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  • Some help from my friends?

    Happy holidays to all,

     

    So a little about my issue.  My portfolio is highly concentrated and highly margined which needs to be corrected.  I have been contacted by a firm which suggested that I give up my 2 largest positions (representing 120% of my portfolio) to an exchange fund.  The fund will take my shares and give me shares in the fund that I will need to stay in for seven years (150bp in fees a year).  The advantage will be immediate diversification but no taxable event will occur according to the firm as long as the shares are held for several years.  I will of course be taxed when the shares are sold.

    So my options are,

    1.  Go into the exchange fund to avoid the taxes for several years

    2.  Sell the positions and take the tax hit

    3.  Whittle down the positions and exposure with options.

     

    Any advice would be greatly appreciated.

  • #2
    Wow. Interesting dilemma (and great forum name by the way.) I'll have to think about this, but my initial thought is # 3.
    Helping those who wear the white coat get a fair shake on Wall Street since 2011

    Comment


    • #3
      I'd run the tax hit vs. the cumulative expense ratio which unfortunately you'll have to model a few different return scenarios for.

      You would write covered calls on these positions I assume? How is that any more tax efficient, even if a LEAP?

      Futures products (even etps and their options) are nice in that theyre given 1256b tax treatment no matter how long you've had them. Of course doesnt apply to shorting them as you dont own them.

      Comment


      • #4
        Would your profit from sale be long- or short-term capital gains?

        Comment


        • #5
          Can you afford #2? Would the taxes be a meaningful amount?

          Why is the firm looking to bail you out? Seems like 150 bps is low for their risk?

          Continuing @Zaphods thoughts, I'd go further and consider cashflow/need of funds, risk of aforementioned "7yearfund". Does that transition really achieve the diversification your IPS calls for?

          3 has some merit, but you'd need to consider how long it'd take to complete, and can you achieve #3 points if there is a market (downturn, no growth, or continued growth). Numbers aside, I think knowing technically about 2 and 3 would help the though process.

          Comment


          • #6
            Thanks for the responses,

             

            Yes would be long term.

             

            I can afford to pay the taxes from the sale of the securities.  The amount of taxes is substantial (think high 7 figures in taxes alone)

            The firm will take my stock in two household name stocks and put it in there s&p500 fund. The thought would be I would never sell the fund and pass it on to my heirs and so they could get the step up.

             

            As far as the options, yes covered calls and hope I get taken out.  Not so much for tax efficiency but to avoid a big single sale at one price and the problems associated with it.

            Comment


            • #7
              Do significant donations to charity play a part in your current or future life? Donating those shares to charities or even a DAF for future giving would allow you to whittle down some without tax consequences.

              I do think you need to do something to diversify though. The only thing worse than having to pay taxes is not having to pay taxes. It's not an "either/or" thing either. You could do a little of everything to minimize regret.
              Helping those who wear the white coat get a fair shake on Wall Street since 2011

              Comment


              • #8
                Yes , charitable fund to be established with highest percentage gainers

                Comment


                • #9
                  Crazyroadtodublin,

                  Thanks for your posts. I read through them.

                  I think WCI should do an interview with you if you agree to it. I for one would be very interested to find out more about your story. You would probably be one of the highest net worth individuals on this site.

                  With your wealth creation, it sounds like you've saved at what is a prolific rate from presumably very high earnings. I think I did the same in my first 10 years but I am slowing down. You appear to have been able to do it for an extra 5 years, so that is quite amazing. Also quite amazing that you started investing at age 18.

                  With the outperformace of SP, I think you have to factor in the margin. I have heard of concentrated portfolio's, particularly with medium sized stocks doing very well for some people with the compounded returns.

                  I figure you must be reaching 20-40M ?

                  I have reached 10M (outside my house) but mainly in real estate investments, and I seem to have hit a wall (I'm 43). I've developed this strange fear about nothing in particular and this strange anxiety. I had no problem with 5M but 10M crept up on me and I find it very hard to visualize 20M.

                  I am not sure if it is the leverage getting to me but I have only 10-15% leverage.

                  Can I ask, when you got to 10M, did you think about getting rid of the leverage ? What kept you going with taking above average risk after you got past 10M ?

                  Thanks again for your posts and all the best with the tax dilemma.

                   

                   

                  Comment


                  • #10




                    Crazyroadtodublin,

                    Thanks for your posts. I read through them.

                    I think WCI should do an interview with you if you agree to it. I for one would be very interested to find out more about your story. You would probably be one of the highest net worth individuals on this site.

                    With your wealth creation, it sounds like you’ve saved at what is a prolific rate from presumably very high earnings. I think I did the same in my first 10 years but I am slowing down. You appear to have been able to do it for an extra 5 years, so that is quite amazing. Also quite amazing that you started investing at age 18.

                    With the outperformace of SP, I think you have to factor in the margin. I have heard of concentrated portfolio’s, particularly with medium sized stocks doing very well for some people with the compounded returns.

                    I figure you must be reaching 20-40M ?

                    I have reached 10M (outside my house) but mainly in real estate investments, and I seem to have hit a wall. I’ve developed this strange fear about nothing in particular and this strange anxiety. I had no problem with 5M but 10M crept up on me and I find it very hard to visualize 20M.

                    I am not sure if it is the leverage getting to me but I have only 10% leverage.

                    Can I ask, when you got to 10M, did you think about getting rid of the leverage ? What kept you going with taking above average risk after you got past 10M ?

                    Thanks again for your posts and all the best with the tax dilemma.

                     

                     
                    Click to expand...


                    I would imagine that most people on this board would be absolutely horrified to hear about what he does.

                    Comment


                    • #11







                      Crazyroadtodublin,

                      Thanks for your posts. I read through them.

                      I think WCI should do an interview with you if you agree to it. I for one would be very interested to find out more about your story. You would probably be one of the highest net worth individuals on this site.

                      With your wealth creation, it sounds like you’ve saved at what is a prolific rate from presumably very high earnings. I think I did the same in my first 10 years but I am slowing down. You appear to have been able to do it for an extra 5 years, so that is quite amazing. Also quite amazing that you started investing at age 18.

                      With the outperformace of SP, I think you have to factor in the margin. I have heard of concentrated portfolio’s, particularly with medium sized stocks doing very well for some people with the compounded returns.

                      I figure you must be reaching 20-40M ?

                      I have reached 10M (outside my house) but mainly in real estate investments, and I seem to have hit a wall. I’ve developed this strange fear about nothing in particular and this strange anxiety. I had no problem with 5M but 10M crept up on me and I find it very hard to visualize 20M.

                      I am not sure if it is the leverage getting to me but I have only 10% leverage.

                      Can I ask, when you got to 10M, did you think about getting rid of the leverage ? What kept you going with taking above average risk after you got past 10M ?

                      Thanks again for your posts and all the best with the tax dilemma.

                       

                       
                      Click to expand…


                      I would imagine that most people on this board would be absolutely horrified to hear about what he does.
                      Click to expand...


                      Now I'm curious.
                      Helping those who wear the white coat get a fair shake on Wall Street since 2011

                      Comment


                      • #12
                        I'm also really interested in how crazyroadtodublin coped with the -80% drawdown in 2008 and bounced back - if he is willing to elaborate on it.

                        I think that is what my underlying anxiety is about.

                        I am really worried about how I will psychologically cope with even a -40% drawdown. This didn't seem to bother me in the past but it does now.

                        It's probably related to a higher nominal amount of potential drawdown but more so that after being through what felt like crushing losses in the past, I'm not sure if I want to go through anything like that again.

                        I would envisage that -30% would feel bad, -40% would feel terrible, -60% would probably feel like I was going to die, -80% I might well lose the plot and throw in the towel (go to cash).

                        Comment


                        • #13




                          I’m also really interested in how crazyroadtodublin coped with the -80% drawdown in 2008 and bounced back – if he is willing to elaborate on it.

                          I think that is what my underlying anxiety is about.

                          I am really worried about how I will psychologically cope with even a -40% drawdown. This didn’t seem to bother me in the past but it does now.

                          It’s probably related to a higher nominal amount of potential drawdown but more so that after being through what felt like crushing losses in the past, I’m not sure if I want to go through anything like that again.

                          I would envisage that -30% would feel bad, -40% would feel terrible, -60% would probably feel like I was going to die, -80% I might well lose the plot and throw in the towel (go to cash).
                          Click to expand...


                          I'm having trouble following the reasons for your fear.

                          In your earlier post on this thread you said that you were at $10M, mostly in real estate. If that's the case, then why would stock market fluctuations be of such primeval concern to you?

                          Comment


                          • #14
                            I would be happy to be interviewed by white coat, I have admired his commitment for many years. This board and site has been a great resource to me and others.

                             

                            Yes most people would be horrified about the risk I take.  I have always assumed that losses could be replaced by the human capital I have remaining so it was reasonable to swing for the fences.

                             

                            As far as the the drawdown in 2008  and the 80 pct loss,I remember watching bank of America and Citi and trying to decide which was on sale more.  (I decided Bank of america at 2.50.).

                            All my returns that I have posted account for margin expenses.

                             

                             

                             

                            Comment


                            • #15




                              I would be happy to be interviewed by white coat, I have admired his commitment for many years. This board and site has been a great resource to me and others.

                               

                              Yes most people would be horrified about the risk I take.  I have always assumed that losses could be replaced by the human capital I have remaining so it was reasonable to swing for the fences.

                               

                              As far as the the drawdown in 2008  and the 80 pct loss,I remember watching bank of America and Citi and trying to decide which was on sale more.  (I decided Bank of america at 2.50.).

                              All my returns that I have posted account for margin expenses.

                               

                               

                               
                              Click to expand...


                              You chose well. I bought bank of america at 11.3 in 2016 and that was my last single stock purchase. I couldnt pass it up, but I decided very shortly after that to deal almost solely in indexes and sold it for a very nice gain, but nothing near its potential, which it looks to my horror is about 29 bucks right now. Win some you lose some.

                              Hardest thing to do is to hold on to a winner, especially a big winner. Have had several options positions get big into the money and I'll sell for several multiples just to watch it run up like a mad man. I now have a principle recapture and scaling process to avoid this kind of regret.

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