Selling Losers

An email I sent to a few of my dearest friends:

Most of my emails regarding my stock trading/investing have been focus around my winnings and superb picks.  As with all portfolios, mine contains a few losers as well.  This newsletter will be focused on them; how did I get to this point and what are the potential next steps.

I picked up ENER (Solar Manufacturing Company) and BWEN (Wind Power Manufacturing and Servicing Company) during the 1st and 2nd quarter of 2010.  Several reasons and expectations help me arrive to the decision to buy (including but not limited to):

• Reputable Yahoo Forums Poster recommended these two stocks; and he did so for a good period of time
• He made the right calls on the stock that he and I were holding at the time TNK
• He also made the right calls on other stocks
• I did research and it confirmed/was in line with the information and analysis he provided

I probably had some initial paper profits but they quickly evaporated.  I researched (as well as the Yahoo Poster) some more and determined that this would be an even better time to buy since it dropped some more.  That turns out to be not the case... And in hind sight; it was pretty foolish of me to buy another stock he recommended (that bet ended badly as well).

So now that I have these losers, what should I do?

• Hold them until I am back in the green?
• Sell them?

I think I gave it away since this is an article about selling losers and I think I've held them long enough and do not see them returning any time soon (Opportunity Cost).  Currently I have a combined paper loss of about $6500 on these two stocks.  Uncle Sam allows you to cancel out your gains with your losses; and as a kicker, Uncle Sam also allows you to deduct up to $3000/year towards your Income Tax (you can also carry forward losses if it is more than $3000).

I've set Good Till Cancel orders for the initial positions for these two stocks at a price slightly higher than the current price.

Let this serve as a cautionary tale; it is possible to lose money even though your research says otherwise and even if the pick comes from a reputable person.

However, remember what I ended with the last article:  With investing, it is not necessarily important to call it right all of the time; it is calling it right more often than not and being able to make money from it.  The decision ultimately comes down to you and with each decision comes a lesson (with profit [hopefully] or heartache).

In this case, there is a lot of heartache. LOL

Reference Materials

http://www.investopedia.com/terms/t/taxgainlossharvesting.asp

http://www.bogleheads.org/wiki/Tax_Loss_Harvesting