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The Journal of Wealth Management

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Primary Article

The Enviable Dilemma

Hold, Sell, or Hedge Highly Concentrated Stock?

Patrick S. Boyle, Daniel J. Loewy, Jonathan A. Reiss and Robert A. Weiss
The Journal of Wealth Management Fall 2004, 7 (2) 30-44; DOI: https://doi.org/10.3905/jwm.2004.434564
Patrick S. Boyle
A senior analyst in Bernstein's Wealth Management Group
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  • For correspondence: boyleps@bernstein.com
Daniel J. Loewy
Research director of Bernstein's Wealth Management Group
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  • For correspondence: loewydj@bernstein.com
Jonathan A. Reiss
A senior quantitative analyst
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  • For correspondence: reissja@bernstein.com
Robert A. Weiss
A director of Bernstein's Wealth Management Group at Bernstein Investment Research and Management, a unit of Alliance Capital Management L.P.
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  • For correspondence: weissra@bernstein.com
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Abstract

It's not unusual for investors, fiduciaries, and trustees to find themselves with too much of a good thing: owning or overseeing a large quantity of a highly appreciated low-basis stock. In this emotional issue, investors are typically torn: hold the stock that's made them rich and avoid the large tax bill, begin to diversify, or hedge? On average, investors haven't gotten paid to take on the incremental risk of single stocks. But that fact alone isn't enough to act upon? and indeed there are no singular answers. In this study the authors present an analytical framework that highlights the critical trade-offs underlying any single-stock decision, which has to factor in the investor's unique circumstances. These include his long-term goals, risk tolerance, and total portfolio, as well as the volatility of his single stock. We use all of this information to identify courses of action to consider. This analysis can be applied to other risk-management diversification strategies, such as liquidating over time and hedging with derivatives.

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The Journal of Wealth Management
Vol. 7, Issue 2
Fall 2004
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The Enviable Dilemma
Patrick S. Boyle, Daniel J. Loewy, Jonathan A. Reiss, Robert A. Weiss
The Journal of Wealth Management Jul 2004, 7 (2) 30-44; DOI: 10.3905/jwm.2004.434564

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The Enviable Dilemma
Patrick S. Boyle, Daniel J. Loewy, Jonathan A. Reiss, Robert A. Weiss
The Journal of Wealth Management Jul 2004, 7 (2) 30-44; DOI: 10.3905/jwm.2004.434564
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