Yes, I’m still alive, thanks for caring.
We’re in the middle of November and this is the time every year when it’s time to start making some important decisions on your stocks. Things get really wonky this time of year for no good reason than other people trying to cover their asses, so let’s take a look at what factors cause these next few weeks to be important in your decision making.
1) All of the funds are going to stop buying. Yep, they’re done. They have huge, huge gains this year. You think they’re going to risk that 20% gain to get 21%? Hell no. They are going to take their profits now and sit on the cash until January 1st. This will allow them to print all sorts of snazzy little fliers that say, “We doubled the market!” The funds selling off shares to keep profit will drive the stocks down.
2) Recession is coming. If you don’t see this, you must live in a cave. Our dollar is worth nothing, foreclosures are through the roof and only increasing. There are 800 houses in Foreclosure in my zip code alone. Do you know how insane that is? No one will qualify for loans, no one will be able to pay for the $4 a gallon of gas that’s coming. Things are looking bleak for the future and the worst part is, the government knows it, but they keep lowering the rates to try to delay the implosion until after the elections. Lowering the rate will make things worse. Even the French government recently said that they needed to lower rates to hurt the value of their own currency. If the French know lowering rates are bad, we’re in trouble.
3) Taxes. Here’s what you usually have to think about in years where we don’t have huge gains. Do I sell now and how does that affect my taxes? Well, here’s something to think about. If you have some big gains to write off, now is probably a good time to sell off your loser stocks. You can get a little write off against the gains. Though, in the long run, if those loser stocks have good potential, it may be in your best interest to keep them long-term. That’s up to you.
The big benefit for traders who know what their doing this time of year is delayed taxes. What if I told you you could sell your stock and not pay taxes for 16 months on it? That’s what happens if you wait a bit and sell in January of 2008. You wouldn’t have to pay the taxes on that gain until April of 2009. If you sold in December, your taxes would be do in 4 months, April 2008.
I use the January strategy a lot for stocks with big gains. I can then use those gains for 16 months to create more income, rather than paying 15-30% in taxes with the gains right off the bat. Now, I must say, this is a bit risky because the taxes WILL come due and you’ll have to have the cash to pay them, so maybe take 30% of your gain and throw it in a dividend paying ETF Index (DVY or SPY or MDY are ones I use.) This should at least lower your risk with your tax money.
The other important thing is to have PLENTY of cash for the first week in January to buy the stocks that drop due to people taking their profits this way. I would say 60% of my stock purchases for the last 5 years have taken place in the first week of January taking advantage of the profit sell-offs. Be ready for that!
Otherwise, I’d start thinking about moving your cash to ETF’s, Index funds or something else less risky for awhile. Individual stocks are getting hammered and I think that will continue to happen, especially if stores come out with poor black Friday sales. If you’re in retail stocks, next Saturday could be a very bad day for you.
Invest in peace….