Yesterday during our morning meeting Steve brought up an interesting point and I couldn’t resist writing a blog post about it. In fact, this is not the first time I have heard about it and it bothers me quite a bit.<\/p>\n
For some odd reason long-term investors do not believe in taking profits. I can understand not taking profits because of greed, as they think the stock could go higher, but I don’t get not taking a sale because they don’t want to pay taxes on their profits. That has got to be the silliest thing I have ever heard.<\/p>\n
In case you need me to do the math for you here is an example. Let’s assume you or someone you know is long 10k of XXX from $1 and after a long long time of holding that position the stock is at $81. In the chart the stock just looks absolutely vertical and is screaming at you to sell your position. Unfortunately, you don’t sell your position because you don’t want to pay taxes on the gain and three months later the stock trades at $5 (they were cooking the books; work with me here). Should you have sold and paid your taxes on the gain,\u00a0assuming\u00a0you paid 50% on taxes, you still would have had $400k in your bank account (10k *$80 gain =$800k -400k in taxes=$400k). Now, if you were still holding your dopey position you would be 40k in the money or if you really need me to rub it in a bit more that’s only $20k after taxes. I don’t know about you but 400k definitely look better in my bank account compared to just 20k.<\/p>\n
Yes, I know this is a ridiculous\u00a0hypothetical\u2014or is it? Ask around. I bet you will be able to find a better real-life example. I would actually give the example we mentioned yesterday but I am not sure this person would appreciate me calling him out on his\u00a0silliness\u00a0in this blog post. Just know that the numbers are substantially larger. What a rip!<\/p>\n
Interestingly enough, you can find a similar behavior from some intraday traders. There are some traders that do not take their sales for a handful of reasons: 1. the stock turned and they are wrong and they don’t want to take the loss; 2. The stock has not reached their target and the stock is turning (it will come back, they hope); 3. The stock reached their target but it looks like it could go much higher. Oh boy, what a mistake that is. Seriously, if the stock looks like a sale hit the bids and re-evaluate your position.<\/p>\n
Repeat after me: If the stock looks like a sale, or your reason for being in the stock is no longer there, or the stock is turning and it never reached your target, please take the sale. A sale is a sale. Put that money in your pocket. Period!<\/p>\n","protected":false},"excerpt":{"rendered":"