I’m flying out to New Jersey in a couple hours, and while I wait until it is time to head to the airport I’m looking through my portfolio. I’ve got a real dog in there right now, and I need to sell it. If you’ve read my My Current Investments you’ll see that I own Yelp, and that my cost basis is currently $59.62, while the current cost is $38.24. Selling stocks at a loss is something a lot of people struggle with so I thought I’d touch on it briefly here.
I bought Yelp based on a few conversations with a friend, whom I regularly discuss investments. Things have not gone well for Yelp in the last six months, they lost a law suit and have announced some less than stellar earnings. While I do still believe that Yelp is a good company, I don’t believe that they will come back 30+% in the next year or so. Based on these beliefs I think my best case scenario is to sell, but how much should I sell today?
If I sold them today I would have a loss of just over $5k (which sucks). If you sell stocks at a loss you can claim a Capital Loss, however like Capital Gains, capital losses are classified as long and short. Since I’ve only had Yelp for 6 months I can only claim a short loss. You may have guessed it, but a Short Loss will only reduce your taxable income on Short Gains. Since I don’t plan on having any short gains if I sell today I can’t claim any tax benefit by selling.
What am I going to do, you may ask? I think I’m going to hold onto the shares for now. As I said above, I believe they still have a strong business, and given time they will get back to where they were. If I’m going to sell at a loss I’d at least like some tax benefit, so for now we just continue waiting.