Search the internet for “define concentrated stock” and you can find multiple answers, even one that states “concentrated stock can be as low as 5% of your overall portfolio”…so, what is concentrated stock? Here at Emerald, we would want to quantify concentrated stock as a position that can direct the overall net worth in a positive –or in the case of risk management –negative way. The old adage that “you become wealthy with concentrated stock and you retain wealth by diversifying” has merit!
We want you to have your eyes wide open during portfolio construction and reviews and understand the risk associated with concentrated stock. It can change your lifestyle in a good way or in a bad way(we are reminded of this by Enron, World Comm and Washington Mutual). For our clients holding a concentrated position, we discuss the entire portfolio and where the concentrated risk lies using what if scenarios: i.e. what if the concentrated stock were to lose 30% or even 50% of value? Those are all questions to be had with your financial advisor.
At Emerald, there is no one shoe fits all in the concentrated stock answer. We develop your roadmap with your input and our guidance based on decades of experience. If that includes a concentrated position of a stock, we’ll lay out the risk associated, we’ll show different outcomes, and we’ll propose strategies that align with your goals and risk tolerance.
To sum it up; if the stock keeps you up at night, if you are constantly looking at the market and fretting when your net worth takes a hit on the concentrated stock, then it’s probably worth a discussion and review. Please reach out to your financial advisor or give us a ring to schedule a time to chat.