The Annual Tax Loss Fire Sale: Ten Bargains for the New Year Bounce

How to profit from December's forced selling - and why you need to be out by March

So here, as promised, are those ten North American tax loss selling ideas.

The Backdrop

In Canada and the US, the tax year ends on December 31. This creates a flurry of selling as the year draws to a close. Why? Investors want to realise losses which they can then offset against gains elsewhere and so reduce their tax bill.

This creates considerable selling pressure, especially amongst smallcap stocks, and they can become quite oversold. The selling can be quite indiscriminate in the last few days before Christmas, but it abates as soon as the year ends, and the stocks often rally - particularly if there is a reason for them to rally (such as them being cheap or, better, some positive newsflow or generally better market conditions for the sector in which that company operates: eg bitcoin rallies a bit, so all bitcoin related companies rally).

Some years this works better than others, some picks work better than others.But manage your risk - don’t take on position sizes which are too large, be prepared to sell if the trade goes against you etc - and the trade can work well.

You want to be exiting your positions by February-March, so the trade has a nice structured timescale around it.

Note: companies often do badly because they are not very good companies, so that means you are often buying not-very-good companies. Be under no illusions.

The trade seems to work particularly well with smallcap Canadian resource stocks, so you will need a broker who deals in such things. I use Interactive Investor. If you want to open an account use this affiliate link, I get a fee - you get a year’s free trading.

Anatomy of a tax loss candidate

The ideal candidate wants to have spiked at some point in the last couple or three years so that it sucked in a lot of buyers at higher prices. It wants to have been flat or declining for some time - so that buyers will now hate it and want it out of their portfolio, happy to sell at any price just to get rid of the wretched thing.

It wants to be really oversold so there is room for a rebound.

Ideally, they want to have some cash so they are not coming to market for capital in the New Year and thereby killing any rally with a raise.

It’s better if the company has genuine assets and is a genuine business - not some lifestyle company. That lowers risk and betters chances of positive, real newsflow in the New Year.

Take a look at this chart of Company Unknown. You can see that three times this year it spiked above $10. Now it is trading at 84c. How many people have lost money, I dread to think. It has been a proverbial clusterfook.

If you bought anywhere above $2 or $3 - and especially up near $10 or $13 - you will HATE this company.

Meanwhile, there is a huge potential loss for you to realise. So you sell it and take the loss.

But look also at the volume - that has been quite high since the sell off (short sellers covering, increased stock coming to market as it became free trading, but also capitulation). There is a story there too. Note also the volumes when the stock went from 80c to $1.80 in October.

It’s tailing off again.

This stock could easily rise 50% - and that would only take it to $1.25, which is nothing in the context of the greater volatility.

I’ve read the chatboards. Investors hate this stock. It is not a good company. It’s even been associated with scams.

But all we are looking for is a New Year bounce.

Imagine owning Company Unknown 2, meanwhile. It’s been falling for five years!

It was a $7 stock, now it’s 60c. Investors have had five years of relentless grind lower. It’s a copper company with resources in the South-Western US. That should be a golden ticket in current markets.

Investors will be furious. No surprise they’re selling.

But it’s got capital. There’s some newsflow coming early next year. It looks like it has made a low around 50c. Could this be a dollar stock by March? Why not? The world needs copper. This company has lots of it.

You get the point.

Selling in my view will climax this Friday December 19 and Monday 22 - but you have until New Year’s Eve to buy. (Most will have left their desks by Tuesday of next week I’d say).

The timeframe for the exit is February to March.

With all that in mind here are 10 tax loss selling ideas for 2025-2-26

I have been on a 2-day marathon scanning charts. Here are the best ten I could find.