How To Think About A Concentrated Stock Position
Employees at successful companies often hold a position no adviser would ever recommend building.
Someone who has spent a decade at a company that did well frequently holds most of their wealth in its shares. Nobody chose that concentration deliberately — it accumulated through grants and appreciation.
The two exposures
The financial risk is that a single company's fortunes determine your net worth. The second risk is that the same company also pays your salary, so a decline in its prospects can remove your income and your savings simultaneously.
That correlation is the argument for diversification even by someone entirely confident about the company.
Why people hold anyway
Beyond conviction, the usual obstacle is tax: selling appreciated shares realizes a gain. This is a genuine cost and it is frequently allowed to override a risk that is much larger.
The useful reframing is to ask whether, holding the equivalent value in cash today, you would buy this many shares of this company. Most people answer no, which reveals that the position is being held by inertia rather than by decision.
Approaches used in practice
Selling on a predetermined schedule regardless of price removes the timing decision and, for company insiders, can be structured under a plan adopted while not in possession of material non-public information.
Directing charitable giving to appreciated shares rather than cash is efficient where you give anyway. Managing sales across tax years and against realized losses elsewhere can moderate the tax cost.
There are also more complex hedging and exchange structures. They carry costs and constraints of their own and require specific advice; they are not free solutions.
Constraints to check first
Company insiders face trading windows, pre-clearance requirements and reporting obligations. Employment agreements may impose holding requirements. Establish these before planning anything.
The general point
There is no single correct level of concentration. There is a large difference between a position you have decided to hold, sized deliberately, and one you have never examined.
This is general information, not financial advice. Nothing here is a recommendation to buy or sell anything; speak to a licensed adviser about your own position.