Stock question

[supersizeme]

Alright let's say theoretically you purchase 10,000 shares of Company X at $10/share. Initial investment of $100K. Your intentions are to stick with the stock for several years provided it doesn't tank, but you want to buy in and out on dips to get more shares.

After a positive press release, stock jumps up to $12/share. You anticipate the stock to drop back down after the hype is over, so you want to immediately sell at $12/share and buy back in after it drops(maybe pick it back up around $11), resulting in you owning more shares of Company X at $11/share than you originally did at $10/share. (i.e. at $11/share you can now buy back in and own 10,900 shares for $120K).

After you initially sell, you have profited $20K. Let's say for the tax bracket that you're in, short term capital gains tax says you will owe 30% of this to Uncle Sam at the end of the year = $6K.

But you go ahead and tie the $6K you owe in capital gains tax up in more of that stock, as opposed to setting it aside and not touching it...since coming out with more shares was the whole point of selling and buying back in on a dip.

What happens if the company does poorly and the value of the stock drops to $5/share? Once tax time comes around, you still owe $6K in capital gains tax, but you have to sell off some of the stock you own to pay the tax. Are you doubly fucked at that point? Will the loss you take in selling off $6K worth of $5 stock be enough to counter the $6K capital gains tax you have to pay?

I'm trying to make sense out of the advantage to buying in and out on dips, and it's not happening. Hoping someone with experience in this can shed some light on this.

 

[KAYNE]

IF YOU HAVE A GAIN FOR THE YEAR, THEN YOU PAY TAXES ON THAT GAIN FOR THE YEAR. IF YOU HAVE A LOSS FOR THE YEAR, THEN YOU CAN WRITE THAT LOSS OFF AGAINST YOUR TAXABLE GAIN (INCOME).

 

[ZKaudio]

kayne is right.. however, a good rule is to keep your anticipated c-gains seperate and instead of reinvesting them in the dips in this specific stock, put them in a very safe fund.

 

[KO-KAYNE]

kayne is right.. however, a good rule is to keep your anticipated c-gains seperate and instead of reinvesting them in the dips in this specific stock, put them in a very safe fund.

IF YOU ANTICIPATE THE MKT TO NOT DO SO WELL, THEN PUT THE GAINS (ASSUMING THERE ARE SOME) IN A SAFE FUND. BUT HISTORICALLY, THE MKT HAS RETURNED 12% (GIVE OR TAKE). SO IF YOU ARE IN IT FOR THE LONG RUN, REINVEST.

BUT SINCE YOU ARENT IN IT FOR THE LONG RUN, JUST PAY THE TAXES ON THE GAINS (AGAIN, ASSUMING THERE ARE SOME) AT THE END OF THE YEAR.

 

[AustinTX]

yes to being screwed twice.

also; market timing and trying to buy on dips etc generally don't work on non-cyclical stocks, you don't really know the tops and bottoms until after they happen, and those that say otherwise may have gotten lucky a time or two, but are mostly full of shit. much better to hold longer term for the lower rates. you also have to be aware of wash sale rules if you're trying to do that.

 

[Clomid_ia]

write your losses off against your taxes and ( as I like to do) invest your assests to once the bull market hits then run wild if you have the knowledge and training to do so. If not, stay in the more secure investments and go for the long run if you are not comfortable with properties, which I feel, are more secure than the current market.

-Clom.