That’s the rub: The 30-day period from mid-December to mid-January is often one of the most favorable for beaten-down stocks. Many investors are reluctant to dump their losers right before they may rebound.
The key to getting around the wash sale rule is to find another stock or group of stocks that over the trailing 12 months have been highly correlated with the one you’ve sold. You then can sell your losing stock, invest the proceeds in the substitutes, and then reverse these transactions in a month’s time. The assumption behind this strategy, of course, is that securities that are highly correlated with each other over the trailing 12 months are likely to remain highly correlated for another 30 days.
Even if your substitutes are imperfectly correlated with the stock you have sold, your reduced tax bill will make it more than worth your while to pursue such a strategy. I calculate that the stock you sold will have to do 28% better than your substitutes over the 30-day wash-sale-rule period in order for you to be worse off for harvesting your tax loss.