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30 November 2012

The Dark Continent : Visited

I read somewhere that 'When to sell a stock' is the 'Dark Continent'. I too have tried to explore it but with little success. And then I had an epiphany (I had to look it up!).

No the answer does not lie in PE, NPM or other such analytical mumbo jumbo that I usually expound. In India, the (part) answer lies in taxation.

If you are making a loss on a stock purchased, sell it before you reach the 365th day of holding. Book the loss in the Short Term, reflect it in your tax return and set it off against your  Short Term Capital Gain. If there is no Short Term Capital Gain(STCG) that year, you can carry it forward for the next eight years i.e, you can book it against STCG of the next eight years !

However be sure to reflect it in the income tax return AND unlike me, file the return in time. If you have emotional feelings for the stock, go right ahead and buy it back the next day for the next 364 days!

What to do with a stock which has gained, is another story!

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