The value of a privately managed account is magnified in low cost basis stock situations. Experience, expertise and the highest level of service are the foundation of a properly managed low cost basis stock portfolio. When variables such as tax situations as well as the ever-changing market environment become compounded, a professional money manager offers you the ability to achieve your financial goals via a variety of options created to meet your needs.

Following are some examples of how we help clients manage their low cost basis stock. Customization is our specialty; therefore, as each scenario differs, we can adjust our process to fit the needs of different tax situations, yield targets, time horizons and financial goals.

Typically, when we are discussing low-cost basis stock, the issue involves a concentrated position, the concern is capital gains tax and the goal is to provide for annual income from the low cost stock, while eliminating the concentration. Over time, we will work towards a diversified portfolio of large cap, high quality companies.

There are two ways to approach the position when using the strategy:

  •  Target Yield
  •  Target Delta

What is your objective? If your objective is purely cash flow, and you are less sensitive to the tax implications of being ‘called out’ of a position, we can use the forward option markets to develop an estimated income stream (i.e. target a yield number.)

If you want to generate cash income from the position, but you are concerned about the tax implications if/when shares are called away, we can manage the position using a targeted “delta.” For example, If you tell us that you do not wish to be called out of more than 25% of the stock in any given year or target a maximum capital gain for the year, we will manage the options portfolio to account for that requirement. However, it is more difficult to target the income generating capabilities when managing the portfolio for tax implications, and getting called out of a position is not desirable.

Capstone will work with you to structure a plan to suit your goals. Our approach is based on working towards a more diversified portfolio of high quality stocks over a time frame that suits your needs. The following rationale and strategies apply:

  •  Establish time horizon for the plan.
  •  Establish “yield” or “delta” targets.
  •  Establish tax implications and tax tolerance.
  •  Analyze stock environment/sector environment/market environment as it relates to the low cost  
     basis stock holdings.
  •  Customize each step according to client situation and be flexible as client plans and time horizons
     change.