To cut taxes, start with a tracking basket and, each time a stock drops, say, 10 percent, sell the loser and reinvest the proceeds in another stock or stocks chosen so the new basket continues to track well. If you want only short-term losses, which is usually best, sell within a year of purchase. I advise anyone considering doing this in a serious way to study it first with simulations using historical databases. When making an investment, it is important to understand how easy it might be to sell later, a feature known as liquidity. The lack of liquidity in hedge funds and in real estate
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