As my investments add up (now valued at $298k) I’m trying to make smarter moves when it comes to (mostly) holding and yet selling when all signs point to it being time to let go of a stock. In the case of AMZN, this seems to be one of those times.
AMZN — which I have $3897 in at the moment, a nice 89% gain from my initial $2100 investment — yet the stock sticks out in my portfolio list like sore thumb due to its 835 PE. Given slowing growth I’m fairly confident that the stock will continue to retreat in value for the remainder of 2014. Starbucks is the only other stock anywhere near this and that’s at a 253 PE. Compare this to AAPL at 16 and GOOGL at 30 and one can say that AMZN is probably overvalued right now. Don’t get me wrong, I think Amazon is a great company, but the stock market has been a bit too kind to it. Now, like many holders of AMZN, I’m trying to decide what to do.
In 2014 I already have over $4000 of capital gains due to my selling of more AAPL stock earlier in the year to further diversify. Good problem to have, right? Well, I don’t want to be stuck with a giant tax bill at the end of the year, especially given my unstable job situation. To sell it, however, will be taking a hit on another $2000 or so in long-terms capital gains taxes, which is a few hundred dollars, not counting California state tax rates.
For someone who understands investing better than I do, I bet they’d do something like short AMZN to hedge their current position versus selling. If only I knew how to do that! I think for now I’m going to avoid any fancy schmasy investing methods and just decide whether to keep AMZN in my portfolio or sell it before it drops more. I just don’t have many capital losses to offset gains this year, which I guess is a good thing, but then that means much more tax.
Meanwhile, I just ready how if you own a house the first $250,000 of gains are not taxed AT ALL. What? That seems like a really good deal, though theoretically your house can lose money and if you’re not super wealthy chances are you can’t diversify when you are a homeowner, at least not for many years (probably never in California!) So it’s sort of a put-it-all-on-red move, except you are also living in your home at least.
Now if I ever want to buy property I’ll have to pay a ton of capital gains tax, which really makes my networth a lot less than it is on paper. I wish there were some good educational materials for how the non-1% can find tax loopholes and such to not waste so much money on taxes. $17,500 tax deferred annually on the 401k limit is not at all enough.
So what do you think, should I sell or should I hold onto AMZN?