Buy the Hate During Tax Loss Selling Season

Christian DeHaemer

Posted December 26, 2023

Here it is – the end of the year.  All the gifts have been given and the good ones broken.  The wrapping paper is in the trash and the leftover turkey is jammed into the fridge waiting patiently to be consumed.

Now, like all normal people, your holiday thoughts turn to maximizing your tax loss selling.  And, like all Pro Traders you also start to wonder how you should make some fast money by buying some oversold small cap that was unfairly crushed due to this annual event.

What is tax loss selling?  I thought you’d never ask.

Tax loss selling, or tax harvesting, is when you sell a stock that you lost money on.  You are eligible to put up to $3000 of a loss against a taxable gain.

If you are like me, you have some long-shot losers in your portfolio which don’t look like they are coming back.  It is a good time to sell them before the end of the year so you can write it off against your 2023 taxes.

The flip side of this is that many other people will dump good stocks that are down for the same reason.  Tax loss selling can really punish a stock and make for some great buys.  And if it is a good stock, many people (or funds) will pick up the company on the first trading day of the new year because they want it in their portfolio.

Got it? Good.

So for our little exercise we are looking for small cap stocks because they move more and have a better chance of selling off this week.  Furthermore, we are looking for strong insider buying.  Strong insider buying in small cap stocks tells me that the management is a believer in the company and/or thinks the share price is too low.

There are plenty of companies out there that fit the bill.  I’d like to mention Skillz (SKLZ).  Skillz is a company that “operates a mobile game platform in the United States and internationally. The company primarily develops and supports a proprietary online-hosted technology platform that enables independent game developers to host tournaments and provide competitive gaming activity to end-users.”

Over the past few months 11 insiders have bought 341,000 shares of SKLZ often at prices 80% higher than the current $6.40.  

SKLZ is undervalued.  The stock has a price to book of 0.60 and a price to sales of 0.80.  They have $334 million in cash and a market cap of just $135 million with $164 million in debt.

I mean, it doesn’t get any cheaper than that.  The market values them at less than the amount of cash they have in the bank!

I have no idea if the mobile game platform is going to make money, and, revenue was down last year.  But you have to think that the insiders believe that it will turn around.

The share price topped out at just over $18 for the year back in February, and sold off to $4.32 before bouncing back to $6.40 where it is today. Keep an eye on it over the next few trading days and you might be able to pick it up around $5.50 on strong selling volume with the idea to sell it in a month or so.

All the best,

Christian DeHaemer
Pro Trader Today