RT Journal Article
SR Electronic
T1 The Enviable Dilemma
JF The Journal of Wealth Management
FD Institutional Investor Journals
SP 30
OP 44
DO 10.3905/jwm.2004.434564
VO 7
IS 2
A1 Patrick S. Boyle
A1 Daniel J. Loewy
A1 Jonathan A. Reiss
A1 Robert A. Weiss
YR 2004
UL https://pm-research.com/content/7/2/30.abstract
AB 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.