Tuesday closes yet another tipsy quarter in planetary financial markets… yet savvy investors have their eye not on September 30 but on October 31, a benchmark tax day for most U.S. mutual funds.

Halloween is the day that closes the tax year for most mutual funds in America. Scary stuff? Not for some.

Tax selling of lousy assets accelerates among weak-kneed fund managers in the first weeks of October, numerous studies and university thesis papers show.

Brave investors – who is not brave these days, oy? – in search of distressed securities need not search the credit-swap dumpster. About 80% of publicly traded companies worldwide (with the possible exception of Brazil) have paper (bonds, stocks, warrants) that is selling below fair value. Whose idea of fair value is up for debate, naturally.

Fund managers generally line up their quacking ducks well before October 31, which the U.S. Tax Reform Act of 1986 mandated as the close of the mutual fund tax year. The managers this year are knock-kneed, shell-shocked, and likely to wipe their hate slates clean, book the tax losses on sorry holdings, and move on to something that might actually make money.

Also of note is the world of hedge funds. A friend at a San Francisco hedge fund told me Tuesday morning that September 30 is generally the day when such funds receive so-called year-end redemption notices from their (very) limited partners. That is because the partners, or investors, are required to give the funds 90-day notice that they please please want our money back!

Thus (and I am told the financial newspapers have this angle covered in their articles Tuesday), the highly leveraged hedge funds could have as much as $1 trillion of selling ahead of them, if their limited partners cry uncle. My take on that one is that most hedge fund managers are responsible and have anticipated the carnage of redemptions, have lined up their quacking ducks, and are in the process of disposing of lousy assets or already have.

At any rate, I tend to look for investments I already own, hoping to add more at lower and lower prices. These days, that’s been easy. Most everyone can identify with the poor bloke or lass who keeps buying, week after week, firm in their conviction that fair value will out in the long run. And week after week, their manna from heaven turns into a hailstorm of stings, barbs, and misery.

My cosmos these days pertains to a small handful of mining companies, to sovereign gold coins we started buying in 2003 or 2004, to a high-profile Internet operator in Hong Kong, to an overseas generic pharma company, to life sciences, specifically genomic and diagnostic tools, to a stroke drug developer, and to a developer of flu vaccines. There are several others. Many are distressed.

My cosmos in terms of holdings is listed on www.stockhouse.com under the portfolio setting. I believe it is open to the public. I tend to hold onto my losers for years and years and years, selling only when I absolutely need a tax loss. I suppose that makes me either confident in the firsthand research I conduct or truly mad, as in crazy Eddie insane.

Luckily for me, America’s tax year closes December 31. And hey, I do not reckon I will have any compelling reason to book a tax loss against capital gains by then. But I am ever hopeful!  
 

Thom Calandra Report: For many investors who profited from a meteoric rise of commodities, mining, and life sciences companies, Thom Calandra acted as a beacon. Thom helped his followers find value in a quagmire of investment choices. Yet he is not a titled investment adviser. He is, more than anything, a scribe who goes where the action is. Thom co-founded CBS MarketWatch and MarketWatch.com. As the voice of Thom Calandra's StockWatch and The Calandra Report, Thom beat bushes for prospects. He fancied $300-ounce gold before that metal became an investment rage. Thom visited numerous biomedical companies, metals mines, and even a haberdashery or two, not to mention thin-crust pizza joints across the planet in his search for profit, fashion, and food. Thom's latest project, the novel Pablo by Numbers, was completed in summer 2008. He and Stockhouse this autumn will offer a subscription report with all the bells and whistles. The service is tentatively titled Thom Calandra Report. Please stay tuned and pruned to Stockhouse.com and to ThomCalandra.com for more.