Mark Twain once said that the only certainties in life are death and taxes. Death isn’t something we have to worry about all the often. Taxes, on the other hand, are an annual burden.
Taxes impact on how much money we make, how much we spend, and how much we save. They impact where we live and what property we buy. They even impact how we invest.
On that last point, one of the most powerful dynamics in the markets this time of year is tax-loss selling – and if you understand that dynamic fully, you could position yourself to make a lot of money in January.
Here’s the story:
When you invest and make money on that investment, you must pay taxes on the money you’ve made after you sell the investment and realize the gains. Those gains are taxed.
On the flipside, when you invest and lose money on that investment, you can write off those loses to reduce your taxable income – but only after you’ve sold the investment and realized the losses.
That’s why a lot of investors sell their losing positions at the end of a calendar year. It has nothing to do with whether they like the stock or the company, or whether they believe that a turnaround is coming. Instead, it has everything to do with taxes. They sell those losing positions to mark those loses as realized losses and use them to reduce their taxes.
That process is called tax-loss selling.
It happens every year, without fail. Like Mr. Twain said, taxes are a certainty – therefore, tax-loss selling is a certainty, too. To that end, stocks that have had bad years tend to have bad Decembers, too. Everyone is tax-loss selling.
Now here’s the interesting part…
Recall that investors aren’t selling these stocks because they don’t believe in them. Rather, investors are selling these stocks for non-fundamental reasons related to reducing their taxes. Therefore, one would assume that once the year ends and tax-loss selling season passes, these stocks would bounce back big in January.
Indeed, that is the case.
On average since 1926, the market’s 10% worst-performing stocks in any given year tend to drop about 0.5% in December, underperforming the 10% best-performing stocks (which tend to rise over 3% in December).
Then, those same worst-performing stocks bounce back big in the following January, rising almost 4%, while the best-performing stocks struggle for a 2% gain in January.
In other words, year after year, December’s biggest losers turn into January’s biggest winners.
So… which stocks lost biggest in December?
Well, the 10 biggest losers in the S&P 500 over the past month are auto firm CarMax (KMX), cloud solutions provider Adobe (ADBE), apparel company PVH (PVH), athletic apparel maker Under Armour (UAA), specialty chemicals company Albemarle (ALB), e-commerce firm Etsy (ETSY), industrial giant Generac (GNRC), electronics retailer Best Buy (BBY), solar company Enphase (ENPH), and retailer Gap (GPS).
If history holds up, those stocks could be among the market’s biggest winners in January.
But let’s say you’re looking for bigger gains…
Let’s say that 4% and 5% gains in January don’t excite you… and that, instead, you’re all about scoring 100%, 200%, 500%, and greater gains over the next few years…
Let’s say you want to turn thousands into millions…
If that sounds like you, then I hate to break it you, but Gap, Best Buy, and PVH aren’t going to cut it.
Instead, you must invest in hypergrowth technology stocks that are in the early stages of changing the way we live. Companies that are pioneering self-driving technology. Companies working on cutting-edge artificial intelligence (AI). Companies making new medicines, developing breakthrough robots, and commercializing space.
Forget 10% returns per year. Those stocks will score you 10X returns.
And to find the best of the best of those stocks, you should refer to my flagship investment research advisory Innovation Investor – where I’ve put together a team of technology experts whose sole purpose is to identify the best early stage hypergrowth tech stocks to buy now for life-changing returns.
Sound like something you want to do? If it is, click here.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.