FOLLOWING ANY MAJOR OR MINOR DECLINE in stock prices-such as the one that occurred in the spring and summer of 1962-there is a great deal of talk in the investment community about switching. Many shareholders with paper losses-which are, of course, not recognized by the Internal Revenue Service as an offset against taxable income-seek to establish capital losses via the switch, thereby reducing their income taxes in the current year. Much of the savings in taxes that is reaped is illusory, however. This is true for all such transactions for many small investors, but it is also true for many transactions of even the very substantial investors. The extent of the illusion depends upon the individual's tax rate, the size of his holdings, and the magnitude of the present capital loss. A can be accomplished in essentially three different ways. The traditional method involves the sale of securities in which the owner has a loss, and the subsequent reinvestment of a like amount in the same company after a period of 30 days-the minimum waiting period required by the IRS to establish a loss. A variation on this method involves upbuying additional shares in the corporation now, and selling the original block of shares in not less than 30 days, again the minimum waiting period established by the IRS. A third method-and the one perhaps most widely used now-involves selling securities in which a loss can be established and immediately reinvesting these funds in a different security, but one that is similar in quality, yield, and appreciation prospects to the one sold. Thus, if an investor had a loss in his holdings of Armco Steel, for example, he might switch these investment funds into Republic Steel, thereby establishing his loss while maintaining an investment in a blue-chip steel stock. Or, as another example, an investor might switch from Allied Chemical to Monsanto, establishing a loss, while maintaining his investment in a large, diversified chemical company. The illusion that is inherent in the arises from the fact that the individual's total tax burden over time is not reduced by the switch, but rather, the payment of a portion of these taxes is simply postponed. A is undertaken when the owner of the security feels that the security or its equivalent has an attractive long-term potential, and that the present price reflects the temporarily depressed state of the market in general, rather than any deterioration of the fundamental value of the company or industry. We therefore make the assumption that the owner will want to hold the stock or its equivalent during at least the near-term future in order to participate in the anticipated rebound in stock prices. If necessary, he is willing to part with his ownership in the company, or industry, but only for that period of time required to establish his capital loss for tax purposes. As mentioned previously, a can be accomplished in any one of three ways. These methods may appear to be quite different, but we will show here that the economic soundness of the 'tax does not depend upon the method used, since the economic consequences are essentially identical for all three. Let's begin by considering the first two methods: ( 1) the sale and subsequent repurchase of the same stock after 30 days, and (2) the so-called up. The first method would tend to be used if the investor or his broker had an inkling that the market might become still more depressed during the 30-day waiting period and therefore withdrawal from the market during this period would be the wisest course. The investor might choose to double if he felt that the market had reached its low point and might well begin its rebound during the 30-day period. If, however, the investor feels that the chances of upward and downward movement in the price of the stock are about even-and this is probably the most likely position of the investor-then he has no preference for one method over the other (except for the fact that doubling up requires the commitment of additional capital to the market.) These two methods are essentially identical, therefore, and attention can be focused on the first: the present sale of the stock and its repurchase after 30 days.