READ TIME: 5 MINUTES
As the year-end approaches, tax loss selling becomes a key strategy for investors looking to offset capital gains. In this interview, Justin Hayek, a broker at Ventum, breaks down the mechanics of tax loss selling, how to navigate its timing, and why focusing on quality companies is crucial during this period. From managing portfolio exposure to spotting potential buying opportunities in a volatile market, Hayek offers practical advice for mining and exploration investors seeking to optimize their strategies amidst the seasonal sell-off.
You should be looking for companies that have strong projects, sound management, and solid financial backing. Stay focused on quality, and the rest will fall into place.
Justin Hayek, Ventum Financial
What is Tax Loss Selling and When Does It Begin?
Tax loss selling is a term that often surfaces in the last quarter of the year, and according to Justin Hayek, it’s a critical concept for Canadian investors to understand. “In Canada, the tax deadline for capital gains and losses typically falls on December 30th, and many investors don’t start crystallizing their losses until December,” says Hayek. Essentially, tax loss selling is the act of selling underperforming stocks to offset capital gains realized earlier in the year.
While many hope for recovery in their stock holdings throughout the year, reality kicks in around the holiday season when investors rush to sell. Hayek notes that some wait too long, hoping the share price will improve, but this often leads to rushed decisions in December, when the market sees heightened sell-offs.
Is There Value in Getting Ahead of the Herd?
Hayek shares that one common strategy investors use is trying to “get ahead of the herd” before the December sell-off kicks in. However, not everyone can succeed with this approach. “For whatever reason, people don’t start thinking about tax loss selling until late November or December,” Hayek explains. It seems that even when people try to be early, most still wait until the last minute. The result? The herd mentality remains strong, and many investors get caught up in the rush.
What Happens After Selling: Rebuying Strategies
A key question for investors: what should you do after you’ve sold your position to crystallize losses? “One strategy is to sell your stock and immediately buy a comparable company or ETF to maintain exposure,” says Hayek. This ensures you’re not entirely out of the market during your 30-day waiting period (the time frame enforced by Canadian tax authorities before you can repurchase the same stock to avoid tax penalties).
While not everyone follows this strategy, for those wanting continued market exposure, it can provide a buffer against missing out on future gains.
Do Markets Bounce Back After 30 Days?
Investors often wonder if the stock they just sold will quickly rebound within the 30-day window. While Hayek hasn’t seen many instances of a significant bounce-back within that time, he emphasizes that it largely depends on the company and its potential catalysts. If nothing significant is expected, there’s usually no rush to buy back in.
Does Tax Loss Selling Create Opportunities for Buyers?
Yes, there are opportunities. According to Hayek, the end of the year, especially around December, is a prime time for buyers to scoop up high-quality companies at a discount. “Liquidity tends to dry up in December, and stocks can decline more than expected due to low trading volumes,” he explains. This creates opportunities for savvy investors who are paying attention.
Hayek suggests paying close attention to well-capitalized companies with strong fundamentals that get unfairly dragged down during the tax loss selling frenzy. These could be strong candidates for a buying opportunity come January or February.
How Does the 2023 Capital Gains Tax Change Affect This?
A significant change in 2023 for Canadian investors was the government’s decision to increase the inclusion rate for capital gains. “Now, 66% of your capital gains over $250,000 are taxed, up from the previous 50%,” explains Hayek. While it’s difficult to predict how this change will impact the market as a whole, it’s likely to have a greater effect on higher-income individuals, possibly reducing the amount of tax loss selling this year.
Does Quality Matter More Than Timing?
An interesting takeaway from Hayek’s approach is that he stresses focusing on high-quality names over making timing decisions around tax loss selling. “I would not be inclined to sell a quality name solely for tax purposes,” he emphasizes. The priority should be on identifying companies with strong fundamentals, rather than jumping in and out based on short-term tax strategies.
Hayek acknowledges that many investors will get wrapped up in tax loss selling, but his advice is clear: if a company has sound management, a strong balance sheet, and a high-quality asset, don’t sell it just to play the tax game. Those names will often rebound after the short-term noise of December’s tax-loss season passes.
How Can Investors Stay Ahead?
If tax loss selling is a key part of your strategy, it’s essential to know what the market is doing. Data from past years show that stocks with poor performance in the first three quarters often continue to slide in the fourth. Hayek recommends that investors start looking for buying opportunities after tax loss season peaks in December.
In the broader mining and exploration space, Hayek believes there is still potential for selective, quality investments. “The key is to identify those companies with strong projects and good management, especially those that are proactive in their approach to capital raising and project development,” says Hayek.
Should You Be Looking at Specific Metals or Sectors?
Gold and copper remain the dominant metals that attract the most capital, according to Hayek. However, he’s also seeing growing interest in niche metals like lithium and uranium, driven by the energy transition. Recent financing rounds in these spaces show that investors are still eager to deploy capital into high-potential projects, particularly those nearing production.
As Hayek explains, “Even though early exploration funding is harder to come by right now, well-positioned companies with good assets and strategic investors are still managing to raise significant capital.” He points to a few recent financings that caught his eye: Montage Gold’s $180 million raise and Foran Mining’s $360 million deal.
Concluding Thoughts: Focus on Quality, Not Noise
As the conversation wrapped up, Hayek emphasized that while tax loss selling is an inevitable part of the market, the real focus should be on quality investments. “You should be looking for companies that have strong projects, sound management, and solid financial backing,” he reiterates. For those willing to weather the tax loss selling storm, these companies can offer solid value once the dust settles in the new year.
In short, don’t let tax loss selling distract you from the bigger picture. “Stay focused on quality, and the rest will fall into place,” concludes Hayek.
Justin Hayek Interview
This is a very brief summary of what was a lengthy interview. Don’t rely on this summary. Watch the full interview which is linked above.
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