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Window Dressing

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Window dressing can have at least two meanings. In accounting terms, window dressing refers to an assortment of alterations a bookkeeper might make to a financial statement, whether legal or illegal, so that the statement appears stronger than it is. Omitting expenses, recording sales before they occur, or delaying write-offs are possible window dressing activities in this context. A firm might engage in the accounting version of window dressing to meet liquidity requirements on financial disclosure forms. In investing, window dressing refers to the churning of a portfolio by an investment fund manager out of stocks or securities that have performed poorly and into stocks that have performed well. Window dressing in this instance typically occurs near the end of a quarter, and is aimed at making portfolios appear more profitable and fund managers more astute than they were. Alternatively, investment window dressing might also entail a fund purchasing securities in a popular, expanding sector that has nothing to do with the orientation of the fund. For instance, a utilities fund purchasing technology stocks during the late 1990s tech boom would have been engaging in window dressing.



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