more on the mutual fund selling season

My fitness tracker went berserk yesterday with stock price updates. The texts were mostly about former pandemic darlings that have since fallen on hard times, many of them online financial companies. All of them were tumbling out of bed, hitting all-time, or at least ytd, lows.

No doubt part of this had to do with the latest Fed pronouncements indicating that interest rates in the US will stay higher than the market consensus has been hoping for, and for longer. But I think there’s more than that going on.


One of my alerts was about Rocket Companies (RKT), the largest home mortgage originator in the US. It’s typical of what I was seeing.

RKT peaked in August 2020, shortly after going public, at $28+ a share. It faded and then rallied to $25+ in early March 2021. It’s been mostly downhill from there. As I’m writing, the stock is trading at $8.42, down about 70% from its all-time high, and by 20% so far this month. In contrast, the S&P 500 is up by around 10% since 3/21, and is down by 3.5% so far this month.

Morningstar, which I regard as a very reliable, if a bit prosaic, information source estimates the stock is worth $13, or about 50% more than it’s trading for now. The analyst cautions, however, that the stock is not likely to do much until there clear signs interest rates have peaked and are on their way down.

Why the selling?

…and now, in particular.

I see several reasons:

–no one wants to have a stock that’s cratered like this in the year-end list of holdings sent to shareholders. It potentially opens up a whole can of worms as you’re asked to explain what has happened.

–as a PM, you may try to console yourself (a bad idea, in my experience) for your mistakes–i.e., buying too high and holding on too long–with the thought that once all the buyers at $20+ sell (or their bosses force them to sell) the stock will go up, well, like a rocket. The paradox here is that you’re one of those mistaken bulls whose holding on is keeping RKT in the doldrums. In other words, you’re in a no-win situation.

–there’s an income tax value in realizing losses. If you bought at the absolute top, you have an unrealized loss of ~$17. This probably has a tax value of $4 a share. Why not recognize this and come back to reevaluate the stock in early 2024? (Btw, dollars to donuts (or doughnuts) you’ll sell but never come back–which tells you again how little reason #2 tends to be worth).

Of these reasons, the first is, I think, the most powerful and most commonly used.

Anyway, what my watch showed me yesterday is a surprisingly large number of potential housecleaning cases like RKT. What’s unusual to me is that the overall market is holding together relatively well (so fr, it least) despite this activity.

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