Hi, I was wondering if somebody could give me a better explanation as in the book in relation to the “completion portfolio”. Let’s say a family business has a substantial holding in low-basis stock and decides to add a completion portfolio: The manager would use all available opportunities to harvest the inevitable losses experienced by one or several of the stocks in the completion portfolio. Theses losses would be used to chip away at the concentrated holding, sheltering the capital gain realized eacht time any of that low-basis stock is sold. I do not understand what is actually done with the losses, i.e. the money from the losses: what does mean “chip away the the concentrated holding…sheltering the capital gain realized ach time any of the low basis stock is sold.” Does this mean that from the money received from the losses, e.g. i bought a stock for 80 now i sell it for 60. The 60 received are used for what….? For the taxes arising from the sale of low-basis stock or what does this exactley mean? Thanks for your help.
use the realized losses to offset gains on your tax return. say you have $100k realized gain from the company stock and you sell part of yur completion portfolio at a loss of $50K, then you have just reduced your tax basis by half
The goal is to diversify so the risk is spread over a larger number of stocks ( and hence the risk is lower) Unfortunately the basis for the concentrated holding is low , so inevitably you’ll owe higher taxes than for a normal basis stock. So you have to find ways to mitigate this and pay less taxes to the government Capital Gains generated by selling out of the holding of the low-basis stock ( which is the goal ) can be offset against any capital losses in the completion portfolio. So your tax bill is not as high as when all the money was invested solely in the concentrated low-basis stock holdings, with the sold amounts in cash With the tax write-offs on the capital losses , you can diversify even further reducing risk further and achieving your goal of eventual full diversification quicker
But if other stocks bought in the completion portfolio appreciate (rather than depreciate), the tax liability from the capital gains of the concentrated stocks will not be able to be offset. After all, no one will intentionally to buy some other stocks for the completion portfolio which are expected to depreciate. The logics seems to be a little bit strange to me !
You have a portfolio of 100 stocks; if they ALL go up you either: 1. did a poor job of diversifying, or 2. are an exceptional stock picker, better than anyone in history My point is, there’s bound to be losers in a portfolio; you take your losses on those and offset the gains from others. you are correct, nobody intentially buys a loser; but somehow they always end up in the portfolio!
"But if other stocks bought in the completion portfolio appreciate (rather than depreciate), the tax liability from the capital gains of the concentrated stocks will not be able to be offset. After all, no one will intentionally to buy some other stocks for the completion portfolio which are expected to depreciate. The logics seems to be a little bit strange to me " Sure , no one wants to buy stocks that will depreciate. But can you have a perfect portfolio that will never have any losing stocks? If so you’re either a genius or very very lucky or the market is simply in a huge bull trend And yes if you don’t have any losers , then you might postpone the sale of the concentrated stock until you have a better moment
What I mean is that to create a “completion portfolio” is same as a usual portfolio. Why it is called “completion portfolio” ? In a usual portfolio, the capital gains from other stocks can be offset by the concentrated stocks. Am I wrong ? lol !
What I mean is that to create a “completion portfolio” is same as a usual portfolio. Why it is called “completion portfolio” ? In a usual portfolio, the capital gains from other stocks can be offset by the loss from those concentrated stocks. Am I wrong ? lol !
A completion portfolio differs from a regular portfolio because you are trying to get to the portfolio to behave like an index with a caveat: you have a concentrated low basis holding.
bpdulog Wrote: ------------------------------------------------------- > A completion portfolio differs from a regular > portfolio because you are trying to get to the > portfolio to behave like an index with a caveat: > you have a concentrated low basis holding. Thank you so much ! You are right !
Maybe the exact process to build and complete the portfolio is different from a regular portfolio. Let’s say Branson’s heirs inherit Virgin . If they want to build a completion portfolio they might exclude Airlines , and whatever else Virgin is concentrated in . Then their completion portfolio would track closer to a broad market index. They would include sectors and credit ratings , maturities different from their concentrated holding parameters , so that they are really on track to diversification in all aspects. It would have to be uniquely built for this group of heirs and even the process would be a dynamic one
Basically, diversification is the main purpose but may be it is constructed in some specific ways, and now I underatnd why it is called “completion portfolio”. Thanks to you all.