Author Topic: The psychology of selling loser funds  (Read 3378 times)

snappytom

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The psychology of selling loser funds
« on: August 30, 2015, 12:37:39 PM »
We are in the process of consolidating our taxable accounts to Vanguard Index funds and have completed almost everything except for a few turds at other brokerages.  The only reason we have not sold them is the 13k loss that would be incurred, but we have been holding on to these for over 6 years in the hope of breaking even. 

Long story short, these funds are from a time and place when we did not know better and got involved in a "managed" account arrangement.  We now do everything ourselves and setup a nice lazy portfolio that will provide what we need.
We have no debt and don't need to immediate proceeds that the sale of these funds will provide, just want to consolidate and simplify things.

Another fund we will be selling and moving the $$ to Vanguard will provide about 22k in gains, and we have some carry over losses from inherited real estate which will cover the remainder and allow us to not pay tax on any gains realized.

It just comes down to the psychology of taking the losses and admitting the failure.  These shit funds need to grow almost 100% to break even and we would rather have the $$ in the simple Vanguard Index model we are deploying.  The only people making money on them now are the vendors with an average expense ratio of 1.4%

Help me pull the trigger and move on.   I am so sick of looking at these funds sit with losses in the hope they will recover.
Is it the best move to admit defeat now and get this $$ back on track ?

forummm

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Re: The psychology of selling loser funds
« Reply #1 on: August 30, 2015, 01:59:09 PM »
Taking losses is fine. That money is already gone. And taking a loss is great because it lowers your taxes. I intentionally took losses on some funds that went down during the minor correction the market just had. Just move the funds to something good at Vanguard and be happy about your lower tax bill. You can't go back and fix a mistake in the past.

Retire-Canada

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Re: The psychology of selling loser funds
« Reply #2 on: August 30, 2015, 06:57:29 PM »

Help me pull the trigger and move on.   I am so sick of looking at these funds sit with losses in the hope they will recover.
Is it the best move to admit defeat now and get this $$ back on track ?

I feel your pain. I have a few stragglers I need to clean up soon. I've been putting it off and putting it off, but I need to close down those accounts and get over it.

Like Forum says you can't fix the past other than to move on and make better decisions now.

mrpercentage

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Re: The psychology of selling loser funds
« Reply #3 on: August 30, 2015, 07:45:27 PM »
Down 50%

Sounds like oil. Maybe heavy on energy. There is a lot of maybes. Depends on how long it's been down.

Depends on why you bought it. Most people buy funds for returns. This is why active managers trade like crazy because when people check their account they want to see it always getting bigger. A really great long term manager could look horrible for a couple years. Charlie Munger or Warren Buffett.

So just ask yourself why did you give the the money and do you trust that they know what they are doing.

realityinabox

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Re: The psychology of selling loser funds
« Reply #4 on: August 31, 2015, 02:12:19 PM »
As MMM himself would say, if you wouldn't buy it now then you should probably sell it.  Any continued attachment to a turd fund is a lose-lose.  You continue holding a bad fund at a (presumably) large fee.  Kill the emotional attachment, sell the fund, realize the loss, get the tax bump, and put it in a low cost Vanguard fund.  You're more likely to make the money back quicker in a Vanguard fund than in a turd fund, who cares if you make it back in the same fund you lost it in?

Regardless of the psychological effect of price you bought it at, that price is gone.  You own it's current value.  Putting that money into a Vanguard fund makes far more sense than keeping it in a high cost fund.  Would you rather earn the money back at a ~0.1% fee or ~2% fee?  Either way, you're starting with the same number of dollars, keeping it where it is means you lose more in the long run.
« Last Edit: August 31, 2015, 02:18:20 PM by realityinabox »

Kaspian

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Re: The psychology of selling loser funds
« Reply #5 on: September 01, 2015, 01:30:00 PM »
It's a pile of money that's all.  It's worth no less or more than it is at this moment.  If you wouldn't buy more of it why would you keep it?  Keeping it means you expect a huge return from your losses.  Therefore it would be a good place to put even more cash, wouldn't it?

snappytom

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Re: The psychology of selling loser funds
« Reply #6 on: September 01, 2015, 02:13:45 PM »
Thanks to everyone who has replied .... gives me the kick in the pants to get past the pain of past mistakes and move on.
The wheels are in motion now and the $$ is on it's way to the stache at Vanguard.

realityinabox

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Re: The psychology of selling loser funds
« Reply #7 on: September 01, 2015, 02:23:00 PM »
Thanks to everyone who has replied .... gives me the kick in the pants to get past the pain of past mistakes and move on.
The wheels are in motion now and the $$ is on it's way to the stache at Vanguard.

Glad to hear it.  Most certainly a good choice.

StockBeard

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Re: The psychology of selling loser funds
« Reply #8 on: September 04, 2015, 03:47:06 PM »
Same situation with some losing stock I bought last year. I'll see if it makes sense for me to sell now, take a loss, and get the tax benefit.

clarkfan1979

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Re: The psychology of selling loser funds
« Reply #9 on: September 06, 2015, 10:37:34 PM »
Humans are loss averse and will engage in irrational risk to avoid a potential loss.

Take the loss and move on. You know what you want to do. Just do it.

BTDretire

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Re: The psychology of selling loser funds
« Reply #10 on: September 07, 2015, 10:42:41 AM »
Same situation with some losing stock I bought last year. I'll see if it makes sense for me to sell now, take a loss, and get the tax benefit.

  I have a REIT (NLY) I bought 3 yrs ago, at $17 it's now $10.10, but even at my high cost it pays 7%.
I have made two more NLY purchases in 2014 and 2015 at about the $10.10 price, paying 12%.
I'm happy owning the stock, but I wonder should I sell the $17, wait 30 days and then replace the
shares I sold?
 Just writing it out makes me think I should already have done it.

seattlecyclone

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Re: The psychology of selling loser funds
« Reply #11 on: September 07, 2015, 03:07:07 PM »
Same situation with some losing stock I bought last year. I'll see if it makes sense for me to sell now, take a loss, and get the tax benefit.

  I have a REIT (NLY) I bought 3 yrs ago, at $17 it's now $10.10, but even at my high cost it pays 7%.
I have made two more NLY purchases in 2014 and 2015 at about the $10.10 price, paying 12%.
I'm happy owning the stock, but I wonder should I sell the $17, wait 30 days and then replace the
shares I sold?
 Just writing it out makes me think I should already have done it.

If you really intend to own this REIT for the long term, harvesting the losses will allow you to offset $7 of capital gains this year for every share you sell. That's not bad!

As to whether you should own this for the long term, I probably wouldn't choose it. Over the past five years it has lost almost half of its value and its dividend has been cut by a similar percentage, while the Vanguard REIT index has gone up by 46% in that time. You don't get 12% dividends from investments that the market believes will stand the test of time.