Why I Sold My Stocks

What's up grandma's guys? Here, so as some of you know, I've been investing a large portion of my income into the stock market this year and I've been really fortunate that most of them have done well. But I also realized that there is a time and a place to take some of those profits off the table, and that is why I'm gonna be selling.

I know this completely goes against my general rule of thumb that time in the market beats timing the market, and I've always been the type of investor who only buys something with the intention of keeping it forever. But in this case, circumstances have changed and it's worth explaining so that you could better understand my logic in terms of how and why it makes sense not only for myself but maybe for you too.

All I ask is that you go into this video with an open mind, and if I make a convincing argument by the end of the video, just do me a favor and sell that like button to the YouTube algorithm by making it turn blue. And being serious, I think you'll agree with my reasoning for selling if you hear this out, and I nearly promise you'll look at your own portfolio differently by the end of the video. So thank you guys so much, and also a big thank you to Wealthfront for sponsoring this video, but more on that later.

Now, first of all, I want to get this out of the way, but I'm not a perfect investor by any means, and I made some rather large mistakes this year that I would rather just forget about. And don't worry, I know everyone wants to know what those mistakes are, so I'll go over it shortly. But in terms of what happened, as I mentioned before on the channel, throughout the last two years, I've done my best to funnel as much money as I could into the stock markets as a way to further begin diversifying outside of real estate.

See, prior to then, I had almost my entire net worth tied up in six rental properties in Los Angeles. Every little bit of spare cash would immediately get reinvested to buy more real estate, and even though I contributed to a Roth IRA to buy index funds, my portfolio did well. But if something were to happen to the Los Angeles real estate markets, I would be done.

So, beginning in 2020, after being publicly reamed by Kevin O'Leary for not properly diversifying, I made the choice to focus on buying more stocks and index funds because not only was that a lot easier than trying to find and manage another rental property, but it gave me the peace of mind knowing that I would always have something to at least fall back on. And I'm so glad that I made that decision.

During that time, I built now a seven million dollar portfolio containing several dozen individual stocks that were hit especially hard during the pandemic, along with index funds encompassing the total stock market, international stocks, and S&P 500. I've thoroughly believed in the strategy that you can't time the market, so it's better to invest immediately and wait than it is to wait for the next stock market crash and risk the market going up another 20 percent while Jerome Powell keeps the money printer cranking.

And so far, that strategy has been right. Many of those individual stocks are now up 100 to 200 percent. I've continued adding on to several positions that I believe in. Many are more valuable than I ever expected them to be, and I've intended to continue doing more of the same over the next few years.

However, like I said, even though I made a great return and several investments did insanely well, some of them up several hundred thousand dollars, not everything is a winner. And my biggest losers are worth discussing because that's partly why I'm getting out.

First, we have ARCG. As most of us are aware, Kathy Wood was the pinnacle of 2020. Everything she touched turned into gold. Her words had the power to move markets, and for the most part, she was unstoppable with hit after hit. So, I decided to invest $30,000 into her Genomic Revolution ETF with the expectation that the entire industry would continue growing in the near future. But it didn't, and it mutated into a loss of 39 percent or $12,000. And trust me, this is just the very beginning because it gets a lot worse.

Second, we have C3AI. Going into it, I felt like artificial intelligence had a lot of potential, and overall I felt like this company would be a promising option for anyone looking to get into the space, both from an investment standpoint and for businesses who want to automate their services. But the moment I began buying it, it started to tank. Unfortunately, this was the perfect example of trying to catch a falling knife because I bought the dip, and then it dipped more, and then I bought that dip, and it dipped even more. And now I'm down 62 percent or $30,000, making this stock more like C $30,000 go down the drain.

The third, we got Canopy Growth Corporation. This is a company that I originally bought in May of 2020 back when it was $17 a share, and I continued to dollar-cost average in a small portion of my portfolio as it continued going up in price. Long term, I felt like the entire industry would continue growing, but Canopy Growth did the exact opposite. In fact, now we should just probably call them Canopy Decline, and in the process, I'm down another $14,000.

Now fourth, we got Corsair Gaming. Now, obviously throughout the pandemic, gaming hardware was an instant hit, and I expected them to continue that momentum at least to a small degree, but they didn't. But that was a mistake only learned in hindsight, and now it's game over while I'm down about $20,000 or 31 percent.

The fifth, we gotta talk about Peloton. Now we know many people see this as an overpriced, overhyped fitness company that was only in demand during the peak of the shutdown. And hey, you know what? Maybe they might be right. But until the end of last year, Peloton was actually a really well-performing stock until class action lawsuits and dwindling demands brought them back down to $42 a share. And today it seems like not even their fitness equipment could get the company back in shape, so currently I'm down about $18,000.

And six, here's the one I'm least proud of, and I'm very embarrassed to admit this one, but it's Robinhood. Now, here's the thing: as I'm sure you've seen on my channel, I have been an avid critic of Robinhood for several years. But at the end of the day, despite their controversies, there's still the brokerage that so many people use on a daily basis.

Like, if you go on Wall Street Bets, Robinhood is easily one of the most hated companies, yet everybody still posts screenshots of their Robinhood account. On top of that, even though the legalities of payment for order flow have been called into question, it's become so common across the majority of brokerages that I highly doubt it's going anywhere.

So when they were trading around $39 a share, I went ahead and dumped $150,000 into the stock thinking that long term they'll continue expanding their services. They'll eventually roll out crypto wallets, and maybe one day they'll get into banking, and then everything will be great, right? Wrong.

They were immediately hit with poor earnings, and the stock fell, so I wouldn't bought more. And not even a week after that, they announced that they were hacked, so the stock fell even more than that. Going into this, I felt like even though they always make headline news for anything they do, and I don't always agree with their decisions, they've still helped the market by bringing zero-dollar trades mainstream, so that's worth encouraging. But like I said, I made a mistake.

Right now, I'm down over 30 percent and over $80,000, which I'm not gonna lie, stings in all the wrong places. Of course, there are a few other options that did not pan out as expected, and thankfully the majority of my stock picks have more than made up for these lessons.

Now that the market is trading near its all-time high, with several of my positions being way higher than I ever expected them to be, it's making a lot of sense to start selling and taking some profits. And here's why.

Well, the reason I'm selling is because of a term called tax loss harvesting. This is a tax reduction strategy that allows you to sell stocks that have lost you money to offset the tax you would owe on the stocks that have made you money. And if that sounds really confusing, here's how it works in a quick example.

Let's say you bought two stocks in January. The first one of the stocks is up $10,000 in profit, and the other one lost you $10,000 in value. Well, ordinarily if you were to sell that first stock for a $10,000 profit, you would have to pay taxes on that profit, which could be anywhere from 10 to 50 percent depending on your tax bracket. But according to the IRS, you could offset that tax by selling another stock at a loss.

And if you structure it correctly, that loss could entirely offset the tax you would have paid on that gain. That means that I would be in a very strong position to sell off all of my losing stock market positions by the end of the year, and then I could use that loss to offset the stocks that I sell for a gain. At the very least, I'll be able to raise my tax basis so I won't have to pay as much in the future, and at the very most, I've made a tax-free profit.

This is an incredibly common tax strategy that a lot of investors utilize by the end of the year, and in fact, it's so common that it even has a term called the September effect, which typically results in a volatile stock market. The ETFs and mutual funds sell off losing positions for better tax efficiency. Not to mention, if you have losing positions that could potentially offset your profits, and it's worth it to structure these in such a way that reduces your taxable gain.

In addition to that, if your capital losses exceed your total profit, meaning you've lost more money than you made, then congratulations! You're a proud member of Reddit's Wall Street Bets, and that remaining amount could be deducted against your earned income up to $3,000 a year. And any amount above that could be carried forward into future years.

So let's just say you bought into Corsair Gaming and now you have a $6,900 loss. Well, if you have no other investment profits, you could reduce your taxable income by $3,000 in the first year, $3,000 in the second year, and $900 in the third year until your loss is completely deducted 100 percent.

However, there are a few rules when it comes to this and a few very important pitfalls you must avoid if this is to be done correctly. But before we go into that, I want to say a huge thank you to the sponsor of today's video, Wealthfront. For those not aware, Wealthfront is an automated investment platform that utilizes software to help find the optimal portfolio to grow your money long term.

After all, even though it's fun to buy and sell individual stocks, it doesn't have to be one or the other, and Wealthfront allows you to manage and automate your diversified long-term investments in a way that becomes the foundation of your portfolio in an easy, set-it-and-forget-it approach. They start by asking you questions about your goals, risk tolerance, and investment preferences, and then they take care of the rest all with just a few minutes of work.

They also automatically use a strategy called tax loss harvesting that can lower the taxes that you pay without any additional work on your end, and 96 percent of their clients using the standard recommended portfolio have had their advisory fees fully covered by that tax loss harvesting service alone. Plus, Wealthfront just added hundreds of new investment options so that you have even more of a choice to build a portfolio that you're excited about.

And they just launched a YouTube channel with helpful tips on personal finance, everyday investing, and home ownership. Not to mention, as long as you hit the like button, they've agreed to waive their 0.25 percent annual management fee up to the first $10,000 for life just by using the link down below in the description.

So as we approach the end of the year, if you're interested in learning more and signing up, feel free to use that link down below in the description. Sign up, and you could get started with as little as $500. So thank you guys so much.

Now, with that said, let's get back to the video. Alright, so in terms of doing a successful tax loss harvest, like I mentioned, there are a few rules that you have to abide by, and the first is known as what's called a wash sale. This is when you sell a stock for a loss, use that loss to offset a gain, and then immediately go back in and buy that same stock you sold for a loss within a 30-day window.

The IRS does not allow that because otherwise, everybody would be selling their losing stocks as soon as they could and then just continually buy back in. So you can't do that. However, there's nothing that says you can't go and immediately buy a different stock right afterwards, even if it's in the same category.

So for example, I could sell Robinhood and then immediately go and buy another stock brokerage like Charles Schwab. It's also totally fine to immediately buy back in that same stock you sold for a profit to increase your tax basis. That's because it's only the losses that apply to that 30-day rule.

The second rule is that the type of loss will first offset that same type of gain. And I know that sounds like it makes absolutely no sense, but it'll start to piece together in a second. When you invest in stocks, those profits will either be taxed to short-term capital gains if you've held them for less than a year or long-term capital gains if you've held them for more than a year.

In this case, if you have a short-term loss on a stock that you've held for less than a year, that tax deduction will first be applied to other stocks that you made a profit on for less than a year. And third, it's also important to mention that losses like this do not offset dividends.

That means even though my portfolio usually throws off about $56,000 a year in passive income, I cannot use those losses to cancel out that income, and it only applies to other capital gains in that category. Of course, don't get the wrong idea; it's never good to lose money.

And still, at the end of the day, I'm losing money. Like, I would much rather owe taxes on profits without having to use losses to offset that gain. But at least while doing this, think of it more like making the best of a bad situation or turning lemons into lemonade.

If you have a loss at the end of the year, you may as well sell that losing position to offset some profits and then increase your tax basis in the process. If you don't do that, then potentially you're paying more tax than you need to, and you're not taking advantage of the tax code that's designed to help save you money.

Of course, just for some context, when it comes to myself, this tax loss harvesting portion is only going to impact the small part of my portfolio, and selling off $180,000 of losses is only equivalent to 2.63 percent of my entire account. But still, considering that I'm in a high tax bracket where everything counts, I'll take any tax savings that I could get for just a few minutes' worth of work.

Besides that though, I'm still keeping everything the same. Just like last year, I'm continuing to buy into the market on a regular basis, regardless of where it's trading at, and this strategy only makes sense if you have losses that you want to offset profits with this calendar year. So you have until December 31st to make that choice.

So that's my somewhat slightly advanced stock market tax strategy for anyone wondering, and I hope that answers the question as to why I'll be selling off some of my stocks this year. And at the very least, I could save a little bit of money on my tax bill and learn my lesson about investing in Robinhood.

Just watch it skyrocket the moment I sell. Wouldn't that be funny? So with that said, you guys, thank you so much for watching. I really appreciate it. As always, make sure to destroy the like button, subscribe button, notification bell. Also, feel free to add me on Instagram and on my second channel, The Graham Stephan Show. I post there every single day.

I'm not posting cures, so if you want to see a brand new video from me every single day, make sure to add yourself to that. And lastly, if you want a totally free stock, now worth all the way up to a thousand dollars, these link down below in the description and sign up for public using the code Graham. You may as well do that because it's pretty much like free money.

And in fact, I'll show you right here. Let's see what free stock I got. There we go. Look at that! I got eight dollars worth of Apple. So if you want a free stock, link down below. Thank you so much for watching, and until next time!