Monday, December 07, 2009

Balancing those gains and losses

We're entering that unpredictable period of the year that adds one more variable to the equity market. That's the tendency of investors to buy and sell stocks for tax reasons as they look to protect gains from the taxman, sometimes needing to sell winners to take advantage of losses and more often selling losers to offset gains. It can go either way.

Fundamental investing, trend investing, event investing, and sector investing have not gone away but most tax authorities live on a calendar year so making the best of it is part of the art in the fourth quarter and more so in the month of December. In big liquid large caps the effect is no doubt muted but moving down the chain of market caps and reaching small caps the impact can be pronounced and completely out of line with the current fundamentals of a company. Deciphering this phenomenon is almost impossible, but for those who happen to follow companies throughly there may be opportunities, opportunities either to buy more or not panic.


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