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The Journal of Wealth Management

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Primary Article

Executive Compensation

An Analytical Approach to Diversification of Concentrated Positions

Roberta Gamba
The Journal of Wealth Management Fall 2002, 5 (2) 23-29; DOI: https://doi.org/10.3905/jwm.2002.320441
Roberta Gamba
An associate at Advice Lab, JPMorgan Private Bank in New York.
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  • For correspondence: roberta.gamba@jpmorgan.co
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Abstract

Many executives hold large concentrated positions in the stock of their own companies, whether in the form of incentive stock options, nonqualified stock options, restricted stock, or unrestricted stock. Executives have several reasons for divesting some or all of their concentrated positions. In this article, the author focuses on the most important of these reasons: diversification, whose potential benefit must be carefully weighed against the loss of option time value, the payment of taxes that could have been delayed or avoided, and the sacrifice of any superior performance that the company stock may offer. The article reviews the properties and evaluates the potential of the Concentrated Holding Analyzer with Ranked Transactions, or CHART, which analyzes the complex trade-off between diversification on the one hand and time value, taxes, and potentially superior performance on the other.

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The Journal of Wealth Management
Vol. 5, Issue 2
Fall 2002
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Executive Compensation
Roberta Gamba
The Journal of Wealth Management Jul 2002, 5 (2) 23-29; DOI: 10.3905/jwm.2002.320441

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Executive Compensation
Roberta Gamba
The Journal of Wealth Management Jul 2002, 5 (2) 23-29; DOI: 10.3905/jwm.2002.320441
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