Concentrated Stock Management

Significant wealth is often created through a concentrated asset that also poses the biggest risk to future financial security. This concentration of wealth can result from a variety of situations such as, employer stock and option compensation, a large inheritance of a single stock, or the sale of an interest in a closely held business for shares in a publicly traded company.

Diversification can preserve this wealth and manage the downside risks inherent in a disproportionately large concentration of net worth in one security. But the question becomes what to diversify into, or when to diversify, or should the position be hedged? And how do taxes affect these decisions?

There is also the emotional attachment that often drives the “not to sell” motivation, and life events that typically drive the “to sell” motivation. For example, the stock may be the reason for significant wealth creation and there is a feeling that it will continue to offer upside, or the feeling of uncertainty with the unknown large capital gain that could result. As a result an otherwise rational investor may become paralyzed into inaction and the stock is not sold until there is a major life event such as change in employment, divorce, significant consumption needs, or death creating a need for liquidity.

We understand these issues, and also understand that it is not just a question to “sell” or “hold” but how best to “sell” or “hold.” There are so many variables that factor into these decisions and we have the experience to advise you on the best strategies for managing shares of concentrated stock.