I have had clients who own volatile stocks such as RIMM, BIDU, CSCO, GOOG and the new Winner for 2008 that is VMW!
Some of these clients bought these stocks recently, this is especially true for folks in the IT industry, they bought VMW but they paid between $89 through $118.. Now, they have asked specially what is the best tax strategy to take..!
The choice boils down to this, "I want to sell the stock to take the losses and I can buy back the stock after 30 days, so that the trade will not be considered a Wash Sale".. Correct!
But, what happens if the client say takes a loss of say $15 dollar per day and sells the stock (VMW) at current price of say $94.00. Now, after 30 days, that is January 15th, 2007, what happens if VMW enjoys a NEW YEAR's RALLY that takes the price past $130! The client now has to pay an incredibly higher price to get back into VMW, assuming he wants to get back into the original position.
If the 4th quarter earnings are excellent, one would expect the Stock price to further appreciate even more significantly!
Does it then make sense to sell your volatile stocks prior to year end and repurchase after 30 days resulting in the minimum purchase date after Jan 15th? Absolutely not in this case, especially when more mutual funds and institutions will be accumulating this stock.
In short, sometimes tax loss selling is contrary to common sense investment guidelines especially with long term winners with stocks that have expanding market share dominance, expanding profits, expanding international sales and expanded product offerrings!
Also, please click on the following link for discussion on "2007 tax strategy for stock losses incurred 2007" 2007 Tax Strategy for Stock Losses Incurred in 2007