Don’t Be Afraid of Taking Losses…
February 21, 2026
Yesterday, the Supreme Court placed a bit of a curb on the Trump administration’s endless expansion of the powers of the Executive Branch, reaffirming that the power to impose and collect tariffs rested with the Congress. The administration will not simply accept this decision so uncertainty around tariffs and international trade will continue.
That’s the context, not the topic. Uncertainty often leads to volatility - of which there was already plenty. And that volatility can often lead to an opportunity to make good use of investing mistakes…an opportunity to make lemonade from investment lemons. Tax loss harvesting – selling investments that are losers, that are trading below their purchase price, can improve overall returns. The losses, which never expire, can offset capital gains and even, up to $3000, offset income on your tax return. It is what you keep that matters… using realized losses to reduce your taxes will help you keep more.
This not a new idea at all… what may be a bit novel is to think of it as a year-round opportunity. Typically, as calendar year-end approaches, savvy investors and attendant investment advisors review their accounts, looking for losing positions that can be jettisoned to realize the losses. But there is no reason to wait, the realized losses never expire. More to this point, sometimes the investment idea wasn’t terrible, maybe it just fell victim to bad timing or kneejerk market overreactions.
You (or your advisor) made a mistake – bad timing or falling victim to FOMO? Don’t just sit there unhappy… ask yourself some questions. Has anything changed about the fundamentals of the company or the sector? Do you still have confidence in the investment? If the answer to the first question is yes and the second question is no, just sell, realize the loss and move on. No whining... now you have cash to be redeployed elsewhere and a loss that has utility that never expires.
However, if the answer to the first question is no and the second is yes, take a different tack. There are several options. If it seems likely that not much will change in the short term, sell the position, book the loss, park the cash in a money market fund and after 31 days, buy the position again. Or you can sell the position in your taxable account and buy it in your retirement account so that you remain invested in the idea and after 30 days, you can buy it back in the taxable account if you want the position there. [You have to wait at least 30 days before you reinitiate a position in your taxable account because any less time and the IRS does not allow you to take the loss – it is called the ‘wash sale rule’. Look it up if you want more clarification.]
I have been thinking about writing on this topic for some time. Lava Wealth was very busy doing just this kind of thing for clients after the ‘Liberation Day’ market debacle last spring. Consequently, many clients finished the year with significant market gains while having realized losses. Now with all the uncertainty and market volatility, it seems like similar opportunities will present themselves again.
Just last week, the Wall Street Journal had a column on this very idea. They suggested one could use AI bots to help you find a comparable investment to replace the one you sell so that you remain invested in the idea and also realize the loss. That might be particularly helpful if you are investing in ETFs. And those geniuses – Claude, Gemini, Grok, etc. – may have many other clever options that I have not even thought about, much less touched upon.
If nothing else, raising this idea with your investment advisor would be a good reason to check in with him or her…never a bad idea to remind them that you are paying attention.
Again this week I do not have a link to another article… clever, non-financial pieces (like the Moylan Arrow story) are not always popping up. As an alternative, let me recommend the Acquired podcast. Two very smart, former VC’s doing incredibly engaging, very deep dives about the history of many of our most successful companies. Pick a podcast of theirs about a company you engage with – Costco, Rolex, the National Football League, Visa, Trader Joe’s, etc. – and you will be surprised by how interesting and engaging both the stories and the hosts are.