Skip to main content
No. of Recommendations: 6
Market anomalies do not last forever, but they do return! At least that is my theory.

The heyday of tax loss selling for me was 1998 and 1999. Back then I could buy small-cap value stocks that had nothing to do with the internet, computers, telecommunications or donuts (remember Krispy Kreme) at PE ratios of 4 and less than half of tangible book. If there was some debt or a hint of possible risk you could be buying at 10-20% of tangible book.

Back then you could buy in December and by late January to early May have a two-bagger to four-bagger. Of course, not on everything you bought in mid-to-late December doubled, but enough of them did to make it quite profitable.

I think that buying in response to TSL worked so well back in 1998 & 1999 for the following reasons.

1) Having an extremely bifurcated market, i.e. a lot of things going up a lot and a lot of things going down a lot.
2) A higher tax rate, especially on capital gains.
3) Market participants that were either not that sophisticated or lacked a sense of market knowledge or history.

At the end of September, we had #1 in spades, but less so now. We have #3 in spades. The Bush, and subsequent, tax cuts have reduced #2 for the time being.

I have had 4 REIT ten baggers OHI, LTC, DDR & FR. What they had in common is that I bought them all after they eliminated their dividends. I once saw an older established REIT (NPR/NXL) drop 25% after announcing that it would no longer raise their dividend 0.25 cents each quarter.

Back in the spring I put less into grocery anchored REITs than I otherwise would have because I thought that it was very possible that they would reduce/eliminate their dividend and I worried (or hoped?) their share price would drop significantly after the cut. All four (KIM, BRX, KRG & RPT) all ultimately eliminated their dividend. After which pretty much nothing happened! After many years of watching stocks get walloped after dividend cuts/eliminations market learned.

Markets, meaning investors, learn and adapt. However over time they often seem to forget and repeat.
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.