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Online Share Trading

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Magic Formula Investing

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Question for anyone who has looked into this. One key principle of magic formula investing is being able to take advantage of offsetting losses in the year that the stock is purchased. MF advocates selling your losers within the first year of purchase, to offset your gains, and to sell 1 week after the purchase, to get the investment classified as a capital gain (in US tax law). But winners and losers have to be sold, so as to re-align the portfolio. Now, has anyone figured out how to adjust this strategy for the South African tax regime?
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NJ_1
Frequent Contributor
I think in SA your trades only qualify for CGT if your holding has been longer than 3 years. Obviously selling losers in the first year makes sense in SA as well as anywhere else. In my experience the shares on the JSE that qualify for many of the 1 year rotation systems stay pretty static from year to year, so then there is no need to keep swapping out winners and incur a tax penalty. Depending on your cash situation you could also add newly identified shares that qualify according to your rules to the portfolio, and then sell the slower performers only after 3 years. I can't really think of another way. It does, however, depend to a degree on the current market conditions and the success of your choices, because it would be worth it to swap out a share that has under -performed at, say, 3% growth, for one that will give you 50% growth in a year, even with the tax penalty.
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