Every fall, good year in the market or not, I explain to my clients why the final calendar quarter is always such a special time in the stock market. [Just who makes this "good" or "bad" year determination anyway, the Wall Street institutions, the media, investment letter writers?] Several forces are at work, all of which are part of "the conventional wisdom" but none of which will lead to good investment decision making, at least not very often.

In first place at the individual level is the mad rush to take losses on equity securities, and just because they have fallen in price from the time that they were purchased. Assuming (as I always do) that we are dealing with "Investment Grade Securities", lower prices should more logically be seen as an opportunity to add to positions cheaply than as an opportunity to reduce the 2005 tax liability on our other investment earnings. Losing (your) money is only a good idea in the eyes of accountants, particularly if the reasoning for buying the security was sound in the first place, and assuming that the issuing company is still profitable. This exercise is comparable to barging into your boss' office and demanding a cut in pay! 

Similarly, "letting your profits run" in order to push the awful things into 2005 is foolishness. Talk to those geniuses who didn't take profits in 1999 (or in August, ’87) and who are still waiting for their stocks or Mutual Funds to bounce back! The objective of the equity investing exercise is to take profits...the more quickly and more frequently, the better. There are no guarantees that the profits will wait for you to pull the trigger at your personal tax convenience. A better idea would be to elect people that would eliminate taxes on all forms of investment income in the first place...but what would all those poor accountants do?

Finally, beware of the Bond Swap. This is the reason your broker sold you those short duration, odd lot positions, in the first place! Now he has the opportunity to pick your pocket by exchanging them at a "nice tax loss" for another bond with "about the same yield". He gets a double dip commission (yeah, I know it's not on the confirmation notice, but a "markup" was applied to each side of the trade), and you get a bond either of longer duration or lower quality. Somehow its OK now to buy the longer duration bond? Really, this is how they finance their Christmas Shopping!

As if that isn't enough, Wall Street gangs up on you some more with a self-serving strategy that is blithely referred to by the Media as "Institutional Year End Window Dressing"...a euphemism for consumer fraud. In this annual "Shell Game", Mutual Fund and other Institutional Money Managers unload stocks that have been weak and load up on those that are at their highest prices of the year. Always keep in mind (a) that Wall Street has no respect for your intelligence and (b) that the media "talking heads" are entertainers, not investors. Institutions must show how smart they are by having quarterly and annual reports that reflect their unfailing brilliance, so they boldly Sell Low and Buy High with your retirement nest egg.

It would be an understatement to say that the sum of these year-end strategies typically adds to the weakness of the weak and "proves" the intelligence of buying the "strong". This is "The November Syndrome", a short-lived, annual investment opportunity that most people are too confused to appreciate. Simply put, get out there and buy the November lows and wait for the periodic and mysterious "January Effect" to happen. The media will talk about this phenomenon with wide eyed amazement. Most of those terrible losers begin to rise from the ashes while prices of the higher flyers tend to erode. What's happening, you might ask? Well, those professional window dressers are now selling their high priced honeys and replacing them with the solid companies they just sold for losses. Interesting place Wall Street.