what is the max % concentration in a single stock?

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staustin
Posts: 456
Joined: Mon Mar 14, 2011 9:36 am

what is the max % concentration in a single stock?

Post by staustin »

My privately held employer merged a month or so ago and is now publicly traded. i was fortunate enough to monetize 10 years of iso's. While i'm excited, i'm now staring at a single stock 30+% concentration of my investable assets.... i plan to sell down to 10 to 15%. What is the forum's thoughts on a maximum single stock concentration in this situation?? Many thanks, in advance.
Bacchus01
Posts: 3182
Joined: Mon Dec 24, 2012 8:35 pm

Re: what is the max % concentration in a single stock?

Post by Bacchus01 »

staustin wrote:My privately held employer merged a month or so ago and is now publicly traded. i was fortunate enough to monetize 10 years of iso's. While i'm excited, i'm now staring at a single stock 30+% concentration of my investable assets.... i plan to sell down to 10 to 15%. What is the forum's thoughts on a maximum single stock concentration in this situation?? Many thanks, in advance.
I have a very similar situation. About 24% of my portfolio in one stock, about 15% in another. Both current or former employers.

The advice I got was take any single stock down to no more than 5-10%.
NYBoglehead
Posts: 1588
Joined: Fri May 25, 2012 9:38 am

Re: what is the max % concentration in a single stock?

Post by NYBoglehead »

I like it at 0%. If things go south you don't want to lose your job and have the value of your stock go down at the same time.
stan1
Posts: 14246
Joined: Mon Oct 08, 2007 4:35 pm

Re: what is the max % concentration in a single stock?

Post by stan1 »

If you are 30 with a $100K portfolio its not too big of a deal -- over a short amount of time you'll diversify with new 401K contributions (assuming you max that out).
If you are 60 with a $2M portfolio its a huge deal.

Since your company was bought you really have to ask yourself from a business perspective why you would want to invest in the acquiring company. Sometimes people feel a sense of ownership about a startup or privately owned company. But since its been acquired that's no longer the case. You have no "skin in the game" with the acquirer.
Last edited by stan1 on Thu Dec 27, 2012 12:38 pm, edited 1 time in total.
Warning: I am about 80% satisficer (accepting of good enough) and 20% maximizer
krannerd
Posts: 117
Joined: Sat Jun 25, 2011 12:05 pm

Re: what is the max % concentration in a single stock?

Post by krannerd »

First of all, congrats!

I had always heard about 5% being the maximum threshold for a single security. I think that the Fidelity portfolio analyzer also flags anything above 5%.

My employer matches contributions to my 401k in company stock. I typically sell all of it every 6 months....too many eggs in my company's basket. I assume that if we do really well, there will be other opportunities to benefit from the company's success (promotions, raises, bonuses, etc).
Wagnerjb
Posts: 7213
Joined: Mon Feb 19, 2007 7:44 pm
Location: Houston, Texas

Re: what is the max % concentration in a single stock?

Post by Wagnerjb »

stan1 wrote:If you are 30 with a $100K portfolio its not too big of a deal -- over a short amount of time you'll diversify with new 401K contributions (assuming you max that out).
If you are 60 with a $2M portfolio its a huge deal.
Good point from Stan.

I would target 10% as the max, but I would be mindful of tax issues on your journey there. If selling all at once will drive your tax rate - in any one particular year - into a very high bracket, I would consider selling gradually over a few years.

Best wishes.
Andy
Grt2bOutdoors
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Location: New York

Re: what is the max % concentration in a single stock?

Post by Grt2bOutdoors »

No more than 5% max - it would not take too much to see a 30% holding become 5% without any prodding on your part, just look to Enron to see what happened there.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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