I have a confession before I make my case: I have never met anyone who lost everything because they held too much company stock. Not personally. I've read about it, the way everyone has — Enron, Lehman, the longish and somber list — but in all my years of sitting across from executives in the real world, the actual human beings in front of me who built real wealth holding a concentrated position outnumber the ones who were ruined by it. By a lot.
I want to say that plainly, up front, because I'm about to spend the next several hundred words explaining why so many smart, successful people hold too much of one stock — and I don't want it to read like I think they're all making a mistake. Some of them built their entire financial life on exactly this decision. Concentration has made people wealthy. It is not, in itself, evidence of poor judgment.
But understanding why we hold what we hold is still worth doing, because the reasons are rarely the ones that we say or even realize.
The first one is the endowment effect, and it is simple once you see it: we value things more once we own them, independent of what they're actually worth. An economist can show you the math on this in a lab with coffee mugs and ten-dollar bills (fun study, google that one). Now imagine the "thing" isn't a coffee mug — it's the company where you've spent fifteen years, built your reputation, maybe recruited half the people in the building. That's not a stock ticker to you. That's identity wearing a CUSIP number. No spreadsheet fully corrects for that, and I don't think it should have to, because that's real and I get it. But it's worth knowing it's there, quietly putting its thumb on the scale every time you think about trimming the position.
The second is a kind of familiarity that disguises itself as an "edge." You sit in the meetings. You see the pipeline. You know which divisions are humming and which ones are limping along three quarters before the market figures it out. It feels like information. Sometimes it is. But proximity to a company and insight into its next five years are not the same thing, and the data on insider overconfidence is not kind to the idea that "I work here" reliably beats "I researched this." Executives are, on average, no better than anyone else at predicting their own company's stock — they just feel more certain while being wrong.
The third is the quiet one, and I think it's the most common: doing nothing is the path of least resistance. Selling means a decision, a tax bill, a phone call, maybe a conversation with HR about a 10b5-1 plan. Holding means none of that. It just continues. Inertia doesn't announce itself as a choice, which is exactly what makes it so durable and organically easy to overlook — and so easy to mistake for conviction.
And then there's the one that's hardest to argue with, because it's simply true: the stock has probably worked. It made you wealthy in the first place. The very success of the position becomes the argument for keeping it, and on the surface that seems reasonable — why bet against the thing that built your net worth? I've seen this with my own client families with Abbott & AbbVie, ANSYS, Amazon, Eli Lilly among others. But this is where I think the conversation usually goes wrong, because it frames the decision as a referendum on the company rather than what it actually is: a question about how much of your future you want riding on a single outcome.
Here's the way I've come to think about it. A concentrated position isn't really "high risk, high reward" in the way people imagine it. The reward side is bounded — there's only so much more a single, already-large or rapidly growing company can realistically run. But the risk side, in the worst case, is not bounded in the same way. A diversified portfolio doesn't go to zero. A single company, no matter how dominant, sometimes does — and not always for reasons anyone could have seen coming a few years out. You're not trading a known cost for an unknown, unlimited upside. You're trading a small, knowable cost — some diversification, maybe a tax bill (I like to think of it as a single insurance premium for your portfolio) — for protection against an outcome that could be catastrophic and, unlike a bad year in the market, irreversible.
"Believing in something and betting your entire future on it are two different decisions, even when they look identical from the outside. The first one is conviction. The second one is a wager."
I don't say any of this to talk anyone out of believing in their company. Some of the wealthiest people I know got that way because they believed early, held on, and were right. I say it because believing in something and betting your entire future on it are two different decisions, even when they look identical from the outside. The first one is conviction. The second one is a wager — and most people who make it never stop to notice they've made it at all.
There's a version of this conversation that's more nuanced than "diversify everything immediately," and I think it's worth having at some point — when concentration is a deliberate, sized, understood bet rather than an accident of inertia. That's also a piece for another week. For now, the only thing I'd ask is this: know which one you're holding. Conviction, or accident. They feel exactly the same until the day they don't.
Joshua Staph, CIMA®
Founder, Verak Private Wealth · joshua@verakprivatewealth.com · verakprivatewealth.com
The views expressed are those of the author and are for informational purposes only. Not investment, tax, or legal advice. Individual companies are mentioned for illustrative purposes only and do not constitute a recommendation to buy or sell.
Securities offered through Cambridge Investment Research, Inc., Member FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Verak Private Wealth LLC and Cambridge are not affiliated.