Distressed Investing Blog

George Putnam, one of the country's leading turnaround and distressed investing professionals, shares his timely insight on the economy and turnaround investing opportunities.

Tax Loss Selling/Year-End Bounce

Year-End Bounce Candidates: Losers Become Winners (At Least For A While)

Excerpted from December 2012 Issue

December 11, 2012

Most of the time, our investment newsletter advises taking a long-term view and focusing on stocks where the underlying business fundamentals are turning around. However, around this time of year it is worth considering a shorter-term strategy based more on the quirks of the calendar--and the tax law--than on business fundamentals.

Every year around this time we see certain stocks get pushed down by artificial selling pressure. That pressure is removed after year-end, often causing those stocks to pop up nicely. The artificial selling pressure comes from two sources: tax-loss selling and portfolio window dressing.

Late in the calendar many investors begin thinking about their tax bill. This causes them to sell losing stock positions to realize capital losses that can be used to offset other gains that they may have. Around the same time, many professional portfolio managers begin worrying about their year-end reports to clients. They would rather not have their losing stocks show up in those annual reports, and so they sell the offending positions to get them out of the portfolio before it is memorialized at the end of the year.

The new year brings a clean slate with respect to both tax and reporting issues. When the artificial selling pressure stops, many of the previous year’s dogs jump up and suddenly become investor darlings--at least for a while. Ultimately, longer-term fundamentals will drive the prices of these stocks, but you can often make good money from this year-end bounce pattern.

For example, a year ago the ten year-end bounce candidates that we identified in the December 2011 issue significantly outperformed the S&P 500 through January. The outperformance narrowed, but was still meaningful, through the end of March. But by November the poor fundamental results from several companies on the list had dragged the group’s performance below the S&P’s. This is similar to the strong short-term performance (and weaker long-term performance) that we saw from the year-end bounce candidates that we identified in December 2010.

 Given the good performance of our year-end bounce stocks for the last two years, this year we are following the same stock-picking formula. The turnaround investing bounce candidates detailed in our full December 2012 article represent the worst performers in the S&P 500 over the first 11 months of 2012. Subscribe now (or log in if already a subscriber) to find out which 12 stocks you should consider adding to your portfolio right now for potential year-end bounce stock profit.

 

Read More Distressed Investing Blog Entries

  

    

  

 

 

Profit from The Turnaround Letter's...

  • Market-Beating Investment Results
  • 27+ Years of Turnaround Experience
  • Diverse Stock Picks for Today's Unpredictable Market

Distressed Investing Blog

Distressed Investing Blog

How Will the Recall Issue Affect GM Stock?

Because General Motors is currently the subject of many negative headlines arising from a significant recall relating to ignition switches, we wondered what long-term effect the recall would have on GM’s stock. Our best guess is “very little.” Read More.

Top Stock Picks for 2014

sample turnaround newsletter

 

 

Give your portfolio a boost with this FREE stock report!

 

The stock market continues to be ripe with great turnaround investment opportunities: the picks from last year’s report gained an average of 96%.

Current Total Returns

 

Value Stock Profit

Total returns cover the fulll year 2013.

Note: Returns are not adjusted for inflation.

 

Read More.

Sample Issue

TL Spotlight

 

Value Stock Picks

 

MoneyShow.com named George's stock pick top performer for all of 2013 and shared this feature interview to update investors on MTG's status and highlight select year-end bounce candidates.

 

Learn more.