Problem
I. How do the various tools and techniques of portfolio management work together? Which are the most important, which least?
Considering market behavior of the past few years, which of the portfolio management techniques we're studying this week would likely have had the biggest impact on portfolio performance? Why? How?
II. Describe a scenario in which it would make sense to accelerate the realization of capital gains. Now describe a scenario where it makes sense to defer as long as possible. What's the math behind your determination, how do you measure the impact?
With respect to your second scenario, what do you say to your client's tax preparer when she recommends that you harvest all available losses in order to minimize taxes in the current year?
While we're talking about being "wagged by the tax tail," what would be your response to the tax preparer who recommends that your client who just exercised employer stock options hold the shares -- which represent 30% of the value of the client's portfolio -- for at least a year in order to be assured of long-term capital gains tax treatment? What are the competing considerations that need to be balanced?