I just read in the secret sauce that CFAI used to put this under the Unique section UNTIL they added an entire section dedicated to low basis stock to the texts. Since then they have been putting it under the Taxes section (since 2007 I think). Based on what I have read I will go with taxes on the exam. Edit: I see you already wrote the same thing above.
… It wouldn’t be so much of an issue if CFAI wasn’t obsessed with low-basis holdings… Probably a pretty good chance it’s on the IPS question. I’ll probably mention briefly in both sections, but place more emphasis on the “tax constraint” portion.
I would go with what the CFAI has done the last two years on exams. I haven’t taken them yet, so I don’t know for sure.
State under tax starting 2009 Didn’t u guys realize there is a new section this year on low basis stock?
monki Wrote: ------------------------------------------------------- > State under tax starting 2009 > Didn’t u guys realize there is a new section this > year on low basis stock? Did you read out posts?
dub, i see you’re back now that your team has reached the finals yet again. congrats…if having to play the wings is cause to celebrate 
the boards were quiet w/out you.
mwvt9 Wrote: ------------------------------------------------------- > I would go with what the CFAI has done the last > two years on exams. > > I haven’t taken them yet, so I don’t know for > sure. That’s what I was planning to do, but in this year’s curriculum they have it listed under “unique” again (CFAI Vol. 2 p 148 question 11).
ng30 Wrote: ------------------------------------------------------- > dub, i see you’re back now that your team has > reached the finals yet again. congrats…if > having to play the wings is cause to celebrate > the boards were quiet w/out you. Awwwwwwwwwwwwww Yeahhhhhhhhhhhhhhhhhh.
McLeod81 Wrote: ------------------------------------------------------- > mwvt9 Wrote: > -------------------------------------------------- > ----- > > I would go with what the CFAI has done the last > > two years on exams. > > > > I haven’t taken them yet, so I don’t know for > > sure. > > > That’s what I was planning to do, but in this > year’s curriculum they have it listed under > “unique” again (CFAI Vol. 2 p 148 question 11). We don’t know when that question was written though. I could be recycled from 2005. I don’t know what the hell to do.
I can not help buy place it under unique. If you look at the actual sample within the CFAI text (The Ingers), under the unique section is where they place the IngerMarine stock. They state the disposition of the stock to a willing buyer is a critical component and should be continually monitored. I just hope the exam makes it somewhat clear if they want it in tax or unique. But by default, I would probably mention it in both. It should also probably show up in the liquidity section since it is a relatively illiquid holding that likely compromises a large % of the portfolio.
Schweser 3 day prof told us some things ended up being mentioned multiple times…(e.g., risk factors playing into return or vice versa). I think he said this could be one of those things as well. I’ll just do both I guess.
Would you guys consider including an large illiquid holding as an item affecting risk tolerance? My thinking is that it is something that should generally be handled by adjusting the asset allocation and wouldn’t necessarily affect the R&R objectives except to the extent that the remaining unsystematic risk might make it difficult for an investor to achieve their stated objectives. If this was a problem, I would suggest education plus a re-assessment of their retirement objectives.
Guess it depends on how big. If very, would deserve a shout out in risk I’d think.
For sure. But depends on the question. Consider an investor who has their primary residence as their illiquid holding. That lowers their investable assets and would change their risk tolerance.
ng30 Wrote: ------------------------------------------------------- > Schweser 3 day prof told us some things ended up > being mentioned multiple times…(e.g., risk > factors playing into return or vice versa). I > think he said this could be one of those things as > well. I’ll just do both I guess. you think we get it wrong if we put things in multiple places? what about the one where the guy is a board member somewhere and also owns low cost stock? under legal/regulatory, under unique circumstances, maybe even taxes? i forget what the guideline answer was.
I think the illiquid holding would only affect risk tolerance to the extent that it can’t be diversified away. For example, a large block of restricted stock would definitely lower risk tolerance, but a large block of employer stock (maybe without low-basis, or held in retirement account) wouldn’t because it can be diversified away.
can’t u just put it in both? surely they won’t penalize you for putting too much info… very different than giving wrong answer. doesn’t it affect taxes and represent a unique circumstance?? i’m finding IPS is like 80% just telling them what they told u, with just a little insight beyond that … maybe “captain obvious” comment anyway, can’t u just put in both categories?? marker told me they just look for key words… and i’m sure they’re vigilant for u giving two different answers, but this doesn’t seem to fit. i don’t really know though
cfasf1 Wrote: ------------------------------------------------------- > ng30 Wrote: > -------------------------------------------------- > ----- > > Schweser 3 day prof told us some things ended > up > > being mentioned multiple times…(e.g., risk > > factors playing into return or vice versa). I > > think he said this could be one of those things > as > > well. I’ll just do both I guess. > > you think we get it wrong if we put things in > multiple places? > > what about the one where the guy is a board member > somewhere and also owns low cost stock? > > under legal/regulatory, under unique > circumstances, maybe even taxes? i forget what the > guideline answer was. In that case, the low-basis holding was listed under “tax” only. I wouldn’t think that they’d be able to take away points for also including it under “unique” though, because it’s not a “wrong” answer. But who knows.
honestly, i thought you could put stuff like college education or low basis stock under almost every category, and i think it’s legitimate… i think they think that way, so it’s all good. obviously if you put 6 key factors under all 5 categories, it could be a problem with the markers.
didn’t they also list it under “legal” because he was a boardmember and may have had restrictions against selling stock? but i guess that’s beside the point. i just don’t want to have points deducted for adding it to more than one constraint if it applies. btw. i think you are right. if it’s a risk that you are actually taking on (as in, you could have hedged the risk away but didn’t) it shouldn’t affect his risk tolerance. i don’t think i’ve seen a question like this yet…