Anyone selling stocks in advance of the fiscal cliff?

[disneysteve]

I am not a market timer by any means, but that doesn't mean there aren't times when reducing equity exposure might not be a bad idea. I'm wondering if this is one of those times. Several things I've read have suggested that regardless of the long term outcome of the fiscal cliff issue, in the short term, if a deal isn't reached by 12/31 and the tax hikes all go into effect on 1/1, the market will react badly and we could see a serious drop at the start of the year.

At the very least, I'm thinking about cashing out of some profitable positions I have in a couple of individual stocks. I have two bank stocks that are up 55% and 77% since I bought them (the first was bought earlier in 2012, the other is a longer term position). I don't think there is any fundamental reason for those prices to drop but if everything takes a dive, I'm sure they will go right along with it. Of course, when the market recovers, which I believe it will ultimately, they should go back up, but one never knows.

As for my bigger holdings in mutual funds, particularly in retirement accounts, I could potentially back off on stock holdings for a month until the dust settles and then reinvest possibly at a significantly lower price. Again, I realize it is all market timing but it has been on my mind.

What are your thoughts?

[bjl584]

There is nothing wrong with taking some profits now. Especially if you are up on a few positions substantially and want to pay a lower tax rate on them.

Personally, I am holding. One thing that I am doing is buiding up cash. I think that early 2013 will present a good buying opportunity. Whether we actually go off the cliff or not, there will probably be some panic selling going on really soon. I'm putting myself in a position to jump on a few opportunities should they arise.

[disneysteve]

One thing that I am doing is buiding up cash. I think that early 2013 will present a good buying opportunity. Whether we actually go off the cliff or not, there will probably be some panic selling going on really soon. I'm putting myself in a position to jump on a few opportunities should they arise.

Exactly. At this point, the only way I can really build up cash in the short term is to take some profits off the table. I think I may go ahead and do some profit-taking to position myself to take advantage of any post-New Year sell off.

[ukgaz]

It depends on your strategy. Mine is to create income replacement for when I retire using dividends and options. So as long as the stocks fundamentals are strong I will continue as normal. If the stock price drops I will consider it an opportunity to add to my portfolio/increase positions so can do covered calls (need 100 shares).

So for me at 35 I'm just going to carry on as normal. I think there will be some good deals in 2013 though.

I'm assuming BAC is one of your bank stocks

[disneysteve]

Yes, BAC is one. FXCB is the other, a local area bank that has managed not to get swallowed up yet.

[BuckyBadger]

I'm going to buy and hold according to my asset allocation and without worrying about outside factors. Stay the course, and all that.

There are always things happening in the world/US that make people worry. But the thing is, everyone has that information, and everyone has the same information, so that uncertainty is already reflected in the market. It's already priced into the values of everything in the market.

[ukgaz]

Yes, BAC is one. FXCB is the other, a local area bank that has managed not to get swallowed up yet.

I brought BAC at $5.24 which looks like a fantastic trade now but I sold a Covered call at the same time which expires next month. This strategy worked against me this time - my profits due to the CC will be less than if I sold today at the current price. Sometimes it goes that way but it has been a good trade anyway

[disneysteve]

There are always things happening in the world/US that make people worry. But the thing is, everyone has that information, and everyone has the same information, so that uncertainty is already reflected in the market. It's already priced into the values of everything in the market.

So do you think failure to come to a deal wouldn't result in the market falling?

[BuckyBadger]

So do you think failure to come to a deal wouldn't result in the market falling?

My point is that it doesn't matter to me if the market falls.

I don't change my plans based on that sort of expectation. It may fall. It may not. It may rise. If it does fall, it will come back up. I'm in it for the long term. Whatever noise that happens in Q1 2013 isn't going to make a lick of difference in Q4 2055.

No one *knows* what the market will do. There's all sorts of speculation, but no one knows any more than anyone else does.

But I buy and hold. I don't buy for the short term. So maybe other investing strategies will have different answers to your question.

[disneysteve]

My point is that it doesn't matter to me if the market falls.

I don't change my plans based on that sort of expectation. It may fall. It may not. It may rise. If it does fall, it will come back up. I'm in it for the long term. Whatever noise that happens in Q1 2013 isn't going to make a lick of difference in Q4 2055.

No one *knows* what the market will do. There's all sorts of speculation, but no one knows any more than anyone else does.

But I buy and hold. I don't buy for the short term. So maybe other investing strategies will have different answers to your question.

I agree with everything you said and that mirrors the advice I typically give. "Buy and hold" doesn't mean "never sell" though. There are times when selling a stock makes good financial sense and I'm wondering if this isn't one of those times.

I realize none of us can predict what is going to happen and I am invested for the long term. I've got about 15-18 years before retirement so I don't obsess over the daily ups and downs, but I do still make changes from time to time, buying and/or selling if I see a good reason to do so.

[BuckyBadger]

I have no individual stock that I could sell, so there is nothing for me to consider selling. I'm certainly not planning on "selling stocks" because of the fiscal cliff, because that would mean reallocating my investments to sell my stock funds.

Like I said, people with other holdings might have different plans.

People who dabble in individual stocks are by definition market timing because they try to buy low and sell high. As long as it isn't a large portion of your portfolio I don't see anything wrong with it. But I don't think individual stocks should be such a large portion of your portfolio that selling them ahead of a speculated market drop would really make that much of a difference.

[disneysteve]

I have no individual stock that I could sell, so there is nothing for me to consider selling.

Makes sense.

People who dabble in individual stocks are by definition market timing because they try to buy low and sell high.

I'll disagree with this. Buying individual stocks doesn't automatically make you a market timer. I have individual stocks that I've owned since as far back as the 1980s. I also have individual stock that I purchased earlier this year. And over the years I have bought others and sold some.

If you buy a stock and it does very well and gains significantly, there is nothing wrong with selling it and locking in that profit. There is also nothing wrong with getting out of a stock that just hasn't done as well as you had hoped. They can't all be winners.

[kv968]

At the very least, I'm thinking about cashing out of some profitable positions I have in a couple of individual stocks. I have two bank stocks that are up 55% and 77% since I bought them (the first was bought earlier in 2012, the other is a longer term position). I don't think there is any fundamental reason for those prices to drop but if everything takes a dive, I'm sure they will go right along with it. Of course, when the market recovers, which I believe it will ultimately, they should go back up, but one never knows.

As for my bigger holdings in mutual funds, particularly in retirement accounts, I could potentially back off on stock holdings for a month until the dust settles and then reinvest possibly at a significantly lower price. Again, I realize it is all market timing but it has been on my mind.

What are your thoughts?

I'm personally not doing anything different with any of my holdings due to the fiscal cliff.

However if you're worried about things going awry maybe you can just partially protect yourself. By that I mean if you were planning on putting all of your money into your Roth at the beginning of the year, put it in a MM account instead of into your allocation and once you think the "dust has settled" then put it into the proper funds.

You could do the same if you were planning on rebalancing your Roth. Maybe instead of just setting everything back to the original allocation, put the excess in a MM account and put it into the funds when you feel the time is right.

As far as the individual stocks you mentioned, maybe apply something like this...
Sell the long-term held stock FXCB to lock in that reduced long-term capital gains tax rate. Although the rate is only going to from 15% to 20%, the stock is at its all time high so if want to lock in the lower rate you could always just buy it right back.

As far as BAC goes, I wouldn't sell tax-wise since it'll be a short-term gain. I'll assume that you're in the 28% tax bracket so if you sold it now, that's what you'd pay on the gains. Whereas if you wait and hold it a year, even if the long-term capital gains tax goes to 20% you'll still be 8% ahead. It's kind of like having at least an 8% cushion to the downside.

You shouldn't really base your investing totally on the tax situation and I know you're probably thinking more of what the price action will be rather than the tax consequences, but maybe taking a little bit of profits and benefiting from the known taxes might not be too bad of an idea. You could always buy back in. I just wouldn't do anything too drastic, which I'm sure you're not, because no one knows what'll really happen either way.

[YLTL_Dan]

I'm holding and hoping to get an even better deal on more stocks.

I mostly believe in the efficient market theory which states all public news is factored into the stock prices. Sure, we could see a quick drop if they don't get a temporary or permanent fix in place, but fundamentally I think we're still in good enough shape.

[disneysteve]

I'm personally not doing anything different with any of my holdings due to the fiscal cliff.

However if you're worried about things going awry maybe you can just partially protect yourself. By that I mean if you were planning on putting all of your money into your Roth at the beginning of the year, put it in a MM account instead of into your allocation and once you think the "dust has settled" then put it into the proper funds.

You could do the same if you were planning on rebalancing your Roth. Maybe instead of just setting everything back to the original allocation, put the excess in a MM account and put it into the funds when you feel the time is right.

As far as the individual stocks you mentioned, maybe apply something like this...
Sell the long-term held stock FXCB to lock in that reduced long-term capital gains tax rate. Although the rate is only going to from 15% to 20%, the stock is at its all time high so if want to lock in the lower rate you could always just buy it right back.

As far as BAC goes, I wouldn't sell tax-wise since it'll be a short-term gain. I'll assume that you're in the 28% tax bracket so if you sold it now, that's what you'd pay on the gains. Whereas if you wait and hold it a year, even if the long-term capital gains tax goes to 20% you'll still be 8% ahead. It's kind of like having at least an 8% cushion to the downside.

You shouldn't really base your investing totally on the tax situation and I know you're probably thinking more of what the price action will be rather than the tax consequences, but maybe taking a little bit of profits and benefiting from the known taxes might not be too bad of an idea. You could always buy back in. I just wouldn't do anything too drastic, which I'm sure you're not, because no one knows what'll really happen either way.

Thanks for this. I think it makes a lot of sense and pretty much goes along with what I was thinking. Selling the BAC as a short term gain wouldn't be worth it most likely. Only if the price drops and stays down would it have been a good idea in hindsight but I still think the bank's fundamentals are good.

As for FXCB, I've been watching that for a while. I'm not sure that I see it climbing much higher any time soon. This might be the time to trim back on that. I could split it and sell half of my holdings as I own several hundred shares.

BTW, I didn't respond to Bucky's point earlier. I'm ultimately talking about the "play money" portion of my accounts, a few thousand out of a mid-6-figure portfolio, so whatever I do isn't going to have any major impact on our future financial status.