Page 1 of 1

Sell IBM? Am I timing the market?

Posted: Sun Dec 23, 2018 7:44 am
by fedbogle
Hi All,

Since I switched to a Bogleheads portfolio, I have been wanting to sell some IBM stock I've had for a while. I wanted to have capital losses to offset the gains. Now I should have enough (although they are short-term losses, but I don't think that matters).

But IBM has crashed recently. I'm convinced not to time the market with index funds, but is it any different for one stock? Any other reason not to sell IBM right now?

Thanks in advance,
Fedbogle

Re: Sell IBM? Am I timing the market?

Posted: Sun Dec 23, 2018 7:54 am
by aristotelian
You could have sold any time after Jan 1 to get the tax loss. Why didn't you? Nobody here has any inside info on IBM so I don't see what type of advice you are seeking. It may go up or it may go down. The current market price should be a fair approximation of its value.

Re: Sell IBM? Am I timing the market?

Posted: Sun Dec 23, 2018 8:29 am
by Valuethinker
fedbogle wrote: Sun Dec 23, 2018 7:44 am Hi All,

Since I switched to a Bogleheads portfolio, I have been wanting to sell some IBM stock I've had for a while. I wanted to have capital losses to offset the gains. Now I should have enough (although they are short-term losses, but I don't think that matters).

But IBM has crashed recently. I'm convinced not to time the market with index funds, but is it any different for one stock? Any other reason not to sell IBM right now?

Thanks in advance,
Fedbogle
The actual monetary asset you have in your hands is the capital loss, allowable for taxes.

Everything else is just either sunk cost (what you paid for it) or unsubstantiated (and unforecastable) assumptions about "recovery". Vaporware in effect.

IBM is strategically in a mess, and has a lot of problems. The stock has been highly financially engineered, borrowing money to finance share buybacks to create EPS growth. That's why Warren Buffett bought it, and it was a mistake*.

I am old enough to remember when the threat to IBM seemed existential (1992). Since then I have watched its recovery and its gradual fading towards irrelevance. Oracle faced the same fate, but made a series of giant acquisitions to lock in its enterprise software customer base (Peoplesoft etc.). There will always be mainframes so there will always be an IBM but it absolutely failed to seize either the first wave of the internet (perhaps they could have bought Netscape?) or the second (or third) of search, social media etc. AWS was invented at Amazon, the iphone at Apple, not at IBM etc.

I would sell the thing *now* and get that tax asset. Waiting for recovery? It may never come.

* arguably Buffett was blinded by his friendship with Bill Gates. Perhaps, if he had not known Gates personally so well, he might have realized that Microsoft was sitting on a gold mine which could be milked almost forever - the archetype of the "wide moat" created by the Windows + Office monopolies. The "strategy penalty" (the internal name for it) at Microsoft around Balmer's obsession with beating Apple and various internet ventures (none of which has been successful AFAIK - Bing anyone?**) was eventually eliminated by the new CEO and the company has continued to grow cash flow and earnings at a steady rate. Very Berkshire Hathaway.

** they nearly bought Yahoo for $45bn. Gives you an idea.

Re: Sell IBM? Am I timing the market?

Posted: Sun Dec 23, 2018 9:11 am
by fedbogle
Valuethinker wrote: Sun Dec 23, 2018 8:29 am
fedbogle wrote: Sun Dec 23, 2018 7:44 am Hi All,

Since I switched to a Bogleheads portfolio, I have been wanting to sell some IBM stock I've had for a while. I wanted to have capital losses to offset the gains. Now I should have enough (although they are short-term losses, but I don't think that matters).

But IBM has crashed recently. I'm convinced not to time the market with index funds, but is it any different for one stock? Any other reason not to sell IBM right now?

Thanks in advance,
Fedbogle
The actual monetary asset you have in your hands is the capital loss, allowable for taxes.

Everything else is just either sunk cost (what you paid for it) or unsubstantiated (and unforecastable) assumptions about "recovery". Vaporware in effect.

IBM is strategically in a mess, and has a lot of problems. The stock has been highly financially engineered, borrowing money to finance share buybacks to create EPS growth. That's why Warren Buffett bought it, and it was a mistake*.

I am old enough to remember when the threat to IBM seemed existential (1992). Since then I have watched its recovery and its gradual fading towards irrelevance. Oracle faced the same fate, but made a series of giant acquisitions to lock in its enterprise software customer base (Peoplesoft etc.). There will always be mainframes so there will always be an IBM but it absolutely failed to seize either the first wave of the internet (perhaps they could have bought Netscape?) or the second (or third) of search, social media etc. AWS was invented at Amazon, the iphone at Apple, not at IBM etc.

I would sell the thing *now* and get that tax asset. Waiting for recovery? It may never come.

* arguably Buffett was blinded by his friendship with Bill Gates. Perhaps, if he had not known Gates personally so well, he might have realized that Microsoft was sitting on a gold mine which could be milked almost forever - the archetype of the "wide moat" created by the Windows + Office monopolies. The "strategy penalty" (the internal name for it) at Microsoft around Balmer's obsession with beating Apple and various internet ventures (none of which has been successful AFAIK - Bing anyone?**) was eventually eliminated by the new CEO and the company has continued to grow cash flow and earnings at a steady rate. Very Berkshire Hathaway.

** they nearly bought Yahoo for $45bn. Gives you an idea.
Thanks for the thoughtful response.

Sorry though, my post was misleading. To clarify, I have a capital gain on IBM (I have had it since the early 2000s). Now from TLH, I have a loss to offset the gain.

I think I should trust the market valuation and get rid of it, just wanted to make sure I wasn't missing anything.

Re: Sell IBM? Am I timing the market?

Posted: Sun Dec 23, 2018 9:12 am
by fedbogle
aristotelian wrote: Sun Dec 23, 2018 7:54 am You could have sold any time after Jan 1 to get the tax loss. Why didn't you? Nobody here has any inside info on IBM so I don't see what type of advice you are seeking. It may go up or it may go down. The current market price should be a fair approximation of its value.
Thanks for the thoughtful response.

Sorry though, my post was misleading. To clarify, I have a capital gain on IBM (I have had it since the early 2000s). Now from TLH, I have a loss to offset the gain.

I think I should trust the market valuation and get rid of it, just wanted to make sure I wasn't missing anything.

Re: Sell IBM? Am I timing the market?

Posted: Sun Dec 23, 2018 9:20 am
by 3funder
My father used to work for IBM. He was a brand CFO, so he definitely has good insight. Gerstner bought the company 20 years, but Palmisano and his crew arrived more than fashionably late to the cloud computing party and engaged in buybacks to juice EPS metrics (I'm not sure why, as any analyst who knows how to do his/her job can see right through it). Ginny Rometty is trying her best, but the task before her remains a difficult one. Sell the stock if you'd like.

Re: Sell IBM? Am I timing the market?

Posted: Sun Dec 23, 2018 9:27 am
by JW-Retired
fedbogle wrote: Sun Dec 23, 2018 9:12 am Sorry though, my post was misleading. To clarify, I have a capital gain on IBM (I have had it since the early 2000s). Now from TLH, I have a loss to offset the gain.

I think I should trust the market valuation and get rid of it, just wanted to make sure I wasn't missing anything.
You usually don't need "a loss to offset the gain." If you don't have a loss it will offset your wage or other income (up to $3k/year). Often that offsets a higher tax rate.

If you have a loss already perhaps consider waiting until after January 1 to sell IBM?
JW

Re: Sell IBM? Am I timing the market?

Posted: Sun Dec 23, 2018 11:40 am
by aristotelian
You could always sell gradually. I agree with above, if you have losses currently you could deduct that this year and then begin selling IBM in Jan 2019.

Re: Sell IBM? Am I timing the market?

Posted: Sun Dec 23, 2018 11:55 am
by bertilak
I would not call it marked timing. You (presumably) bought IBM because you liked the company's prospects. If you no longer like those prospects, sell. That's stock picking -- all part of active investing. It is reasonable to take into account tax consequences.

Re: Sell IBM? Am I timing the market?

Posted: Sun Dec 23, 2018 12:04 pm
by drk
fedbogle wrote: Sun Dec 23, 2018 9:12 am Sorry though, my post was misleading. To clarify, I have a capital gain on IBM (I have had it since the early 2000s). Now from TLH, I have a loss to offset the gain.

I think I should trust the market valuation and get rid of it, just wanted to make sure I wasn't missing anything.
I would sell it and consider myself lucky. You've done better than most GE investors out there!

For what it's worth, looking at its higher valuations and wanting to wait for it to get back there in order to sell is an example of anchoring.

Re: Sell IBM? Am I timing the market?

Posted: Mon Dec 24, 2018 12:01 am
by bb
I wouldn't walk to the exits - I would run.

Generally one train of thought is if you didn't own it already would you be a buyer today - if the answer is no then sell.

Watson seems like a bust. They don't seem to be a leader in the cloud business. It is not clear to me even if IBM was a leader in emerging businesses if they wouldn't have lower margins than their historical businesses.

Re: Sell IBM? Am I timing the market?

Posted: Mon Dec 24, 2018 12:33 am
by beyou
I have 30+ years of experience in IT. Early in my career I remember cocky IBM salesmen coming by regularly to see my boss at a major bank. Then one day we moved to #2, DEC. Years later I tried to hire their consulting division to help with integration of IBM mf with Sun unix tech. They had no clue and could not help at all.

I see them as a has been in the industry, and for a very long time. I dont see why anyone would be a buy/hold investor in IBM. Unfortunately my index funds gives me exposure, but I am not going back to stock picking again.