site banner
birb_cromble  1mo ago (text post)   991 thread views

Weekly Finance Thread

A weekly thread to discuss financial matters - from personal all the way up to global.

Ground Rules

  • Remember that we're all just Internet randos. Don't bet your life savings on a hot tip from this thread.
  • Keep culture war in the culture war thread. Yes, global events may impact our personal finances, but that does not mean we have to incessantly harp on culture war aspects here. If you are going to discuss it, please stick to the practical impacts of it on an individual level.
  • Be kind. Remember that everyone here comes from different circumstances. We all have different resources available and different risk tolerances.
  • Don't let the perfect be the enemy of the good. Better is better. Celebrate people when they take a step up and work to move their finances in the right direction. Don't flame out because they haven't followed what you consider the optimal path. Everybody has to start somewhere.
1
Top Bottom Old Controversial Comments
Jump in the discussion.

No email address required.

Why would Trump be making 3,600 stock trades a quarter? I ask out of genuine curiosity as it's very high frequency indeed and doesn't match any model I have of how to invest outside of an algorithmic Jane St style approach.

(If this topic is considered too culture war related, though, please feel free to delete.)

I looked at my portfolio (or, rather, part of it for which I can quickly get the data) - which is managed by professionals with little input from me beyond "make my money make money" and since the start of the year, between rebalancing, tax loss harvesting and other routine portfolio management, it has ~300 trades since the beginning of the year. My portfolio is beyond minuscule compared to Trump's, so I can believe his needs much more of that. And of course, people managing his portfolio may be using it more creatively than "buy the market and sit on it".

What is meant by "Trump" though? If it his personal trading or the whole portfolio owned by him? If it's the latter, I don't think it's very high frequency. We're talking about billions, in who knows how many accounts.

Without looking at the trades themselves, my immediate guess is direct indexing. Any hedge fund trade would be 'hidden' in that hedge funds manage the trades themselves and their investors invest capital into the hedgie, and in return receive a portion of the growth/dividends, so hedge trades wouldn't be listed as part of Trump's personal trades.

Other ideas - options spreads to help liquidate large non-qualified capital gains positions.

I kind of hate direct indexing. It’s the kind of wealth management product that is very smart when it’s bespoke but I think has a lot of risks when commoditized when scaled. When JPM or whoever has a few hundred billion doing it by algorithm it feels like something Jane St could like reverse engineer the JPM algorithm and front run it. Which would cause a very real slippage issue. Indexing itself has this issue. Hedge funds do game out index inclusion/exclusion and bid up or sell off before those dates.

For direct indexing the private banker would sell you: Tax Alpha - added fee - portfolio complexity = profit. The real equation is probably Tax Alpha - added fee - portfolio complexity - added slippage

Added slippage increases as AUM of DI increases.

Indexing itself has developed a slippage costs of inclusion/exclusion that has increased last 5-10 years. Though I think pure indexing is mostly good because SPY diversification means less trading and regular taxation events and generally low fees.

I haven't gone to into the weeds of the trading process involved in direct indexing, but assuming the trading team who is managing the indexing portfolio is awake, direct indexing should have less of a slippage issue as it is directly buying assets in real time to S&P holding movements compared to etfs which frequently use option contracts to match the pricing of their targeted index. Since options have a set expiration date, it's much easier to front run expiring contracts compared to actively trading 500 individual stocks. Vanguards promotional material indicate that harvesting and rebalancing is daily, so I'm not sure how much this is possible to be front run the active management from general market noise.

The main 'slippage' effect that direct indexing has is from avoiding wash sales instead of being front run by another trader.

Considering all direct indexing funds require a fee-based advisory management and the lowest initial investment I see from any company is around 200k initial investment,

The options are only used for leveraged ETFs which you are correct have very high slippage. I would guess far higher than DI. But DI trades more than an etf like SPY. The main index ETFs just hold the individual stocks and only trade with index inclusions/exclusions. DI trades any time the portfolio has losses so more trading.

Charitably, it could be tax loss harvesting. At high net worth and income strategies like that can get pretty intense.

How would that work? You crystallise a loss in order to minimise tax on profits, then buy something very similar to get back in the market to the same extent -- this I get. But don't you only have to do it near end of tax periods? Maybe doing it many times per day spreads risk of realising the "wrong" losses. Pretty elaborate approach but might make sense I guess.

You can only write off 3k/year of capital losses from tax loss harvesting which would be a pittance for the Trump family. However, you can use tax loss harvesting to cancel out capital gains in another equity.

Isn't there a dollar limit on the amount of tax loss harvesting you can really do in a year?

I think the limit applies to amount of losses that can be applied to other income, but there's no limit to the amount of stock loss that can be used to offset other stock gains, otherwise people with highly volatile portfolios would go bust very quickly, having to pay taxes on full amount of wins without offsetting them by losses. Imagine you had stock A and B, both worth $50, at the start of the year. At the end, A costs $1 and B costs $99. Your portfolio is still $100 but if you couldn't offset losses from A, you'd have to pay tax on profits on B even though you did not earn any profits. That does not sound sustainable.

For tax loss harvesting specifically there's a limit, but I'm going to go out on a limb and assume that somebody with Trump's net worth has access to tax avoidance schemes that don't even have names yet.

His current tax deal with the IRS excludes them from auditing Trump. So he has tax deals available to no one else.

No it does not. It only prohibits IRS from re-opening old cases, but not from auditing any new tax returns. Whatever press article you've read about this lied to you.

What is this place?

This website is a place for people who want to move past shady thinking and test their ideas in a court of people who don't all share the same biases. Our goal is to optimize for light, not heat; this is a group effort, and all commentators are asked to do their part.

The weekly Culture War threads host the most controversial topics and are the most visible aspect of The Motte. However, many other topics are appropriate here. We encourage people to post anything related to science, politics, or philosophy; if in doubt, post!

Check out The Vault for an archive of old quality posts. You are encouraged to crosspost these elsewhere.


Why are you called The Motte?

A motte is a stone keep on a raised earthwork common in early medieval fortifications. More pertinently, it's an element in a rhetorical move called a "Motte-and-Bailey", originally identified by philosopher Nicholas Shackel. It describes the tendency in discourse for people to move from a controversial but high value claim to a defensible but less exciting one upon any resistance to the former. He likens this to the medieval fortification, where a desirable land (the bailey) is abandoned when in danger for the more easily defended motte. In Shackel's words, "The Motte represents the defensible but undesired propositions to which one retreats when hard pressed."

On The Motte, always attempt to remain inside your defensible territory, even if you are not being pressed.


New post guidelines

If you're posting something that isn't related to the culture war, we encourage you to post a thread for it. A submission statement is highly appreciated, but isn't necessary for text posts or links to largely-text posts such as blogs or news articles; if we're unsure of the value of your post, we might remove it until you add a submission statement. A submission statement is required for non-text sources (videos, podcasts, images).

Culture war posts go in the culture war thread; all links must either include a submission statement or significant commentary. Bare links without those will be removed.

If in doubt, please post it!


Rules


Recommended Posts And Communities

Recommended Realtime Chats