Hi, I am reviewing a case that asks: Patrick has 40% of his portfolio in stocks of the Company he works at purchased over the years> he does not want to sell because of the high tax consequences. What alternatives does he have in terms of diversification.
I was thinking put options on the Company... Anything else?
collar to reduce costs (but will stem capital appreciation)
He is probably not allowed to purchase puts or sell short shares of his own company for regulatory reasons. He should start allocating most or all of his portfolio to industries that have little or negative correlation with the industry he works in. If he works in luxury goods, start heavily allocating his portfolio to discount retailers for example.
Can he allocate the remaining 60% however he pleases? Is he going to invest more into his portfolio within this periode (what time periode)? Are there restrictions on financial derivatives?
Otherwise Boothorbust hit the nail on the head. Seek low to negative correlation between industries.
Edit: Is it shares or options he is holding 40% of? Title and text were not corresponding.
No, there is no mention of restrictions to financial derivatives. Anything other than the collar? Also the Company is a telecom company, what are industries that have 0 or inverse correlation.
He should be able to sell short shares or purchase puts on ETFs that track his industry. As mentioned above he should collar this to reduce cost by writing some calls if he can. Telecom is pretty pro cyclical so things like gold will have low or negative correlation.
he should let some one else manage his retirement account
How many shares of the company does he own of the company?
Is Patrick a BSD? Roulette has no recorded correlation with telecoms. How big's his account? Binion's take $1mm hits.
he could also take a loan out against that position to get access to the cash to invest but defer the taxes.
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