Gen One Legacy

How to Manage Concentrated Investment Risk

September 07, 2023 Peter Donisanu
Gen One Legacy
How to Manage Concentrated Investment Risk
Show Notes

All it takes is just one stock to go to the moon, and that's it, you're set for life, right? Well, if it were only that simple. You see, concentrated investing, or keeping your eggs in one basket, seems to work until it doesn't.
 
Now, make no mistake, concentrated investing isn't all that bad. In fact, notable investor Warren Buffett is known to have made lots of money decade after decade because he takes big bets. 
 
Even so, concentrated investing isn't for everyone.
 
In fact, if you were to personally ask the Oracle of Omaha for investment advice, he'd likely tell you to buy a diversified basket of stocks that tracks the S&P 500 index and simply hold on to your investments for the long haul!
 
And why would a sage investor give such seemingly conflicted advice?
 
Well, that's because Buffett knows that concentrated investing cuts both ways. You see, on the one hand, you could score big under the right circumstances or find yourself desperately holding onto a failing position that wipes away your life savings when fate turns against you.
 
Indeed, whether you've intentionally placed all your eggs in one basket or are simply trying to figure out what to do with your restricted stock or stock options, then having a plan is essential to preventing unfavorable outcomes. 
 
And this approach starts with checking for concentrated holdings, assessing your risk tolerance to manage such a position, and then understanding how to rebalance away or hedge risk when necessary.

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