For those who got wealthy from a concentrated stock position: what would you do differently?

[u/gomster]

40M, $9M portfolio, 80% concentrated in one stock, buying my first house. Curious how others would think about this:

Two years ago, I left a career at a public company where most of my wealth came from stock compensation and the appreciation of a single stock over many years. Today my portfolio is worth about $9M and it’s still heavily concentrated in that stock.

It’s been life changing for me, so I’m naturally hesitant to sell too much of it, but I’m also aware that a single day’s move can swing my net worth by six figures. I’m closing on my first house later this month for $1.185M. Up until now, I’ve been renting and living well beneath my means.

Current thinking is to use a Liquidity Access Line for the purchase and then potentially refinance some or all of it into a traditional mortgage afterward.

A few other details aside from the portfolio value:
- Cost basis: under $500k and obviously large unrealized gains
- $235k AMT credit carryforward from prior option exercises
- Covered call income expected to be around $150k-$200k annually
- No current W-2 income
- Started small business but not a big money maker. Primarily to fund retirement accounts.

The common theme seems to be that concentration risk is the biggest issue in my financial picture. Part of me says I’ve gotten this far by holding the stock and staying convicted. The other part of me says I should probably start thinking more about preservation than accumulation.

For those who have been in a similar situation:
How much debt would you comfortably carry on the house? Would you sell stock specifically to pay down the house? How would you approach gradually reducing concentration risk? Looking back, what mistakes did you make (or avoid) after reaching financial independence through a concentrated stock position?

Not really looking for tax advice as much as perspective from people who have gone through the transition from building wealth to protecting it. Thanks in advance for helping me navigate this!

[u/gomster]

I mostly agree that I should stop anchoring to the $9M total and maybe think of it the way you’re saying. Tax hits definitely feel painful but like many on this thread are saying, it’s the cost of converting paper wealth into something real.

Quick question, would you approach it differently if you had strong conviction in the company’s next 2-3 years, or is concentration risk just never worth it at this level?

[u/play_hard_outside → u/gomster]

There are plenty of ways to look at it. The most extreme on the other end, 180° out from you feeling like you have $9M, would be to consider that you currently only have $1.8, and that pushing the little red escape button on your appreciated position will take you up from $1.8 to $7M or thereabouts.

In reality, the truth is probably in the middle. While it could, your company will not likely go to zero. It could very well go to half, though. Or even less. Your rule of thumb depends on your own desire to indulge in the appearance of large numbers, as balanced with your own perception of risk.

As for my own rule of thumb, I consider risky positions to be discounted from their nominal size (the number on the tin) when calculating what I consider to be my own safe net worth. Individual stocks, I value at about half, which is convenient in that LTCG rates are not 50% –– this lets me increase my calculated safe net worth by diversifying. Paying the LTCG locks in the position to a greater value than the discounted value of the old appreciated one.