Behavioral Investing and Finance

To sell or not to sell, that is the question. Whether tis nobler in the mind to sell your losers and gain some tax advantages or suffer the sling and arrows and hope for a rebound in the new year.

Lost in Semi-Crypto

Let me tell you, I feel the pain of loss aversion and regret. I have more than a few stocks this year that is down 20-30% but….I still feel they are going to be good when the upturn comes. Let’s look at one of my examples, FDIG. This is an ETF that focuses on the cryptocurrency and digital payments industry, but instead of directly owning cryptocurrencies, they own companies that mine bitcoin or do trading in crypto and regular currencies digitally.

You probably already heard about the bankruptcy of FTX that also pulled down BlockFI. Well because of that the cryptocurrency market is not doing very well at this point, so this ETF is down about 27% since I purchased it earlier at $17.02.

Tax Advantages

Let’s say I purchased 1000 shares of FDIG at $17.02 for a total of $17.020. Those shares are now worth around $12,380 or a paper loss of $4,640. I can sell this before the end of the year, and this loss can offset other capital gains. Here are the rules:

• If these are short-term losses, stocks held under one year, you use this short-term loss to offset short-term gains first. So, if you have more than $4,640 in short-term gains, this will cancel out that gain for tax purposes.
• If you don’t have enough short-term gain, you can then use the losses to offset long-term gains, stocks held over one year.
• Finally, if your loss is over any capital gains you have for the year, you can offset any other income up to $3000, including salary. $1,500 for married filing separately.

So in this scenario, I do have some gains I need to offset, so I should sell this ETF and save the money on taxes. But…

Just Sell It

It feels kinda bad to sell and really tell myself I was not a good investor. However, when I look back, with the information I had at the time, it was a good investment. I just have to get over the psychological pain of regret I’m feeling. I can repurchase it on January 2nd, 2023 if I still feel the EFT is a good buy and might be coming back, right?

So my advice is if you have capital gains and other income you can offset with selling a losing stock, do it. The pain of regret is not so bad and you can get over it.