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how does Michael burry take advantage of tax loss harvesting that's what we're gonna talk about today and as you can see Mike burry is real excited about this topic that's okay Mike it's interesting I promise you do it but we're gonna talk about this with the help of Brandon from a crops and he's our resident value expert so both him and burry our value guys so Brandon will help explain what exactly they do but before we get into that I got to tell you the Nasdaq all-stars is open this is my momentum system which is different from value but it still works real well and in my opinion it's like a hundred times easier it's all automated and all back tested and pretty much tells you what to do and that's how I like it so I could spend minimum time training cuz I got other stuff to do now access to this closes Sunday so if you're interested definitely check it out because I'm not gonna open it up again until probably June so it's gonna be awhile I'm gonna put a link to this video right here that explains the system a lot more I'm gonna put that link down below in the comments and description so click on that link watch this video and then on this video you'll see the link to actually sign up if you're interested but okay back to tax loss selling or harvesting so first of all what is tax loss sell well are you really doing is selling your biggest losers to shield the gains you've made and the rest of your account it's just a tax strategy because you're allowed to offset losses so if you lost $3,000 on a stock investment you can take that and use it to offset profits on the rest of your account or otherwise on your ordinary income it's just the government giving you credit for losing money it's like the one time the government cuts you some slack and feels bad for you the rest of the time they're just taking your money so that's why people just love this idea of tax loss harvesting now a lot of investors do this like retail investors and professional guys but for value guys like Brandon and Mike burry this creates opportunity and that's what we're gonna talk about how you can use other people selling their losses to your advantage so most of the tax loss harvesting happens around Thanksgiving and Christmas the deadline is usually around the last week of December because that's banned year right and there's a cutoff point for your taxes so tax loss harvesting happens for a few reasons the first obvious one is to shield any gains from investments or ordinary income so that's what I explained before you're showing the loss to offset those gains so you don't have to pay taxes on them but the second reason which is a big reason to for professional managers not as much as retail is for advisors and fund managers to window dress their portfolio now I talked about this in the santa claus rally video but we'll go into more depth here so the thing you got to understand when you're a professional money advisor or manager is that you're playing a different game guys who aren't in the industry think okay if I go professional then all I got to focus on is returns which is primarily true yeah but there is also a lot of other things a lot of business things like raising capital is a huge part of being a professional depending on your specific job of course but a lot of times yeah it is especially if you're managing your own fund and the other thing is client management so this window dressing Falls kind of under that client management because as a manager you're getting evaluated every quarter and every year right and if you have a bad quarter or a bad year your clients are gonna take their money away from you so that's why some of the best investors especially this year in the last few years there's been tons of redemptions from their funds money has been piling out and that's because like these these are the greatest investors right these guys are amazing but their client might not understand that they don't understand how the market works how it goes through cycles sometimes a strategy works and sometimes it doesn't just like Buffy he may underperform for a period of years but then knock it out of the park when it's the right time but investors don't understand that you got to go through those rough patches to get those nice time so they start pulling their money even when it's a really famous investor with a great track record so what a lot of portfolio managers have to do is kind of like dress up the portfolio so the way they can do that is by exiting their clients biggest losers exiting turnaround projects and removing small cap companies so exiting the biggest losers once you get rid of that stock then your client isn't gonna pay as much attention to it so when they look at the portfolio they only see stocks that are performed well that year and gone up so they're a happier and then exiting turnaround projects and small cap companies well these things are always gonna be more risky and for professional fund managers depending on what they're doing they can't take that much risk or I should say the risk to reward in their own career is not there so think about it if you do just as well as the next guy right you all match the index then you're all safe but if you take a risk in your portfolio as a portfolio manager and you think okay I got to get into this turnaround or this small cap it's gonna be huge well if it is huge then okay great you made better percentages than the next guy and you get a nice bonus you might get more capital inflows too but if the risk turns out to not pay off and goes to zero and loses the clients money and you know you get your performance down on your portfolio then you run the risk of losing your job so this is why you see a lot of fund managers are just causing indexers they're basically like buying spy and holding on cuz you're not gonna get in trouble for doing as well as the next guy but you take a risk and screw up then you're gonna be screwed so one of the things they do as it says here is exit all those risky investments you don't want to show the client that especially when it didn't work out so Michael burry even talks about in his investor letters he said indeed as the quarter came to a close the stock came under renewed selling pressure presumably as other investments funds work to window dress their portfolios for public viewing some element of early tax loss selling may have played a role too so this is something that burry tracks like he knows it's a factor that plays into these stocks getting beat up and I should also explain Brandon and Barry their value guys right so they're looking for stocks that are undervalued so a good way to find these undervalued stocks is when you tap into a psychological thing like this like what these professional fund managers are doing why they're doing it and they're doing it every year it's a structural thing at that point and obviously when they're selling is pushing stocks down even more and that creates that opportunity because they aren't being sold because their value has gone lower but because of this tax loss harvesting and window dressing so that's the whole idea of this strategy of how these value guys like Brandon and Michael take advantage of this so if you want to find these types of stocks where this is happening first thing you want to do is scavenge the 52-week all-time low list these are stocks that are down 40 50 60 even 80 percent in a year so the point is most of the investors that bought these stocks are probably in the red and they'll want to sell before the end of December for them you know for reasons we've already discussed another great way to find these stocks is just in thematic movements of the year so in 2019 oil and gas got beat up so you'll probably find a lot of those names getting hit this tax loss harvesting the brain and says any stock that's down over 50% is a good candidate for more tax related selling pressure now a lot of these stocks that are gonna be down that much they're gonna be terrible stocks like you don't want to catch a falling knife here they've dropped 80% for a good reason so you still got to do your value analysis and find the ones that are actually good companies they got hit even harder with this selling because of this tax loss harvesting so here's how Brandon Desmond he puts together a watch list of 10 to 20 stocks that he thinks are gonna get hit hard with the tax selling and window dressing but then he dives deeper into those names to make sure they're not trash so here's what he's looking for companies with little to no debt because those guys aren't gonna go bankrupt it's very difficult when you don't have that debt weighing over you he also wants to see a potential catalyst for earnings or revenue growth so kind of a turnaround place and he wants to see insider ownership because if the guys who own the company are buying more shares then clearly they know something and a big thing he also uses to help him are charts which I know value guys don't care they're not supposed to use a brand is a smarter value guy and you know obviously I love charts when I'm trading momentum just like in the Nasdaq all-stars so like this makes perfect sense to me and it makarov SUIM you to always look at the value guys fundamental theses and then put our technical analysis over it cuz you don't want to be sitting with dead money and the technicals tell you when the stock is ready to move so like Brandon says here he uses the charts to see you when the downward momentum has been exhausted because you don't want the thing to keep falling when you're about to buy it you want it to base and then once the consolidation occurs he buys around the low price support or after a breakout from that range and as he explains this strategy relies on mean reversion he's not looking for the best businesses to hold forever he's looking for ugly businesses that are oversold and overlooked so these might be shorter term plays even for a value guy so here's a few stocks he's looking at the first one is Medifast meed as you can see it's been nice and beat up this year doesn't look like it's basing just yet but the company trades at 16 times earnings and nine times Eva da they have zero debt and an activist investor who recently took a 15% stake in the business so it has a lot of the characteristics you want in these types of stocks so cheap price no debt and incentivized management so the value investor Bill Miller actually took a position is company and he says if it reaches its 2021 target he'll be trading for only ten times earnings out a couple of years and he thinks that the company has the potential to double it's always nice to have other smart value investor guys being in on something before you get in because they've usually done a lot of the due diligence for you of course you got to do your own research too but you know it's a good signal another one their brain is looking at is kirklands and no this isn't Costco Kirkland brand like I thought it was it's a specialty retailer focused on home decor and gifts I don't know I've never heard of them but you can see how hard they got hit this year and it actually does look like they have a bit of a base going on so it's down 87 percent year-to-date but the shares are liquid so if people want to sell those managers that have this company they'll be able to sell it off and the company is a 16 million dollar nano cap stock so any advisor caught with something that risky you know they're gonna be in a lot of trouble so of course they want to sell it off company has zero debt and it's trading at an 88 percent discount of Book value last year they generated 15 million in EBIT Dow that's almost its entire market cap so the company is losing money but it has also bought back a million shares over the last six months so clearly it looks like there is some value here next stock is TripAdvisor which has also had a terrible year so the stock price keeps falling even though TripAdvisor has grown their revenue cashflow and paid down all their short-term debt so despite that they're down 48 percent this year Wow share prices actually haven't been this low since 2012 and in 2012 they generated 736 million in revenue but last year did it did 1.6 billion and yet this share price is the same so the company trades for 12 times free cash flow and nine times a bit da so it's very cheap again with value just looking for things that are missed value so investors aren't looking at it right or they're undervalued by nature it's gonna be a contrarian play just like you'll see in this next one and this next one is game stock which you can see they've been getting hit hard for years now and gamestop if you guys remember from all the articles that came out this year is one of burries big investments so he's been actively pushing for massive share buybacks and the stock is actually up over 30 percent since burry sent a letter to GameStop's management you can see that right here and again if burry is in game stop then you know there's some type of value there and he explains his Bo thesis over the next two to three years we expect GameStop's business will perk up a bit during 2020 and 1az the new council cycle would the software updates and introductions finally gets underway but what's happening now in the stock is about more than late cycle doldrums or even the streaming paradigm shareholders do not have faith in current management and have not been inspired by new leadership policies so gamestop it's not an easy investment but there is potentially a lot of value there at least according the Berean brandon so there you have it that's how you can take advantage of tax loss harvesting that other investors are doing now me personally I like to do things a lot simpler that's why I trade momentum and that's why I have this Nasdaq all-star system which again is only open till Sunday if you're interested in checking it out go click below this video and it'll take you to this video where I explain a lot more about what the system is and on this video you can actually go sign up for it you can see I'm wearing the same thing in this video that I'm wearing in this current video because all I wear in my life are black tees let's be honest there's there's no way around it but I'm very happy and my black tees thank you and yes this is a different black tee every time because you know I like to stay clean as well but anyway check out that link down below so you can learn more about the system it's only open till Sunday and if you haven't already make sure you subscribe to this channel and hit that notification bell so you get email notifications for more videos like this subscribe and I will see you in the next video stay fouled out there bye
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