First of all, it's possible that selling certain amounts would move an individual up in marginal-tax rate. Why sell in 2020 when your income is $100,000 and have your profits taxed at the $100,001st dollar's rate, when you can wait until next year and have it taxed at the $50,001st dollar's rate?
Secondly, not timing the market because of tax absolutely makes sense. Every additional year you don't sell is another opportunity for those pre-tax profits to continue to grow. It's almost like a traditional IRA (but any withdrawal has a penalty).
Simple example:
Assume you own 100 shares with an average cost of 350, your tax rate is 30%, and the SP is currently 650. You sell for a total of $65,000 ($35,000 investment, $30,000 profit), thinking that we're not at the bottom, but then it's clear the market is recovering. Since you earned capital gains, you now owe 30% of your profit, or $9,000, in taxes and only have $56,000 to re-invest. Your 100 shares with an average cost of 350 have now turned into 86 shares with an average cost of 650.
Now we're in 2021, the SP is 1650. If you had held onto your original 100 shares, you could sell them for $165,000 ($35,000 investment, $130,000 profit), pay $39,000 in tax on your profits, and walk away with $126,000. But since you tried to time the market, you sell your 86 shares for $141,900 ($55,900 investment, $86,000 profit), pay $25,800 in taxes ($34,800 total from your first sale), and walk away with $116,100 instead. This effect is compounded for each year you decide not to sell.
