You are misunderstanding what makes the price of a stock go up and down.
Every time you sell a share of a stock, there is someone else that buys the stock. So it is not accurate to say that stock prices go down when large amounts of the stock are sold, and up when large amounts of the stock are bought. Every day, the amount of shares of a stock that are bought and sold are equal to each other, because in order to sell a share of stock, someone has to buy it.
Let me try to explain what actually happens to the price of a stock when you want to sell it.
Let's say that a particular stock is listed on the ticker at $100 a share currently. All this means is that the last transaction that took place was for $100; someone sold their share to a buyer for $100.
Now let's say that you have a share of the stock you'd like to sell. You are hoping to get $100 for your share. There are 2 other people that also have a share that they want to sell. However, there is only 1 person that wants to buy a share of stock, and he only wants to pay $99 for a share. If none of you wants to sell lower than $100, then no shares get sold. But if one of you agrees to sell at $99, then the sale takes place. The ticker value of the stock is now $99 instead of $100.
Now let's say that there are 3 new people that have decided they want to buy a share of the stock. They'd like to buy at $99, but you and the other person left with a share want to sell at $100. Either one of the sellers will come down to $99 or one of the buyers will go up to $100. This process will continue until everyone that wants to sell a share has sold, and everyone who wants to buy a share has bought. In general, though, when there are more people that want to sell than buy, the price goes down, and when there are more people that want to buy than sell, the price goes up.
To answer your question, if your selling of the stock had caused the price to go down, it means that you would have gotten less money for your stock than if it had not gone down. Likewise, if your buying the stock had caused it to go up, it just means that it would have cost you more to buy the stock. It is just as likely that you would lose money doing this, rather than gain money.
Answer from Ben Miller on Stack ExchangeYou are misunderstanding what makes the price of a stock go up and down.
Every time you sell a share of a stock, there is someone else that buys the stock. So it is not accurate to say that stock prices go down when large amounts of the stock are sold, and up when large amounts of the stock are bought. Every day, the amount of shares of a stock that are bought and sold are equal to each other, because in order to sell a share of stock, someone has to buy it.
Let me try to explain what actually happens to the price of a stock when you want to sell it.
Let's say that a particular stock is listed on the ticker at $100 a share currently. All this means is that the last transaction that took place was for $100; someone sold their share to a buyer for $100.
Now let's say that you have a share of the stock you'd like to sell. You are hoping to get $100 for your share. There are 2 other people that also have a share that they want to sell. However, there is only 1 person that wants to buy a share of stock, and he only wants to pay $99 for a share. If none of you wants to sell lower than $100, then no shares get sold. But if one of you agrees to sell at $99, then the sale takes place. The ticker value of the stock is now $99 instead of $100.
Now let's say that there are 3 new people that have decided they want to buy a share of the stock. They'd like to buy at $99, but you and the other person left with a share want to sell at $100. Either one of the sellers will come down to $99 or one of the buyers will go up to $100. This process will continue until everyone that wants to sell a share has sold, and everyone who wants to buy a share has bought. In general, though, when there are more people that want to sell than buy, the price goes down, and when there are more people that want to buy than sell, the price goes up.
To answer your question, if your selling of the stock had caused the price to go down, it means that you would have gotten less money for your stock than if it had not gone down. Likewise, if your buying the stock had caused it to go up, it just means that it would have cost you more to buy the stock. It is just as likely that you would lose money doing this, rather than gain money.
I think the simple answer to your question is: Yes, when you sell, that drives down the price. But it's not like you sell, and THEN the price goes down. The price goes down when you sell. You get the lower price.
Others have discussed the mechanics of this, but I think the relevant point for your question is that when you offer shares for sale, buyers now have more choices of where to buy from. If without you, there were 10 people willing to sell for $100 and 10 people willing to buy for $100, then there will be 10 sales at $100. But if you now offer to sell, there are 11 people selling for $100 and 10 people buying for $100. The buyers have a choice, and for a seller to get them to pick him, he has to drop his price a little. In real life, the market is stable when one of those sellers drops his price enough that an 11th buyer decides that he now wants to buy at the lower price, or until one of the other 10 buyers decides that the price has gone too low and he's no longer interested in selling.
If the next day you bought the stock back, you are now returning the market to where it was before you sold. Assuming that everything else in the market was unchanged, you would have to pay the same price to buy the stock back that you got when you sold it. Your net profit would be zero. Actually you'd have a loss because you'd have to pay the broker's commission on both transactions.
Of course in real life the chances that everything else in the market is unchanged are very small. So if you're a typical small-fry kind of person like me, someone who might be buying and selling a few hundred or a few thousand dollars worth of a company that is worth hundreds of millions, other factors in the market will totally swamp the effect of your little transaction. So when you went to buy back the next day, you might find that the price had gone down, you can buy your shares back for less than you sold them, and pocket the difference. Or the price might have gone up and you take a loss.
Is it better to realize the loss and buy back in at the lower price or just hold it?
I'm not a big fan of hypothetical questions. It depends on what you're trying to optimize for, i.e. taxes or total return. Most investment advisors would tell you "don't let the tax tail wag the investment dog."
There's an opportunity cost to selling with the intent to buy back in at a lower price. What if it recovers as quickly as it dropped? What if it drops further?
Time in the market generally beats timing the market. If you liked the stock at $150 and intend to hold it indefinitely, you should love it at $100 and consider buying more instead of selling.
Adding my comment to the answer:
You can't realistically assume that you're selling and buying at the same price.
Even if you did, what's the point? If you're selling/buying near instantaneously the loss will be disallowed due to the wash sale rule, which prohibits selling an investment for a loss and replacing it with the same or a "substantially identical" investment 30 days before or after the sale.
If you wait long enough, it's virtually impossible to buy back in at the same price. At a minimum, you're crossing the bid-ask spread.
If you're asking about taxes, you'd need to specify a country. If you're in the US (based on your profile), you'd have a wash sale unless you bought the shares back more than 30 days later in which case you wouldn't be allowed to deduct the capital loss. So in the US, unless you want to exit the position and stay out for more than 30 days before buying the shares back, you're better off holding the shares.
If you are willing to stay out of the position for more than 30 days, then it can be reduced to a math problem. But you'd need to make guesses about things like what the capital gains tax rate will be when you sell, what discount rate to apply to get the present value of future cash flows, etc. And if you're thinking of holding the shares until you die, potentially you'd never owe capital gains tax...
I'm new to fidelity trading and was hoping someone could offer some guidance. I'm currently holding multiple shares at different values of a particular stock. I'd like to sell only the higher priced stock and then rebuy at the current value which is substantially lower. I'm sure this has been posed on this channel before, so if there's a thread I should review would appreciate being pointed in the right direction!
Thank you.
For example if I buy a stock for 100 dollars, and then it tanks down to 90. Should I sell it for 90 if I could get it for 80 as it goes down?
I understand that if it goes down to 90, but never goes lower — I could be out of my money. But in theory if I sold early during a dip and rebought it again later to lower my average — is that effective?
The math confuses me sometimes, lol...
UPDATE: Thank you for all the thoughtful and patient responses. Exactly what I needed to hear to stop obsessing and just leave the funds where they are! Thank you again!
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I’m a young investor, and this is probably a super dumb question… but please educate me instead of downvoting (or at least before downvoting).
The question: why not sell my VTI now that the market is at high $220’s and rebuy when VTI is back down at $200’ish or below?
I know we cannot predict the future, but the whole time I’ve been in the market I see VTI bouncing back and forth between approximately $190 and $228. It seems reasonable to think I will be able to rebuy at $200 or lower within 6-12 months. For example, VTI was at $203 just a month ago.
Also, I’m unemployed for all of 2023, and 95% of the VTI I hold was purchased more than 12 months ago. So would I actually be on the hook for much tax when making a few K in profit under these circumstances?
If I did this, I could take the profit as a little win (I badly need a win) or I can simply reinvest and buy more shares at a lower price later.
But that all seems too easy to be true. There must be something I’m missing, please cure my ignorance, Bogleheads.
EDIT: Should also add, this VTI is in a standard brokerage account, not in 401k / IRA.
This almost sounds like tax gain harvesting (which is similar to, but less talked about that, tax loss harvesting), where you sell shares at a profit while in a low (or 0!) tax bracket to minimize the tax you owe, and re-buy at the higher price to reset the basis so that a future sale will have a smaller gain (or even a loss), minimizing potential tax impact.
My trouble with your approach is that converting long-term gains to short-term gains is usually (or always, unless there's a special case I'm missing) undesirable. Long-term gains get preferential tax treatment; the 3 rates are 0%, 15%, and 20%, and the rate is always lower than the rate on ordinary income (which is the rate applied to short-term gains).
Let's look at an example (based on 2022 numbers): you are a Single person earning $40,000 per year, and you have $1,000 in long-term capital gains, which last year was only $500 in gains (also long term). If you sell and realize these gains this year, your income is $41,000, which means these long-term gains are taxed at 0%. Alternately, if you sold and rebought last year, your $500 gain was taxed at 0%, but when you sell now, your new $500 gain is taxed as ordinary income (12%).
The purpose of the wash sale rule is to prevent tax loss harvesting, which defers (not eliminates) the tax benefits of losses. Technically you can also have tax gain harvesting if you expect your capital gains rate to be higher in the future, or have losses that you are willing to use to offset those gains.
As of now there is no rule against tax gain harvesting, since it benefits you somewhat but does not hurt the government. They are typically more concerned about deferring taxes than what rate you end up paying. In other words, the rules are geared towards getting tax money sooner, even if it means you get the benefit of a lower rate.
Note that it would be very unusual for long-term rates to be higher than short-term rates in different tax years, but it is plausible for you to have lower short- or long-term rates now than in the future since they are based on ordinary income brackets. So if you have an unusually low income year you might actually employ tax gain harvesting to take advantage of lower gains rates now.
Also note that wash sales are not illegal, they just defer the tax break until you ultimately close your position. You can still sell at a loss and immediately buy back, you just don't get the immediate tax benefit.
I understand the wash sale rule for losses but I’m just curious if I can repeatedly buy and sell the same stock as long as it’s not a day trade. For example say I buy a stock at 20, a day or two later it’s at 22 so I sell, goes back down to 20 a couple days later so buy and repeat.
Like maybe sell a stock at $50 and then rebuy the next day when it’s at $45…
Is robinhood capable of this or is there a waiting period for selling/buying?