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By Al Root

The holidays are a — mostly — great time for friends and family. They aren't so great for turkeys, either of the poultry or stock variety.

On Wall Street, the arrival of Thanksgiving means it's time for tax-loss harvesting, the wholesale slaughtering of the market's worst-performing stocks. It's a time-tested way to reduce tax bills and keep a little extra money in the bank with a process that is relatively simple: You sell stocks and bonds for less than what you paid to generate losses that can be used to offset income and lower your total tax burden.

Even investors who aren't partaking in the selling should pay attention to big losers. They tend to go on sale at the end of the year, pushed down by others who are cleaning up their portfolios.

There are rules to follow, explains accounting expert Robert Willens. Short-term losses — those that are the result of selling stocks or bonds held for less than one year — can be used to offset short-term gains. Long-term losses offset long-term gains. Any amount left over can be used to offset regular income, up to $3,000 a year, depending on an investor's filing status. Anything left over can be carried forward to offset income in future years.

Investors have to pay attention to "wash sale" rules, too. They have to stay out of the same trade to qualify for the loss treatment. So an investor can't sell, say, Tesla stock and buy Tesla call options, effectively keeping their exposure to Elon Musk unchanged. The Internal Revenue Service looks at a window 30 days before the sale and 30 days after to make sure an investor hasn't run afoul of it, Willens says. A financial advisor, of course, can help keep all the rules straight.

All that selling in November and December can exacerbate losses in losing stocks heading into the end of the year, though exactly how much remains unclear. Investors should be extra cautious when thinking about being contrarians and buying losers at the end of any calendar year.

There are 997 stocks in the Russell 1000 with year-to-date return numbers, according to Bloomberg. (There are a few recent IPOs in the index.) Heading into this week, almost half — more than 450 stocks — were down year to date. Roughly 10% were down more than 30%, a little surprising since the index is up almost 11% for the year.

The worst performer has been biotechnology firm Sarepta Therapeutics, which is down 85% in 2025. Risks associated with its muscular dystrophy drug Elevidys have taken the wind out of that stock's sails, making it one for investors to be relatively wary of in the final weeks of the year. Five other popular names that will be glad to put 2025 in the rearview mirror are financial technology provider Fiserv, Trump Media & Technology Group, Restoration Hardware parent RH, solar technology company Enphase, and electric-vehicle start-up Lucid Group. Those five are down an average of 64% year to date.

Six dividend-paying stocks even made the list: crop protection chemical maker FMC, Rubbermaid maker Newell Brands, staffing solutions provider Robert Half, Bath & Body Works, and chemical makers Huntsman and Westlake.

For income investors with a value bent, those six have the ingredients of a wonderful Thanksgiving dinner with all the trimmings. FMC, Newell, and Bath & Body Works trade for an average of five times estimated earnings projected over the coming 12 months, while Robert Half trades for about 15 times. The chemical makers have high forward price/earnings ratios because profitability is at a low ebb in the chemical cycle right now. The six yield an average of about 5.4%, more than double the 2.6% average yield for a dividend payer in the Russell 1000.

But the group has lost investors an average of almost 60% so far this year — and could be due for even more selling. Investors should be cautious with those or any other big losers that might appear attractive to contrarians because of recent declines.

At least investors can boost their income — even without a dividend — by selling their portfolio turkeys smartly. As for the birds, we have no advice.

Write to Al Root at allen.root@dowjones.com

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