Trading Diary: Year-end adjustment time for stock portfolios

It’s time to dump those big losing stock positions for tax purposes while researching new 2017 year-end bounceback candidates. Like Apple (AAPL).

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WASHINGTON, December 8, 2016 – The Prudent Man returns to the stock market fray in a pensive mood Thursday, taking stock of his stocks, figuring out which poorly-performing stocks to dump and which ones to add to his portfolios for the new investing year.


Read also: Thursday markets: Trump-Santa Claus Rally takes a breather


Tax-loss selling—in which an investor gets rid of poorly performing shares for tax purposes, in order to offset at least some outsized gains—is clearly upon us. It’s a tradition that used to unfold during the month of December, but now commences as early as October as allegedly smart investors try to beat that December rush for the exits.

All this means is that if you have serious losses in a stock position or three and have no realistic hope of recovery any time soon, it’s time to pare those positions prior to the new year and write off those capital losses vs. what are presumably nice capital gains in order to lower your 2016 tax bill to an extent.


Investors don’t have to do this, of course. Long-term investors, who, presumably, don’t worry about the short-term, have little to worry about if their long-term convictions regarding company X remain intact or if some of their currently hurting positions in term-preferred stocks promise to be remedied by a soon-upcoming redemption rate.

But if you’re in a position where you could use a loss or three to lessen your tax burden, now’s the time to do it.

On the other hand, stocks that are being dumped en masse (more of which anon) can prove to be spectacular buys near the end of December. When a currently hated company’s prospects actually look good for 2017 or 2018, shares of its stock can often be scooped up at a nifty price near December 31, and will often have a nice January pop—as much as 10 percent—when the selling pressure comes off after that last trading day of 2016.

Many analysts call such stocks “year-end bounceback candidates.” We’re looking for a few of them now and will provide our best guesses in the coming days.

Trading Diary

Aside from little opportunistic trades here and there, the Prudent Man is in meditative mode right now, already planning for a wild and crazy 2017 as the most unpredictable U.S. President ever takes over in January.

The Prudent Portfolios expect to reduce bond holdings mostly by attrition—i.e., letting those positions go as the bonds are redeemed and passing on new long-term bond positions. That’s because interest rates are almost certain to begin a long climb up, reducing the principal value of bonds accordingly. Inflation, long at bay but desirable to some extent, will also be a negative influence.

However, portfolios will continue to hold near-term expiring bonds as well as reasonably near-term expiring preferred stocks. Given the closeness to redemption dates of such securities, they’ll be redeemed at full face value (par), and we’ve tended to buy these at a discount, which, upon redemption, will become capital gains.

In addition, adding high-quality large cap stocks to our portfolios is likely a good idea, while also scooping up badly battered stocks in the REIT sector.

Dividend-paying stocks remain desirable, but utilities may falter, again for the same reasons as bonds and preferreds, as investor preferences are moving away from a fixation on yield and looking ahead to growth stocks likely to produce outsized capital gains.

One exception: TIPs or TIPs-centric ETFs, investments primarily involved with Federal government inflation-protected securities whose yield increases as interest rates increase.

Upping the ante on select international stocks is also likely to be a good idea.

Wobbly stocks we continue to hold for the longer term include:

  • Our huge though currently battered position in Allergan Convertible Preferred A shares (symbol: AGN/PRA, yours may vary), a long-term position that has been pancaked at least in part since these shares and the shares of parent company Allergan (AGN) and other pharmas and biotechs are currently being dumped for tax-loss purposes;
  • Our modest position in Apple (AAPL), though it looks anemic right now, again likely due to tax-loss selling;
  • Ailing but still slightly-ahead positions in utility stocks Exelon (EXC) and Centerpoint (CNP) due to their high dividends and superior business models that should at least partially offset the overriding reasons for selling utilities in the current investment climate; Our positions in the financial sector, including Bank of America (BAC), and more speculative positions in vulture capitalists Blackstone Group (BX) and KKR (KKR). All are currently up substantially and we expect them to go considerably higher over time. So why dump them now? In addition, both pay impressive dividends Wile-U-Wait; and
  • Our positions in gold and copper mining giants Freeport McMoran (FCX) and Newmont Mining (NMT), which are already nicely ahead and promise to go higher in the near term, driven not by more fashionable gold production but by copper production, a metal that has been soaring since Trump was declared winner of the 2016 Presidential Sweepstakes.

Stocks we’re purchasing or planning to purchase include:

  • Midwest-centric oil refining giant Marathon Petroleum (MPC)
  • Additional shares of French oil giant Total SA (TOT)
  • Additional shares of long-flat consumer giant Procter & Gamble (PG)
  • Shares of U.K. telco and wireless giant Vodaphone (VOD)
  • Shares of lagging U.S. Sprint (S)—if they back off a bit from this week’s run.

Plus, we’ll be looking for those year-end bounceback candidates, one of which, we think might actually be Apple (AAPL) whose shares we already own. As we identify more bounceback candidates, we’ll note them here.

However, please remember that, as always, this is the Prudent Man’s Trading Diary, not a list of recommendations. Always do your homework before you get involved in any kind of investment. And yes, at least a few of the Prudent Man’s most exciting picks in the past have proven to be miserable failures. That’s the way investing works, and every investor needs to accept that fact before wading into these uncertain waters.

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