Should you sell now for a tax loss? To be honest, I debated whether to weigh in here at this time regarding the logic of taking tax losses in either of the two stocks at the current prices.
Years ago when I had my brokerage firm, I cannot tell you how many times I had to remind even sophisticated clients that to take a tax loss on a stock that still has logical merit, needs to be thought out. Many times I had been told by clients, "just sell it at any price, if it is lower, I get more write off". Really a pretty stupid way to manage ones own investments.
While such an action might be ok for a heavily traded multi digit dollar priced stock, where getting a dollar less is only a few percentage points, to randomly do the same with a sub dime stock where each penny down is a double digit percentage loss, is usually not a good idea. Again, I am referring to a security that has remaining merit.
There is no question in my mind that sometime in Jan or Feb, HENC will be trading between a dime and $.15 even assuming we hear nothing from the Company. This, once the tax-loss selling abates.
Hypothetically, If you take a tax loss on a 100,000 share position with a .25 cost basis by selling the stock at .07, you get to write off $23,000. If you are in a average 25% tax bracket and you are writing it off against long term gains of say $50,000, you do not get a dollar for dollar reduction against taxes owed, just against the gross gain.
So by taking the loss, you have lost real dollars of $23,000, but you have only reduced your gross gain by $23,000 so you will still have to pay taxes against the remaining $27,000. If the gain is long term, you only reduce your tax liability from about a max of $6,300 to around $2900 or you saved $3400 from taking that real $27,000 cash loss. Plus you have given up your established long term holding period. So if it is your intention to "just buy it back in 31 days", when you do buy it back, you will have to hold it for another year to get long term gain treatment on an ultimate sale. If you buy it back and sell it for a profit in less than a year, it is going to then be treated like ordinary income and taxed at your income tax rate.
Even if you are offsetting short term gain, (which must be offset first by all other short term loss) you only gain a penny or two per share depending on your tax bracket.
So if you think there is a good chance the stock will recover to even the low double digits, you did not do yourself a service in selling the stock so cheaply.
Historically, smart traders and investors thrive at this time of the year by ferreting out and buying stocks that have been oversold by tax-loss sellers knowing that once the selling pressure ends with the year, the odds are very good that the stock will have what they call the "January Effect" and bounce back a good bit as prior tax sellers are re-positioning the stock paired with holders who didn't sell before, so they sure are not going to sell early in the new year.
In HENC's case, as I mentioned before, we have seen the stock make three trips from over $.50 to a nickle since I first bought it in 2007, each due to a major drop in the price of oil.
But the big difference this time is that HENC, has now fulfilled its prior requirements of "carrying" the portion they did not own for three wells (paying for the full cost of the wells). Plus they did not have any, let alone $12 million in fully paid for 3d seismic, plus now both Licenses have been extended for 4 more years on 112 and 5 years on 444. Regarding the price of oil? Well it will fluctuate, but not even the wildest "bear" will question that the odds are very good for a triple digit price again within 4 years. The only possible "con" this time is that they do have a $1.6 million debt to the Parent HC, but even that is collateralize with only 20% of HENC's 53% of 444 ownership (Less than an 11% gross interest still leaving HENC shareholders with at worst, 40+%.
Now I started this by saying I "debated" whether to even bring this up. Why? because I am an opportunistic speculator at these prices where each penny up is a double digit gain. But out of respect for those who have joined the many "old-timers" as myself and suffered through this temporary disappointment, I decided to post this anyway. But the final decision has to be in the mind of the individual investor.
BTW, don't for one second read into the fact that I have not mentioned the real likelihood that the next wells will be drilled shortly, as a "hint" that I don't think it is likely. I only wanted to stress the worst case basis. If a well is announced shortly, a quick triple in current price is very likely.
My personal feeling is that HENC Management is not so stupid as to desert its position. From what I have been told by several parties in the "know" is that the well just plugged came in just as hoped for re the 3D seismic, though regrettably wet with water. There is no question that tens, if not hundreds of millions of barrels of oil are under these two leases and eventually someone is going to drill and capitalize on this. Personally, I expect to be included at that time.
Disclaimer: I am no tax expert so don't rely solely on what I posted here. What I posted is based on how I personally look at tax loss candidates.
All JMHO
AI
