In longer periods, the benefits from deferring long-term capital gains become compelling. Job number one for an investor is to build a portfolio of attractive securities at the desired level of risk. Portfolio managers who pay too much attention to taxes will hold onto appreciated stocks when there are much more attractive securities available in the market. The portfolio will tend to degenerate over time into a collection of mediocre, slowly growing companies as their businesses mature. General Motors and Union Carbide were fine investments in Daddy's day, but they've been dullards for years since.
Many people think that the key to tax sensitivity is to sell selectively.
It's important, but more important is buying the right stocks in the first place. The companies they represent have long-term sustainable competitive advantages in rapidly growing markets, so usually they can be held for many years. Taxes will be generated by stocks that have to be sold quickly because they are too cyclical, too risky, or simply can't keep up above-average performance for very long. Managers usually buy value stocks primarily because they think they are selling at worthwhile discounts to their true worth. But if the companies concerned do not have superior long-term growth potential, the manager must sell them at some point, pay the taxes, and move the remaining cash into new bargains.