Published: Friday, 7 Sep 2012 | 2:21 PM ET
Going into the 4th quarter all attention remains focused on the Fed’s likely QE3 program and the
ECB’s new “outright monetary transactions” which have helped to push the S&P up ~14.5% YTD. In
this macro/intervention driven environment finding good short ideas can be very difficult. With that
in mind we offer up a review of a well know and studied phenomenon – Tax Loss Selling.
The basic idea is that individuals, and institutional money managers trying to minimize their tax
burdens will sell their biggest losers into the end of the year, putting added downward pressure on
the worst performers. Reviewing returns back to 1965 we find that this is a persistent event (~60%
of our back tested baskets delivered negative absolute returns in September and October).
We review the strategy’s performance and offer the current list of stocks that pass our screen.