The Reluctant Seller

Gustaf Hakansson
January 19, 2022
Help write your counterparty's victory speech

Disclaimer: This is not investment advice. Information is provided 'as is' and solely for informational purposes, not for trading purposes or advice. Any reference to or omission of any reference to any company should not be construed as a recommendation to buy, sell or take any other action with respect to any security of any such company. The author may hold positions in securities discussed. Any forward looking-statement is subject to risks and uncertainties. Read further disclosure in the Terms of Service.

How do you get business owners to sell at market lows?

The problem reminds me of a recent chat with a friend. He didn't want to sell his apartment at a loss.

Of course, he'd need to buy another apartment should he sell. As a result, assuming that the price per square foot is the same for the new and old one, it'd be good to sell at a market low. If one is set on moving.

I.e., a market low allows for selling and then buying an accommodation of similar quality while harvesting a tax-loss (or a lower taxable capital gain).

Selling at a profit would instead, due to capital gains tax, cause my friend not even to afford to buy his current digs.

So it would help if you educated potential sellers that, as long they immediately invest in similar opportunities, selling at market lows is preferable to waiting for a market recovery.

They keep free leverage by recycling more latent capital gains into the next opportunity, postponing the tax impact.

Unfortunately, sellers, who should regain market exposure after a transaction, often want to dollar-cost average back into the market.

"But it's a silly thing to do on just the numbers. For instance, if you were handed the all-equity portfolio you actually ultimately wanted, instead of being handed cash, you would not sell it just to average back in, would you?" - Cliff Asness

Savvy acquirers proactively help identify other uses of capital for hesitant sellers because sellers convert into forced buyers upon a transaction windfall. 

So remember, a reluctant seller might be a confused buyer in disguise.

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Worth reading!
Chris Mayer
Author of 100-Baggers
PM & co-founder, Woodlock House Family Capital
Brett Kelly
Founder & CEO
Kelly+Partners Group