the following assumptions are true:

All stocks will generally go up on average
You intend to hold what you want to buy until retirement
Your tax bracket will be lower in retirement
You are relatively far from retirement
You have no other tax situations that could cause your tax bracket to go down in the interim

Then you want to sell ASAP so that you have less of a tax hit now prior to your tax bracket going down in retirement.

If you donate to charity and your particular charity accepts securities then you can donate the appreciated shares instead of after tax cash to get an extra tax incentive.
Last edited by barnaclebob on Fri Feb 13, 2015 9:29 am, edited 2 times in total.
User avatar
cheese_breath
Posts: 11786
Joined: Wed Sep 14, 2011 7:08 pm

Re: Rooting for stock to go down to sell?

Post by cheese_breath »

Let's say a stock's basis is $5, and it's worth has increased to $10. Would you rather wait until it went back to $5, and lose the $5 gain? That leaves $5 in your pocket. Or would you rather sell at $10 and pay taxes on the gain? Guaranteed that will leave you with more than $5 in your pocket.

Or let's say you wait until the stock has dropped to $4 before you sell. That leaves you with $4 in your pocket and a $1 loss for tax purposes. However, the loss doesn't reduce your taxes by a whole dollar, only a percentage depending on what tax bracket you're in.

But realistically you have no way of knowing which way the stock will move. If you want to be in TSM (a good choice IMO) sell the stock and buy TSM.
The surest way to know the future is when it becomes the past.
User avatar
cheese_breath
Posts: 11786
Joined: Wed Sep 14, 2011 7:08 pm

Re: Rooting for stock to go down to sell?

Post by cheese_breath »

barnaclebob wrote:If the following assumptions are true:

All stocks will generally go up on average
You intend to hold what you want to buy until retirement
Your tax bracket will be lower in retirement
You are relatively far from retirement
You have no other tax situations that could cause your tax bracket to go down in the interim
You do not donate money to charity

Then you want to sell ASAP so that you have less of a tax hit now prior to your tax bracket going down in retirement.

If you donate to charity and your particular charity accepts securities then you can donate the appreciated shares instead of after tax cash to get an extra tax incentive.
Glad you started with the qualifier "If" and added "on average" because not all stocks go up. Some will go down. Some will go to zero. OP needs to keep this in mind.
The surest way to know the future is when it becomes the past.
red5
Posts: 798
Joined: Sun Apr 01, 2012 4:42 pm

Re: Rooting for stock to go down to sell?

Post by red5 »

markcoop wrote:If you own individual stocks that you'd prefer not to have (assume you acquired the stock pre-boglehead days), but still want that money invested in stocks (say, TSM), I seem to be conflicted as to what I prefer to happen. If I have a negative cost basis, then I can sell, take the tax loss, and then buy what I really want to own. Seems like the best of all worlds. However, that also seems ridiculous. I should want it to shoot up and sell it for a large gain. Now if the stock is moving in lock-step with TSM and both are down, then it makes sense. But stocks rarely move in lock step with TSM. Of course, I shouldn't be rooting for something to happen and just invest as I see fit.
There is some sense to it and it is not ridiculous. In essence you want to remain in the stock market (except for that short period of time in between sale and purchase) while trying to postpone any significant tax from a sale. That's not ridiculous because you want to stay in the market. If you were planning on taking this money out of the market then yes, you should want the market to go way up.

I would analyze what kind of tax hit you would take with the sale of the stock today. I would not "expect" it to occur that the market will dip in order for you to be able to make this transaction without a tax hit. The market could go up and up, or it might not. No one knows.
DTSC
Posts: 1194
Joined: Mon Oct 20, 2008 9:47 am
Location: Illinois

Re: Rooting for stock to go down to sell?

Post by DTSC »

Why would anyone *ever* wish to lose money or stock value? Having to pay tax, as long as it's not 100%, is always a good thing as it means you made at least some money.
randomguy
Posts: 11295
Joined: Wed Sep 17, 2014 9:00 am

Re: Rooting for stock to go down to sell?

Post by randomguy »

cheese_breath wrote:Let's say a stock's basis is $5, and it's worth has increased to $10. Would you rather wait until it went back to $5, and lose the $5 gain? That leaves $5 in your pocket. Or would you rather sell at $10 and pay taxes on the gain? Guaranteed that will leave you with more than $5 in your pocket.

Or let's say you wait until the stock has dropped to $4 before you sell. That leaves you with $4 in your pocket and a $1 loss for tax purposes. However, the loss doesn't reduce your taxes by a whole dollar, only a percentage depending on what tax bracket you're in.

But realistically you have no way of knowing which way the stock will move. If you want to be in TSM (a good choice IMO) sell the stock and buy TSM.
Imagine you sell at 10, invest 9.0 in TSM (because you paid taxes) and then the market drops 50%. Are you happier with 5 in TSM (cost basis 5) or 4.5 in TSM (cost basis 9)? But yeah sell the stock and move on. If it is a huge position feel free to do it over a couple of transactions if it makes you feel better.
User avatar
Sheepdog
Posts: 5783
Joined: Tue Feb 27, 2007 2:05 pm
Location: Indiana, retired 1998 at age 65

Re: Rooting for stock to go down to sell?

Post by Sheepdog »

If you will ever have to live off of your savings, you will not root for stock to go down. At least, I would not.
Last edited by Sheepdog on Fri Feb 13, 2015 9:44 am, edited 1 time in total.
Unless you try to do something beyond what you have already mastered you will never grow. (Ralph Waldo Emerson)
User avatar
cheese_breath
Posts: 11786
Joined: Wed Sep 14, 2011 7:08 pm

Re: Rooting for stock to go down to sell?

Post by cheese_breath »

Tax loss harvesting can be a wise move in down markets. But rooting for a down market so you can lose a dollar to save a fraction of a dollar in taxes doesn't seem wise IMHO.
The surest way to know the future is when it becomes the past.
User avatar
midareff
Posts: 7711
Joined: Mon Nov 29, 2010 9:43 am
Location: Biscayne Bay, South Florida

Re: Rooting for stock to go down to sell?

Post by midareff »

markcoop wrote:If you own individual stocks that you'd prefer not to have (assume you acquired the stock pre-boglehead days), but still want that money invested in stocks (say, TSM), I seem to be conflicted as to what I prefer to happen. If I have a negative cost basis, then I can sell, take the tax loss, and then buy what I really want to own. Seems like the best of all worlds. However, that also seems ridiculous. I should want it to shoot up and sell it for a large gain. Now if the stock is moving in lock-step with TSM and both are down, then it makes sense. But stocks rarely move in lock step with TSM. Of course, I shouldn't be rooting for something to happen and just invest as I see fit.

LOL, paying capital gains tax should be a joyous event. Being in the market is about making money, not making losses. Make your change and if the market tanks you can always harvest a loss and switch to something similar but not like enough (for the IRS) later.
User avatar
cheese_breath
Posts: 11786
Joined: Wed Sep 14, 2011 7:08 pm

Re: Rooting for stock to go down to sell?

Post by cheese_breath »

And just to add, although I'm sure you already know, moving out of your individual stocks into something like TSM reduces your risk.
The surest way to know the future is when it becomes the past.
kolea
Posts: 1322
Joined: Fri Jul 11, 2014 5:30 pm
Location: Maui and Columbia River Gorge

Re: Rooting for stock to go down to sell?

Post by kolea »

I am also converting stocks from my pre-BH days into VTI. I have lots of cap gains on those positions and just sell a few each year to spread out the LTCG hit. Because the cap gains are large, I am in danger of being subject to IRS rules regarding minimum tax pre-payments. So what I try to do is sell at the end of the year, otherwise I have to make a pre-payment which of course is dead money at that point. The IRS has rules on income pre-payments when the income is unevenly distributed in the year. Here is the form to use for that:
http://www.irs.gov/pub/irs-pdf/f2210.pdf

BTW, I never root for anything to go down.
Kolea (pron. ko-lay-uh). Golden plover.
Topic Author
markcoop
Posts: 1516
Joined: Fri Mar 02, 2007 7:36 am

Re: Rooting for stock to go down to sell?

Post by markcoop »

Thanks for the replies. I agree with everything said. And of course I don't really want the market to go down to have a loss. Let me present this a different way. Imagine the following cases:
1) Stock currently at a loss - no problem selling it and buying TSM.
2) Stock at or close to break even - Again, no problem selling it and buying TSM.
3) Stock at a gain - Willing to sell it but not as enthusiastic as (1) and (2).

I find it an odd behavioral reason as to why I'm more enthusiastic in cases (1) and (2). I think the hating to pay capital gains tax clouds the judgement of what's better overall. If I generalize this a bit, it makes me wonder how often I make a wrong decision because of a strong hate. Not looking for answers here, just noting an observation.
Mark
User avatar
cheese_breath
Posts: 11786
Joined: Wed Sep 14, 2011 7:08 pm

Re: Rooting for stock to go down to sell?

Post by cheese_breath »

markcoop wrote:Thanks for the replies. I agree with everything said. And of course I don't really want the market to go down to have a loss. Let me present this a different way. Imagine the following cases:
1) Stock currently at a loss - no problem selling it and buying TSM.
2) Stock at or close to break even - Again, no problem selling it and buying TSM.
3) Stock at a gain - Willing to sell it but not as enthusiastic as (1) and (2).

I find it an odd behavioral reason as to why I'm more enthusiastic in cases (1) and (2). I think the hating to pay capital gains tax clouds the judgement of what's better overall. If I generalize this a bit, it makes me wonder how often I make a wrong decision because of a strong hate. Not looking for answers here, just noting an observation.
Nobody likes paying taxes, but don't let the tail wag the dog. Before I was a Boglehead I got burned because I wanted to wait until January of the next year to sell some stock to support my living expenses. The stock tanked before then and I had to sell a lot more than if I sold earlier.
The surest way to know the future is when it becomes the past.
User avatar
saltycaper
Posts: 2650
Joined: Thu Apr 24, 2014 8:47 pm
Location: The Tower

Re: Rooting for stock to go down to sell?

Post by saltycaper »

markcoop wrote:However, that also seems ridiculous.
It is. I don't think it ever makes sense to want the market to drop unless you are deliberately sitting on a pile of cash and thinking you will time your way in (not recommended).
Quod vitae sectabor iter?
itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 11:17 am
Location: midValley OR

Re: Rooting for stock to go down to sell?

Post by itstoomuch »

Yes, I think I need a year of -10% or 2 years of 0% growth to make our GLWB contracts to be "in-the-money" .
I need the cash flow for a used farm tractor. :annoyed
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
User avatar
ERMD
Posts: 291
Joined: Thu Dec 26, 2013 10:26 am

Re: Rooting for stock to go down to sell?

Post by ERMD »

rooting for a stock to go down so you can sell and tax loss harvest is like rooting for someone to hit you on the head with a hammer, because it's going to feel so good when the pain starts to go away.
between scotch and nothing, i'll take scotch. -- faulkner
jebmke
Posts: 25475
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Rooting for stock to go down to sell?

Post by jebmke »

Is there any evidence that rooting for stocks to move one way or another influences the outcome?
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
cherijoh
Posts: 6591
Joined: Tue Feb 20, 2007 3:49 pm
Location: Charlotte NC

Re: Rooting for stock to go down to sell?

Post by cherijoh »

red5 wrote:
markcoop wrote:If you own individual stocks that you'd prefer not to have (assume you acquired the stock pre-boglehead days), but still want that money invested in stocks (say, TSM), I seem to be conflicted as to what I prefer to happen. If I have a negative cost basis, then I can sell, take the tax loss, and then buy what I really want to own. Seems like the best of all worlds. However, that also seems ridiculous. I should want it to shoot up and sell it for a large gain. Now if the stock is moving in lock-step with TSM and both are down, then it makes sense. But stocks rarely move in lock step with TSM. Of course, I shouldn't be rooting for something to happen and just invest as I see fit.
There is some sense to it and it is not ridiculous. In essence you want to remain in the stock market (except for that short period of time in between sale and purchase) while trying to postpone any significant tax from a sale. That's not ridiculous because you want to stay in the market. If you were planning on taking this money out of the market then yes, you should want the market to go way up.

I would analyze what kind of tax hit you would take with the sale of the stock today. I would not "expect" it to occur that the market will dip in order for you to be able to make this transaction without a tax hit. The market could go up and up, or it might not. No one knows.
I didn't own any individual stocks, but I did have some higher ER actively-managed no-load mutual funds in my taxable account before I became a Boglehead. A low income year corresponded with the stock market swoon of 2008, so I was quite happy to sell the mutual funds at a much smaller capital gain and immediately reinvest in TSM. I was able to get some gains at 0% tax rate and the rest at 15%.

In this case, I was comfortable that these mutual funds had a pretty high correlation with the stock market as a whole. I'm not sure I'd be willing to wait for the inevitable market pull back to sell individual stocks though.
User avatar
Dutch
Posts: 1277
Joined: Thu Jun 27, 2013 2:12 pm

Re: Rooting for stock to go down to sell?

Post by Dutch »

I'm rooting for stocks to go down to buy.
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: Rooting for stock to go down to sell?

Post by grabiner »

Another thing you can do with stocks that you want to sell but that would be expensive to sell is to donate them to charity. If you are going to donate $10,000 to a charity, donating $10,000 of stock which you bought for $5000 more than a year ago will normally give you the full $10,000 deduction, with no capital-gains tax due on the $5000 gain.
Wiki David Grabiner
red5
Posts: 798
Joined: Sun Apr 01, 2012 4:42 pm

Re: Rooting for stock to go down to sell?

Post by red5 »

cherijoh wrote: I'm not sure I'd be willing to wait for the inevitable market pull back to sell individual stocks though.
Nor would I. I went through the same experience the OP is going through now. I chose not to wait for some future drop and it helped that the cap gains I had were not significant.
The Wizard
Posts: 13356
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Rooting for stock to go down to sell?

Post by The Wizard »

In general, one makes money in stocks by buying low and selling high.
Minimizing taxes by having individual stocks go bust is not a sustainable strategy...
Attempted new signature...
Post Reply