Chapter 10: Concentration: when to sell
The week his company's lockup expired, Sam counted everything he owned. The total came to $1,607,000, and $1,142,000 of it sat in one stock: the same company that pays his $260,000 salary, his bonus, and every vest still climbing his ladder. He never once decided to put 71% of his net worth into a single company. The position assembled itself, one unsold vest and one unexercised option at a time, while he was busy doing his job.
This chapter is the wealth-preservation chapter, and its tools are deliberately boring: an honest count, a written policy, a selling schedule, and a calendar. Boring is the point. The exciting version of this story has already been written several times, and it ends badly.
Count everything on the ticker
Most people count their employer stock as whatever sits in the brokerage account. The honest count is larger, because concentration is measured by what fails together. When one company stumbles, five things sag in the same season: the vested shares, the unvested ladder, this year's vests, the salary that funds the whole household, and the benefits attached to the job. The Finvest Personal Finance Guide drew this picture in its chapter 18; this chapter puts your numbers in it.
Sam's count, with the stock at $30:
| Sam's count, the week the lockup expired | Value |
|---|---|
| RSU shares kept from the IPO-day vest (23,400 at $30) | $702,000 |
| Spread on 20,000 vested NSOs ($8 strike, $30 price) | $440,000 |
| Employer stock, total | $1,142,000 |
| 401(k), invested in index funds | $285,000 |
| Taxable account, index funds | $105,000 |
| Cash reserve | $75,000 |
| Everything else, total | $465,000 |
| Net worth | $1,607,000 |
Divide $1,142,000 by $1,607,000 and you get 71%. The table also understates the problem, on purpose, because chapter 2 taught us that unvested equity is not net worth. Sam still has about 9,000 unvested RSUs, roughly $270,000 at today's price, riding the same ticker, alongside the salary, the bonus, and the health insurance.
$1,142,000 of $1,607,000 sits in one company's stock and option spread.
Salary, bonus, and every vest on the ladder come from the same company.
Run your own count below. Include vested shares, the unvested ladder, this year's expected vests, and your salary, because the calculator measures what the brokerage statement leaves out.
What the worst case looks like
Enron is the textbook case because everything failed at once. The stock traded near $90 in the summer of 2000 and was worth less than a dollar by the bankruptcy filing in December 2001. Employees held roughly 60% of the company 401(k) plan in Enron shares, partly because the company match was paid in stock that many workers were restricted from selling until age 50. Thousands of people lost the job, the paycheck, and the retirement account in the same season, because all three were the same bet.
You do not need fraud to get hurt, though. In 2022 the shares of several of the largest technology employers fell by half or more inside a year, and one of the five biggest lost almost two thirds of its value, while the same companies froze hiring and then cut tens of thousands of jobs. Employees who had held every vest since 2019 watched the stock side and the career side of their lives shrink together. The companies were healthy. The concentration still did its damage, quietly, through an ordinary bad year.
The cash test, then a written policy
Every sell decision in this chapter runs through one sentence, borrowed from chapter 4: if the company had paid you this money in cash, would you spend it on company stock today? Almost nobody says yes, and yet almost everybody holds, because the feelings in the moment argue for holding from both directions. When the stock is up, selling feels like quitting a winning table. When the stock is down, selling feels like locking in a loss that a few patient months would surely repair. Both feelings recommend the same inaction, which is how a 71% position gets built.
The fix is to take the decision away from the moment. Decide on a calm day, write the decision down, and let the writing outrank the feelings.
Maya's written sell policy, carried over from the Finvest Personal Finance Guide, fits on an index card. Sell at least 75% of every vest in the first open trading window, with autosale doing the work. Cap total employer stock at 10% of her investable assets, selling the excess down as windows and tax lots allow. Any exception must be written down before the window opens, with a reason and a review date. She reports that the policy's record against her own second thoughts is undefeated, mostly because the exceptions die on paper: an argument that sounded persuasive in her head has never once survived being written in a sentence next to a date.
Write your sell policy before the next window: the percentage of each vest you sell (75% or more is the Finvest default), the cap on total employer stock (around 10% of investable assets), and the rule that exceptions must be written, dated, and reasoned before the window opens. Then let autosale and the calendar execute it.
Selling down a big pile
A policy handles new vests. The pile you already hold needs a schedule. A dollar-cost-out schedule is the selling mirror of dollar-cost averaging: you sell a fixed slice of the position at regular intervals, regardless of price, headlines, or feelings, until the position reaches your cap.
Sam's plan covers both halves of his $1,142,000. The NSO spread goes first, by full cashless exercise, the decision chapter 6 traced dollar by dollar. The $702,000 of RSU shares goes on a schedule: one eighth of the position, about $87,750, sold each quarter for two years, proceeds to the tax set-aside and then the index funds, stopping only if the position falls under his 10% cap sooner.
Taxes are gentler on this plan than people fear, and the Finvest Tax Playbook's chapters on capital gains and loss harvesting carry the details. Sell long-term lots first, since they get the lowest rates. Lots trading below their basis are not a reason to wait; they are free to sell and useful, because the realized loss offsets gains elsewhere. Sam's RSU lots vested on IPO day at $40 and trade at $30, so his first quarterly sales owe nothing and bank a loss against future gains. The expensive mistake is rarely the tax bill. The expensive mistake is riding 71% of your net worth through one company's bad decade to avoid a 15% tax on the gain.
Hedging, honestly
Somewhere around the second million, an adviser will mention fancier tools, so here is the honest card.
Collars and exchange funds are mostly for founders
A collar buys a put and sells a call around your position, fencing the price into a range for a fee. An exchange fund pools your concentrated stock with other people's and hands back a diversified basket, but only after a holding period that typically runs seven years. These are real tools for founders and early executives holding enormous positions they legally or contractually cannot sell. For an employee holding sellable public shares, they add fees, lockups, paperwork, and tax complexity to reach an outcome a sell order delivers tomorrow for almost nothing. If you can sell, selling is the hedge.
One tool does deserve a place in an employee's kit. Insiders like Sam can trade only inside open windows, and a 10b5-1 plan fixes that: a selling schedule adopted in an open window, while you hold no inside information, that your broker then executes automatically, even during blackouts, after a required cooling-off period. It is the written sell policy made literal, with the added benefit that a plan adopted in March cannot be talked out of its October sale by the version of you who exists in October.
Where people go wrong
- Counting only the brokerage account. The unvested ladder, this year's vests, and the salary ride the same ticker. Sam's honest count was 71% and 100%, and the portal showed neither number.
- Waiting for the price to come back. The vest price is an anchor, not a promise. A diversified portfolio can recover; a single stock is allowed to stay down forever.
- Letting taxes veto diversification. A capital-gains bill is a fraction of the gain. Concentration risks the principal.
- Mistaking employment for research. Working somewhere tells you the roadmap and the mood, neither of which is the stock price. Enron's employees had the best seats in the house.
- Choosing the perfect moment instead of a schedule. All-at-once feels reckless and someday never arrives. One eighth per quarter beats both.
Key takeaways
- Count employer exposure honestly: vested shares, option spread, unvested ladder, this year's vests, salary, and benefits. Sam's count came to 71% of net worth and 100% of income.
- Enron employees held roughly 60% of their 401(k) plan in company stock that fell from about $90 to under $1; in 2022, healthy tech giants halved while freezing hiring. Concentration hurts without fraud.
- Write the sell policy on a calm day: sell at least 75% of every vest, cap employer stock near 10% of investable assets, and require written, dated exceptions before the window.
- Sell down an existing pile on a dollar-cost-out schedule, long-term lots first, harvesting losses along the way. The tax bill is smaller than the risk it removes.
- Hedging tools like collars and exchange funds mainly suit founders who cannot sell. Insiders who can sell should automate it with a 10b5-1 plan.
Sources: IRS: Publication 550, Investment Income and Expenses · SEC Investor.gov: Employee Stock Plans · Finvest Personal Finance Guide · Finvest Tax Playbook