Is Your Alpha Big Enough to Cover its Taxes? (Jurassic Park edition)

1993 was a blockbuster year

I can think of around 20 ways to thoughtfully de-risk a concentrated public stock position. The “right” solution is in there somewhere. Learn more at Basis Northwest.

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I borrowed “Jurassican” from an anonymous person online. It’s a terrible joke. I love it.

In 1993, Jurassic Park premiered, and so did Jeffrey and Arnott’s Is Your Alpha Big Enough to Cover Its Taxes?

Without exaggeration, I can say that this paper launched my interest in taxable wealth.

This paper ignited my interest in taxable wealth. Several papers came before it, but it’s a classic in the taxable wealth canon.

There’s something rebellious about this paper…

“We conclude that the typical approach of managing taxable portfolios as if they were tax-exempt is inherently irresponsible, even though doing so is the industry standard.”

At the time, most folks knew that active management tended to underperform, but Jeffrey and Arnott introduced a simple model (replicated below) that made the underperformance intuitive and mechanical.