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MIS 4500 (31)
Lecture 17

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Department
Management Info. Systems
Course
MIS 4500
Professor
Pourang Irani
Semester
Winter

Description
Lecture 17: Low-Basis Stock Usually resulting from:  being an entrepreneur  being an executive  being an investor Issues:  Psychological  risk and return  taxes Specific risk / residual risk increases from investor, to executive, to entrepreneur Equity Holding Lives: 3 stages: 1. entrepreneurial stage: high specific risk: no diversification desired at this stage; seeking max profit 2. executive stage: after taken business public; relatively concentrated positions w/ some entrepreneurial bent still; greater diversification as one descends the management hierarchy 3. investor stage: multisecurity portfolio (either diversified investor stages or indexing stage (indexing being more diversified)): no longer have control over underlying fortunes of company Reducing exposure:  outright sale: simplest and most expensive; results in max flexibility; eliminates residual risk; lower amount of money to reinvest  exchange funds: pool concentrated positions from multiple individuals i. public exchange funds: partnership for >= 7 yrs; 20% exposure to other illiquid investments; portion of pool distributed after 7 yrs  but, management costs, lack of control and inflexibility ii. private exchange fund alternative: usually single security; partner w/ another investor who purchases same stock at current market prices; p’ship then enters into series of partial hedging, borrowing and reinvesting transactions (avoiding constructive sales);  increases borrowing ability  lessens psychological blow  no need for exposure to illiquid investments  7 yrs  but unclear whether tax sound  completion portfolios:
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