- Nature of the presentation
- The figures displayed are hypothetical, being the output of a stochastic simulation of hypothetical securities upon a mathematical model. They are illustrative and diversionary in character and are not of investment grade. Hypothetical results carry inherent limitations, among them that they are constructed with the benefit of hindsight, bear no market risk, involve no capital actually placed at risk, and do not reflect the effect of material economic and market factors upon decisions actually taken. Results of this kind frequently differ, sharply and in either direction, from anything experience would produce.
- One path, not a result
- What is on screen is a SINGLE randomly generated path, redrawn from a new seed whenever the run is reset. A model of this kind produces a very wide spread of outcomes across seeds, and any one of them, favorable or unfavorable, is a draw and not a finding. No figure shown should be read as typical, expected, representative, or achievable, and no conclusion about outcomes should be drawn from any single run.
- No performance is shown
- Nothing here is a return. The figures describe the movement of cost basis and proceeds, the composition of the book, and the tax consequences of the transactions modeled; they do not state, and are not intended to permit the derivation of, the performance of anything. No benchmark, index or comparison is presented, and none is tracked, licensed or represented. Amounts expressed as a share of original capital are accounting quantities, not results.
- The method, in outline
- Prices follow correlated geometric Brownian motion at parameters the viewer selects. Positions are carried as dated tax lots. A lot trading below its basis by more than a selected threshold is treated as sold and immediately reacquired at that price, with the loss recognized and the holding period restarted; short positions mirror this against proceeds and are treated as short-term in every case. The book is periodically returned toward fixed target weights and toward a selected multiple of account value, dispositions being taken from the least appreciated lots first. Recognized amounts are settled annually against the book itself.
- The concentrated position
- Where the viewer elects one, a single holding is opened at a selected weight and a selected cost basis, dated so that it is long-term throughout, and is excluded from every rebalance. Where the viewer further elects to work it down, an amount of it is sold each month such that the FEDERAL tax upon the gain thereby recognized does not exceed the losses recognized to that point, and the proceeds are reinvested across the remaining holdings. Any neutrality shown is therefore federal only. NO STATE OR LOCAL TAX IS MODELED, and in a jurisdiction that taxes capital gains the same transactions would not be neutral. Whether losses may in fact offset such a gain, federally or otherwise, depends upon facts, character, timing and law not modeled here.
- Rates and what they leave out
- Federal rates are applied throughout at their highest marginal statutory levels, being 40.8% on short-term amounts and 23.8% on long-term amounts, each inclusive of the 3.8% net investment income tax, and are assumed constant in perpetuity. No state or local tax of any kind is modeled. The model further disregards, among other things, wash-sale disallowance, financing and stock-borrow expense, dividends and substitute payments, commissions, spreads, market impact, management fees, state and local taxation, and any limitation upon the deductibility or carryforward of capital losses. Federal rates are applied at their highest marginal statutory levels and assumed constant in perpetuity. Losses are assumed fully absorbed by gains elsewhere in the same period. Any expected excess return is a value the viewer supplies and is not an estimate, a forecast, or an assertion that such a return is attainable. Each of the foregoing tends to render the figures more favorable than experience would permit, and several of them materially so.
- Leverage
- Margin figures follow a published third-party framework and are illustrative only. Actual borrowing capacity is determined by a broker, may be altered without notice, and may compel liquidation at disadvantageous prices. Losses on a leveraged position may exceed the capital committed to it.
- Attribution
- The cat is Bongo Cat, made by DitzyFlama from StrayRogue's drawing and hosted at bongo.cat, whose code is MIT licensed to Eric Huber. The sprites are used unmodified. Full attribution and the license position are in public/bongo/NOTICE.md.