Juggling Your Portfolio
As Fall season comes, it is time to watch your portfolio one
more time. Why so? Because this is the time when portfolio
managers re arrange their portfolio too. They control huge
amount of money. Understanding what they do, may give you a
better return of your investment. For example, if you know they
will unload a specific stock at certain point of time, would you
want to sell after they sell? Of course not. You would want to
sell before they do.
So, what is happening during the Fall season? Mutual fund, hedge
fund, pension fund and others often times reshuffle their
portfolio towards the end of the year. Why? One of the main
reason is taxes. Managers usually sell their losing pick before
the year ends to get a tax deduction.
How about winning picks? Since capital gain taxes will be
imposed on any appreciating investment, logically, portfolio
managers would want to pay as little taxes as possible. How did
they do it? Simple. They can sell their winning holdings on
January 1st of 2006 instead of December 31st of 2005. This
simple move will enable them to pay capital gain taxes on April
2007 instead of April 2006.
So, what is the implication of these portfolio manager's action?
Generally, rising stocks will keep rising towards the end of the
year and vice versa. Of course, they do not necessarily reach
its turning point on Dec 31st and move on the opposite direction
when the new year begins, but it should move close to that
pattern.
While it is still too early, you can start compiling a list of
stocks that fit this criteria. When you are buyers of turnaround
stocks, you would want to wait until after portfolio managers
finished selling all their losing positions. Similarly, if you
hold a winning position, you must sell it before they do.
Here is some of the list that might be useful when year end
comes. Winning stocks include: Valero Energy (VLO), Tesoro Corp
(TSO), Nvidia (NVDA) and TXU corp (TXU). Losing stocks include:
ATI Technologies (ATYT), Pier 1 Imports (PIR) and Sharper Image
(SHRP). There are lots of other stocks, of course. This is just
simply the stock I had recently watched.
Moral of the story? Wait for year end. Rising stock will rises
further while losing stocks will continue to underperform. Don't
sell too soon and don't buy too early !