Dip: Selling and buying

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
Marche24
Posts: 10
Joined: Thu Jul 23, 2020 12:01 am

Dip: Selling and buying

Post by Marche24 »

Hi all,

I was on another forum and stumble upon something that caught my attention, but I can't find the post. Anyways is said something that even on a crash selling your shares was a really bad idea due to short capital gains being so high that even if you made some gains it was like a wash.

That got me thinking, wouldn't be better if the market is going down -10% -15% to sell at and buying even lower than just holding and riding the dip all the way down? Can someone shed some knowledge.
FoolMeOnce
Posts: 983
Joined: Mon Apr 24, 2017 11:16 am

Re: Dip: Selling and buying

Post by FoolMeOnce »

Your question isn't entirely clear, but if your position reaches a loss on a dip/crash, you can sell and use the loss to reduce your taxes and reinvest the proceeds in something different. This is called tax loss harvesting.

If your position is still up, if you sell you will owe taxes. Some do this on purpose when they will pay zero or low rates on the gains. This is called tax gain harvesting. It is rarely a good idea to do this with short term gains, which are taxed as ordinary income.
Opibus
Posts: 24
Joined: Tue Dec 10, 2019 1:15 pm

Re: Dip: Selling and buying

Post by Opibus »

What happens if you sell and then just goes back up and it doesn't go lower until the next "crash" six months or a year later? Dollar cost averaging helps avoid this. Tax loss harvesting helps when there are big drops.
pasadena
Posts: 648
Joined: Sat Jul 02, 2016 1:23 am
Location: Washington State

Re: Dip: Selling and buying

Post by pasadena »

In theory. The trick is that you don't know that it will keep going down, nor do you know how far or how long. If you buy sell at the bottom, you lose. And it's much harder to buy back in than people seem to think, in either directions.

That's a discussion I have with my Dad every single time the market dips :oops:
Last edited by pasadena on Fri Sep 04, 2020 5:07 pm, edited 1 time in total.
Topic Author
Marche24
Posts: 10
Joined: Thu Jul 23, 2020 12:01 am

Re: Dip: Selling and buying

Post by Marche24 »

So, option A is a better strategy than B?

A - Don't sell, buy at a discount, wait for rebound. Repeat
B - Sell at a loss (-5%, -10%, whatever it is), buy even lower (assuming it goes -15%, -20%)
langlands
Posts: 569
Joined: Wed Apr 03, 2019 10:05 pm

Re: Dip: Selling and buying

Post by langlands »

Marche24 wrote: Fri Sep 04, 2020 12:45 am So, option A is a better strategy than B?

A - Don't sell, buy at a discount, wait for rebound. Repeat
B - Sell at a loss (-5%, -10%, whatever it is), buy even lower (assuming it goes -15%, -20%)
B is better than A if the capital gains tax incurred from the sale is less than the amount you save by timing the market successfully. The more tax you'll have to pay on selling, the more confident you'll need to be about your timing for B to be a good strategy. So this depends quite a bit on your tax situation. If your investments are short term, what is your ordinary income rate. If long term, how much unrealized gains do you have. Also, of course whether you can actually time the market. Most here are quite skeptical.
ColoRetiredGirl
Posts: 228
Joined: Mon Nov 13, 2017 11:40 pm
Location: Colorado

Re: Dip: Selling and buying

Post by ColoRetiredGirl »

pasadena wrote: Thu Sep 03, 2020 10:35 pm In theory. The trick is that you don't know that it will keep going down, nor do you know how far or how long. If you buy at the bottom, you lose. And it's much harder to buy back in than people seem to think, in either directions.

That's a discussion I have with my Dad every single time the market dips :oops:
Ok, explain it again as if you are talking to your dad…very simple/ maybe with an example. How is buying at the bottom, you lose? If the market goes back up aren’t you a winner? :confused
ososnilknarf
Posts: 80
Joined: Mon Feb 18, 2019 7:08 pm

Re: Dip: Selling and buying

Post by ososnilknarf »

I prefer to not get tricky trying to time the market. Just ride it out, stick to the plan, keep buying regularly. When market is down enjoy the good feeling you get when buying at a lower price. When market is up, enjoy the good feeling that your existing holdings are worth more!
pasadena
Posts: 648
Joined: Sat Jul 02, 2016 1:23 am
Location: Washington State

Re: Dip: Selling and buying

Post by pasadena »

ColoRetiredGirl wrote: Fri Sep 04, 2020 5:00 pm
pasadena wrote: Thu Sep 03, 2020 10:35 pm In theory. The trick is that you don't know that it will keep going down, nor do you know how far or how long. If you buy at the bottom, you lose. And it's much harder to buy back in than people seem to think, in either directions.

That's a discussion I have with my Dad every single time the market dips :oops:
Ok, explain it again as if you are talking to your dad…very simple/ maybe with an example. How is buying at the bottom, you lose? If the market goes back up aren’t you a winner? :confused
Ahah sorry, I meant if you SELL at the bottom, you lose. Corrected my post.
rockstar
Posts: 738
Joined: Mon Feb 03, 2020 6:51 pm

Re: Dip: Selling and buying

Post by rockstar »

Don't fear the tax man.
livesoft
Posts: 73338
Joined: Thu Mar 01, 2007 8:00 pm

Re: Dip: Selling and buying

Post by livesoft »

No taxes on realized capital gains in an IRA, Roth IRA, 401(k), 403(b), HSA, and other tax-advantaged accounts.

But that doesn't mean one should sell and buy willy-nilly.

In a taxable account if one has previously realized capital losses either from carryover from previous years or realized in the current tax year, then those losses can offset realized capital gains including short-term gains (with the proviso that losses get matched to short-short, long-long, leftover to both short and long).

So realize those losses via the idea of tax-loss harvesting and reduce the concerns about taxes.
Wiki This signature message sponsored by sscritic: Learn to fish.
MotoTrojan
Posts: 10659
Joined: Wed Feb 01, 2017 8:39 pm

Re: Dip: Selling and buying

Post by MotoTrojan »

If you know the market is going to keep going down, then I would go a lot further than just selling to rebuy, I would buy options and short the market and become filthy rich.

How do you know when you sell it won't go rocketing up to new highs?

This isn't a tax-question, this is a market-timing question.
rockstar
Posts: 738
Joined: Mon Feb 03, 2020 6:51 pm

Re: Dip: Selling and buying

Post by rockstar »

MotoTrojan wrote: Fri Sep 04, 2020 6:23 pm If you know the market is going to keep going down, then I would go a lot further than just selling to rebuy, I would buy options and short the market and become filthy rich.

How do you know when you sell it won't go rocketing up to new highs?

This isn't a tax-question, this is a market-timing question.
Any time you buy it's a timing question. Are you getting a good deal?
User avatar
firebirdparts
Posts: 1787
Joined: Thu Jun 13, 2019 4:21 pm

Re: Dip: Selling and buying

Post by firebirdparts »

Marche24 wrote: Thu Sep 03, 2020 10:24 pm wouldn't be better if the market is going down -10% -15% to sell at and buying even lower than just holding and riding the dip all the way down? Can someone shed some knowledge.
You're talking from the perspective of a person with a time machine. You can't make it "go down more". If you sell, then it may "go up more". You don't get to decide. You have to take your chances. It's a delusion to think that you know what's coming next. Delusions are fun, but it's hard to make money off them.

for Pete's sake, look at it now. the pandemic wiped out 10% of the jobs and people are buying tech stocks with P/E's of 1000. Did you predict that in April? I hope so. You just never know what people are going to do. You invest as if you don't know what people are going to do.
A fool and your money are soon partners
ColoRetiredGirl
Posts: 228
Joined: Mon Nov 13, 2017 11:40 pm
Location: Colorado

Re: Dip: Selling and buying

Post by ColoRetiredGirl »

pasadena wrote: Fri Sep 04, 2020 5:07 pm
ColoRetiredGirl wrote: Fri Sep 04, 2020 5:00 pm
pasadena wrote: Thu Sep 03, 2020 10:35 pm In theory. The trick is that you don't know that it will keep going down, nor do you know how far or how long. If you buy at the bottom, you lose. And it's much harder to buy back in than people seem to think, in either directions.

That's a discussion I have with my Dad every single time the market dips :oops:
Ok, explain it again as if you are talking to your dad…very simple/ maybe with an example. How is buying at the bottom, you lose? If the market goes back up aren’t you a winner? :confused
Ahah sorry, I meant if you SELL at the bottom, you lose. Corrected my post.
That I understand! Whew ! Thanks
User avatar
willthrill81
Posts: 20903
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Dip: Selling and buying

Post by willthrill81 »

Marche24 wrote: Thu Sep 03, 2020 10:24 pm I was on another forum and stumble upon something that caught my attention, but I can't find the post. Anyways is said something that even on a crash selling your shares was a really bad idea due to short capital gains being so high that even if you made some gains it was like a wash.
Shares, in and of themselves, do not matter. They only matter so far as your investment in a stock, mutual fund, or ETF is equal to the number of shares you own multiplied by the share price. Arguments built around maximizing the number of shares you own are, at best, no better than focusing on the total dollar value of your investment and, at worst, can lead to very spurious conclusions. One of these spurious conclusions is the idea that your capital is fully represented by the number of shares you own, leading the investor to refuse to ever sell a share in the withdrawal phase (i.e. the 'live off dividends' notion).
Marche24 wrote: Thu Sep 03, 2020 10:24 pm That got me thinking, wouldn't be better if the market is going down -10% -15% to sell at and buying even lower than just holding and riding the dip all the way down? Can someone shed some knowledge.
If you knew or at least had strong evidence to suggest that the market would continue to fall in price, then absolutely, you would come out ahead by selling for one price and later buying at a lower price. This is referred to as market timing. It's possible to do so, but it's not recommended for most investors to pursue such a strategy. Most of the time, the price at which you buy back in will be higher than the price at which you sold, which is referred to as a whipsaw. These can be compensated by occasionally buying back in at a significantly lower price than which you sold, but it's very difficult for most investors to experience lots of 'small losses' while waiting, potentially many years, for a 'big win'. Loss aversion is one of the reasons for this difficulty.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
danaht
Posts: 630
Joined: Sun Oct 18, 2015 11:28 am

Re: Dip: Selling and buying

Post by danaht »

A lot of people correctly time the sale - but forget to buy back - and then the market is already up 80%. They also miss all the dividends and compounding over that time. It's more advisable to not try to time it.
Last edited by danaht on Sat Sep 05, 2020 6:30 pm, edited 1 time in total.
FoolMeOnce
Posts: 983
Joined: Mon Apr 24, 2017 11:16 am

Re: Dip: Selling and buying

Post by FoolMeOnce »

Marche24 wrote: Fri Sep 04, 2020 12:45 am So, option A is a better strategy than B?

A - Don't sell, buy at a discount, wait for rebound. Repeat
B - Sell at a loss (-5%, -10%, whatever it is), buy even lower (assuming it goes -15%, -20%)
B is market timing, not really tax loss harvesting as people traditionally discuss it. When you sell to harvest the loss (providing a current-year tax benefit), you should immediately buy back into a different fund that still fits your goals. So you don't wait to buy even lower, you just move your money from one holding to another and then claim the loss on your taxes.

This assumes the loss is in a taxable account. Read the wiki on tax loss harvesting to learn about substantially similar funds, good TLH partners, and wash sales.
Samosa22
Posts: 63
Joined: Tue Dec 31, 2019 10:51 am

Re: Dip: Selling and buying

Post by Samosa22 »

Marche24 wrote: Thu Sep 03, 2020 10:24 pm ....wouldn't be better if the market is going down -10% -15% to sell at and buying even lower...
Of course its better. I tried it myself in the Coronavirus sell off. My motivation was greed, not fear. I sold VTI (Vanguard Total US Market ETF) around $115 per share and promised myself to start buying back @$100/share OR will go all in at $140/share. The good thing is I kept my promise. The bad thing? It never went to $100.
Lesson learned from 2008 financial crisis: "In the fury of the final hour, all correlations went to 1".
Post Reply