I love a good sale. This one took a little longer than usual to start given that tax loss selling seems to start earlier and earlier each year in the markets.
It terms of OYL, after hitting .24 a few weeks back, it looks like investors are booking their losses against gains in other areas. One only has to look back to January to March of 2012 to see that there were a lot of people buying this stock over $1.20. People looking to book the loss for 2012 (in Canada they have until December 24 to do so) would have sold at any price as it does not matter if it was .145 cents or .20 cents - their book value dropped 80-90% this year. If they made money in other areas (such as riding RIM from $6 to $13) they need to balance the capital gains against capital losses. Thus the selloff we are seeing in companies like OYL before Xmas.
The risk of taking a tax loss at these prices is that they cannot rebuy the stock for 30 days without losing the benefits of the tax loss (called a superficial loss in Canada). Superficial loss rules apply when an investment is sold and the ‘same or identical’ property is repurchased within 30 days.
So the seller this week must sit out for 30 days during which time they are likely hoping the stock remains neutral and they are able to get back in for what they cashed out at. Could be a risky move assuming the price returns to .22 cents next month. At 14.5 cents today, a future buy-in at .22 cents represents a loss of 1/3 of the original pre-tax loss sale holdings.
The key is that this time of year brings tax loss selling which is typically followed by appreciation 30 to 60 days following the period of tax loss selling. A buy today and a return to .22 represents a 50% return on investment. That is why I added 30K more shares today. The price could still continue to move downward - nobody knows - but at some point I needed to jump in and today seemed as good as any as there are only four tax loss selling days left in which to scoop up the bargain priced shares.
Merry Christmas All,