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Comment by ceejayoz | Hacker News Reader

The answer is in the sentences surrounding it.

> One strategy, in simplified form, works like this: Make two bets that should move in opposite directions. Think of, say, both betting on and against Coca-Cola’s stock. Towards the end of the year, one bet will be up, and one will be down. At 365 days, the last day a trade is considered short-term, sell the one that’s down. A day later, sell the one that’s up.

> Of course, if you consider the trade as a whole, it makes no money. But that isn’t the point. You’ve found a risk-free way to generate two valuable commodities: short-term losses and long-term gains.

They're picking which gain/loss to realize - in both directions, on the same stock - in a way that means they always win.

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>>You’ve found a risk-free way to generate two valuable commodities: short-term losses and long-term gains.

A loss is not valuable.

Edit: see my follow-up comment before you make another post re-explaining the scheme. The point is it's bad explanation because the merits have nothing to with "losses" being generally "valuable commodities".

https://news.ycombinator.com/item?id=34390221

It is when it's offset by an identical gain, at a different tax rate.

I got that part. But look at the quote: The article is attempting to explain the benefit of the tax scheme by saying that it reduces into components that are valuable in themselves -- "valuable commodities".

The scheme works as a whole, but the dynamics of it have nothing to do with losses being valuable commodities. It's just an over-clever writer trying to jazz up the explanation without realizing they're saying nonsense in the process and introducing a bad model.

The company makes nearly all of its money on short-term trades, but short-term trades have a much higher tax rate than long-term gains. Since short- and long-term taxes are calculated in separate buckets, if you create losses in the short-term bucket then you can drastically reduce your tax burden. These aren't really losses though, since they're balanced by opposite long-term bets

A gain of X minus a loss of X is 0, but if you claim the loss at the 40% tax rate and the gain at the 20% tax rate you've suddenly reduced your taxes by 20% of X, which is significantly valuable.

Yes, but that means the the scheme as a whole is valuable, not that a loss can rightly be called a "valuable commodity". See the follow-up[1].

This is like those Saturday morning commercials that say Cocoa-puffs is part of a balanced breakfast, and tyring to explain that by asserting how each component, including the Cocoa-puffs, is balanced. That's not how it works, the aggregate property is not piecewise reducible.

[1]https://news.ycombinator.com/item?id=34390221

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