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Take the capital loss or wait?

3881 Views 2 Replies 3 Participants Last post by  MoneyGal
I recently started to work for a small-cap, bordering on large cap (depending on your definition). It has significant market share and has done fairly well throughout the last year, though it has still had to do some restructuring. Outlook is promising, but not spectacular.

They offer 50% employee matching on stock, and I took the lump sum option, with the intention of pulling out my portion of the money immediately after the initial deposit for investment purposes elsewhere. The idea is that it basically gives me free stock in the company.

Since the stock was purchased two months ago @ $7.02, the price dropped and has hovered between 6.7 and 6.9. In the few months prior to my purchase (of course) the price fluctuated between $7 and $8.5. As I said, the company outlook is promising, so I don't expect a significant/permanent drop, but of course I could be surprised :rolleyes:

My dilemma is: should I wait just a bit longer to see if it rises to (or above) 7.02, or should I should just take my lumps and sell immediately? Former is obviously the risky option, and I'd hate to lose out if the stock jumped up after my sale. On the other hand, maybe this is just "loss aversion" behaviour rather than rational thinking.

(Note: I will not have any capital gains this year to offset the loss as my investments are all in RSPs. Though I believe that I can use the loss in future years?)

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I would first check that you are allowed to sell as soon as you buy. I would think there are restrictions.

I don't understand why you would be upset if the stock rose after you sold. You say you don't want to be playing with your own money's investment. If you want to play, you take the risks. If you don't want to play, you sell.
Not just loss aversion, but anchoring!

I like Leslie's advice. When I was an advisor, the "party line" in my office was sell as soon as you can, and diversify in accordance with the rest of your portfolio. Otherwise, you get into the kind of mental and emotional traps you are finding yourself in now -- "but what if it goes up?" :rolleyes:
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