I built a tax-aware long/short simulator/dashboard
A simulator anyone can use to kick the tires on tax-aware long/short... with caution
The promise of tax-aware long/short strategies like the 130/30, 200/100, and more, is pretax alpha plus a boatload of capital losses.
Here’s a 2-sentence, 2-image overview if you need to get up to speed on the hottest thing happening in taxable wealth (est. $55bn - $65bn AUM).
The losses are useful for offsetting realized gains in the immediate portfolio. They can also reduce tax friction anywhere in the household portfolio (and for future generations), making this strategy a powerful planning tool.
There are costs (namely, fees and financing), and risks (including 1. product/manager risk, 2. external/systemic risk, and 3. operator/planner risk), but before all of that, I just want to understand the mechanics of the strategy.
So, I built a control panel on top of a simple simulator, so folks can grok what’s going on.
Please read the assumptions and understand the shortcomings of simple models like geometric Brownian motion (e.g., constant drift and constant volatility are unrealistic, etc.). This is an educational tool that should be part of a more comprehensive diligence program. It is very much in the prototype/proof of concept stage.
I considered creating an operating manual, but figured everyone would simply prefer to play with the tool, so here it is.
Let me know what you think, what I need to fix, and what would make it more useful.
The control panel above was inspired by my dad’s work as an Electronics Technician (Nuclear) on US Navy submarines in the 1980s, and my later work as a software observability engineer.
If you don’t know about the Naval Nuclear Propulsion Program, here are some fast facts:
Since the 1950s, the US Navy has operated a fleet of submarines powered by small nuclear reactors.
Cores can last 25+ years without refueling (food and human endurance are the limiting factors).
In ~70 years and over 7,000 reactor-years of operation, the Navy has never had a single nuclear reactor accident.
The architect of the program was Admiral Hyman Rickover, a hero. Full stop. This country is safer because of his 60+ years of service.
My dad served aboard USS Omaha (SSN-692) and USS Birmingham (SSN-695), both Los Angeles-class “688 boats.”
The fun part of his job was operations and maintenance of the reactor. The “invisible dance” explanatory scene from the 2019 TV series Chernobyl accurately captures his job of maintaining balance in the reactor, and he’ll explain, over a beer, to anyone within earshot, how the Soviet RBMK reactor failed and why the US reactors have no such flaws.
Speaking of dads
And speaking of Soviets
