Walt Disney (DIS 0.59%) stock isn't just down nearly 60% from its all-time highs. Shares of the Magic Kingdom have recently sunk below where they were in early 2020 (when theme parks were completely closed down) and sit at similar levels as in late 2014 (after Disney acquired Lucasfilm but before new Star Wars movies began coming out).  

That means that for some eight years now, Disney stock has been dead money sitting in long-term shareholders' portfolios. Returning CEO Bob Iger is taking back the reins of a pumpkin past midnight. Surely it's time to sell Disney, right? Let's see.

One reason you might want to sell right now

Disney is in all sorts of good and bad company this year. Many quality businesses have been clobbered by the bear market, dragged down first by the U.S. Federal Reserve's record interest rate hikes and now by growing risk that those rate hikes could send the world into a recession. 

After an ugly year, many investors are selling stock to lock in some losses for tax purposes. This is known as tax loss harvesting. If you are sitting on unrealized losses in a stock or ETF (losses from the time you bought the stock), those positions can be sold and the losses used to lower your 2022 tax liability. If this is done in a taxable account (retirement accounts like IRAs and 401ks don't count), an investor can deduct up to $3,000 from their taxable income. Any loss above $3,000 can be carried forward to subsequent years.

A major pitfall to consider: once you sell a stock or ETF at a loss, you cannot repurchase it for at least 30 days (this is known as the wash sale rule). If you do buy back a stock or ETF within 30 days, the IRS will disallow the loss as a tax deduction. 

I bring this up because many longtime owners of Disney might be sitting on a Pandora-sized loss right now given the company's implosion this past year. If you need an extra tax deduction, Disney stock might be a prime candidate for tax loss harvesting, since it will take far more than a month for Iger to fix things. If you sell for tax purposes but still like Disney, you can repurchase shares after 30 days (say in February 2023). 

Why now might not be the ideal time to part ways

That said, there are good reasons not to completely give up on Disney just yet -- at least as far as an investment goes.

Disney may look like an evil stepsister, but the company still has some of the greatest entertainment franchises and companies around (Star Wars, Marvel, Pixar, and countless others), whose content it can deliver via some of the most lucrative media around (ESPN, broadcast and cable networks, Disney+ streaming, and theme parks, to name a few). 

Iger has lots of options at his disposal as he tries to patch up Mickey and company. During Iger's last stint, from 2005 to 2020, Disney did quite well by stockholders.  

DIS Chart

Data by YCharts.

It will be an uphill battle, to be sure. There are serious problems with Disney's business model, especially given the disappearing-money act that Disney+ and the other streaming services have been pulling. That said, if ever there was a media empire built to live happily ever after, I believe this is the one. As Iger's plan comes together, Disney stock could begin to awaken long before actual financial results start to show improvement.  

This illustrates a common phenomenon in investing. Peak opportunity often exists during periods of maximum uncertainty. Disney has been facing one crisis after another the last few years. If it starts knocking down a few obstacles, the upside could be significant. If your plan is to move on to greener pastures, right now at multi-year lows may not be the best time to do it.

I'm personally not buying any more Disney stock, but I won't sell before there's a little resolution to this plot line.