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You never know

| October 31, 2017
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People often amass large positions of one company stock; it can be from stock options, significant appreciation, inheritance, etc. I see it all the time.

Recently I saw a portfolio with two companies that had been held for probably more than 40 years and had seen significant price appreciation. The stocks were inherited, and as a result had no tax consequences if they were sold and diversified into a less risky portfolio. This person's net worth was all in just two stocks! Crazy right?

But there is an emotional attachment to stocks that can drive people to hold significant position, and there is also "FOMO" - fear of missing out. It seems to be Murphy's Law, every time we want to diversify a position and do so; the stock soars up. The "could of, should of, would of's" when this happens can be painful.  But it does also go the opposite way too. My wife told me to diversify an investment we had that had run up 1,000’s of percent once; she was right as usual, and I will never live it down!

I'm reminded of this quandary again this morning as I look at a family with a huge position in Wells Fargo. The bluest of the blue-chip bank stocks. Like so many before it, it was thought to be well diversified, bulletproof, almost a "widow-and-orphan" type stock; but now it's underperforming the U.S. stock market by 25% year-to-date! They are down huge. 

Any company can have internal or external forces that can dramatically impact its stock performance, as well as its future as a going concern. 

Just a friendly reminder to not keep all your eggs in one basket. 

You can still make excellent returns with a diversified portfolio with significantly lower risk of catastrophic and life-changing losses. 

If you would like to discuss options on diversifying a large position with care and tax planning, let me know. 

Thank you for taking a look!


This article represents opinions of the authors and not those of their firm and are subject to change from time to time, and do not constitute a recommendation to purchase and sale any security nor to engage in any particular investment or legal strategy. The information contained here has been obtained from sources believed to be reliable but cannot be guaranteed for accuracy.

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