bullish on iron ore sector, page-15

End of FY bargain hunting.

"Value investing is, at its core, a search for inefficiency. As with other forms of hunting, there can be a seasonal element to the chase. At this time of year, we keep our eye out for a particularly type of inefficiency – one caused by tax loss selling.

Leading up to the end of financial year, shareholders often choose to sell ‘losers’ to crystallise a capital loss, in order to reduce the tax bill on capital gains made elsewhere. Sometimes, those sellers are too focused on the capital loss and not enough on the value they’re giving up.
There’s also the prospect of irrational ‘window dressing’ by some fund managers at this same time of year. Many fundies would rather ditch a problem stock now than report a big loser stock among their fund’s top 10 holdings come the end of financial year.

Key Points
Financial year end can cause indiscriminate selling for tax loss purposes
Be prepared to act quickly

Both influences can lead to irrational sell decisions. Of course, in an efficient market, rational buyers will rush to take advantage and stop share prices falling too sharply. But who believes the efficient market hypothesis anyway? Markets are mostly efficient, but not perfectly so.
Buyers don’t always turn up, especially for smaller stocks.

Agility counts
But to take advantage of tax loss bargains, you need to be nimble. The prospect for genuine irrationality rises closer to 30 June but you may have only a few hours to snap up any genuine bargains.
Now is time for preparation.

First, they’re already cheap enough to warrant a positive recommendation from your analytical team. Second, their stock price is down more than 15% from its yearly high, meaning that at least some shareholders are sitting on substantial unrealised capital loses. These are the stocks where the temptation for selling will be high, especially in a year where investors may be locking in gains made elsewhere in the market."

I still have an AGO bookmark - but, waiting till closer to 30/6 to see if this end of FY year idea holds water. Who knows where the price could end up in current sell-off.