Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Seeking opinions about the most to have in one investment
Old 04-20-2021, 11:39 AM   #1
Dryer sheet aficionado
 
Join Date: Jun 2013
Location: Panama City
Posts: 35
Seeking opinions about the most to have in one investment

First of all, my apologies if this has been covered elsewhere. I did some searching and did not get any hits.


Anyway, I would say this is an asset allocation issue. Many years ago I bought some stock in one of Atlanta's "favorite son" companies -- let's call it HD. As many of you probably know, it's done quite well over the years - both in actual price appreciation and in becoming a pretty reliable dividend payer as well.


So I now find myself in that position of cognitive tension of having to consider selling some of an investment winner so as not to be too exposed to any potential downturn. It's percentage of my total portfolio has been moving up and down around the 10% mark for a couple of years now.


I would be interested in opinions/experiences here as to what is an appropriate percentage to have in any one individual stock. In the broader online environment, I find rules of thumb ranging from 5% to 10%. A work colleague I talked to ask me if it meets the rule "would you buy this stock today if you did not own it?" For me the answer is yes. He seemed to feel that was a reason not to worry about it.


Any and all thoughts appreciated.
gabrewer is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-20-2021, 11:53 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Apr 2010
Posts: 5,830
This is a very good question. My limit would be in the 5-10 percent range. And it would have to be a blue chip with a long record.

Just prior to retirement I had unexercised stock options that constituted as much as 40 percent of our then planned retirement equity. I had started to draw down on them but not to a great extent. Lots of kool aid drinking colleagues who were predicting untold gains and advising to hold off.

We had a new investment adviser. He asked the same question. Would we by happy with this position if we were buying the equity. Question two was about the impact on our retirement if the options zeroed out.

We listened and acted. We decided that the downside risk outweighted upside gains or tax consequences. The options were between 15 and 20. The market price was 54. So, we exercised just about all of them between 54 and 42. A year later the stock was down to 18 or so. Our options would have been under water had we held on. Same for the few RSUs that we held. Typical tech stock.
brett is offline   Reply With Quote
Old 04-20-2021, 11:57 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 10,308
Professional fiduciaries are typically limited by their company's investment policies to 10% or at most 15% before it is considered an "imprudent concentration." This is sometimes tempered by tax considerations. When DW was in the trust business, her account reviews needed additional explanation where the cost basis on the concentrated assets was very low. Often a widow inheriting company stock from her deceased husband who really believed in his employer.

DW had a situation with her megabank where the 401K match was in megabank stock that could not be sold until the employee reached age 55. We sold down to 15% within a day or two of her birthday.

So ... your 10% may be OK. It also depends on the size of your stash. If that position went to zero, how much effect would it have on your present and future lifestyle? If "none' that's one thing. If "devastating" that's another.
__________________
Ignoramus et ignorabimus
OldShooter is offline   Reply With Quote
Old 04-20-2021, 12:04 PM   #4
Recycles dryer sheets
 
Join Date: Jul 2018
Location: Topanga
Posts: 313
How would this apply to how much of NW % to hold in one mutual fund or one ETF?
timbervest is offline   Reply With Quote
Old 04-20-2021, 12:28 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Feb 2021
Posts: 2,324
I'd also say 5-10% as my max, and I'd be nervous at 10%.



Quote:
Originally Posted by timbervest View Post
How would this apply to how much of NW % to hold in one mutual fund or one ETF?
Very different question. Depending on the fund, you could conceivably be 100% into one fund like a target date fund, for example. You'd be very well diversified with a controlled asset allocation and low expenses.


ETA: Personally, our largest fund holding right now is 17% of our portfolio.
disneysteve is offline   Reply With Quote
Old 04-20-2021, 12:31 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
ExFlyBoy5's Avatar
 
Join Date: May 2013
Location: ATL --> Flyover Country
Posts: 6,649
Personally, I wouldn't want more than about a 5% in a single holding. Not that big orange is going anywhere, but the some may have said the same about Blockbuster a number of years ago. If the value went to ZERO, what would you be comfortable losing?
__________________
FIRE'd in 2014 @ 40 Years Old
Professional Retiree
ExFlyBoy5 is offline   Reply With Quote
Old 04-20-2021, 12:36 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
ExFlyBoy5's Avatar
 
Join Date: May 2013
Location: ATL --> Flyover Country
Posts: 6,649
Quote:
Originally Posted by timbervest View Post
How would this apply to how much of NW % to hold in one mutual fund or one ETF?
As mentioned, I think this is a much different question since they usually have many holdings. I am in about 95% with VTI/VTSAX (this figure doesn't include real estate) but represents nearly 3,800 companies.
__________________
FIRE'd in 2014 @ 40 Years Old
Professional Retiree
ExFlyBoy5 is offline   Reply With Quote
Old 04-20-2021, 12:58 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Aug 2016
Location: Northern Virginia
Posts: 7,515
I limit to 5 percent as a rule, particularly as a retiree.
Montecfo is offline   Reply With Quote
Old 04-20-2021, 01:01 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 10,308
Quote:
Originally Posted by disneysteve View Post
... our largest fund holding right now is 17% of our portfolio.
Yup, what they said. But the important point is that the fund is diversified. Like a total market fund.

One could debate whether an S&P 500 fund is adequately diversified or not. It is only aboutg 40% of the world market cap. No US smalls or midcap, no non-US at all.

It's common, though to see stock picker funds, conventional or ETF, that are concentrated in well under 100 stocks and all in the same industry. It would be crazy from a diversification POV to hold any of those above a single-digit percentage of a portfolio. (Crazy to hold them at all, IMO.)

So the real answer is "It depends on what kind of funds they are."

FWIW, we have achiever indexers' nirvana. About 99% in one fund: VTWAX. You can't get more diversified in stocks than owning all of them.
__________________
Ignoramus et ignorabimus
OldShooter is offline   Reply With Quote
Old 04-20-2021, 01:33 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
Similiar here... same concern as large positions in employer stock... diversification risk issue. I'd be comfortable at 5% and uncomfortable at 10%.

Perhaps what you can do is to sell some at-the-money puts and if they exercise then it reduces your position and either way you still pocket the option premium. Or at least put some stop-loss orders in place.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 04-20-2021, 01:52 PM   #11
Full time employment: Posting here.
 
Join Date: May 2017
Posts: 796
I'm in this position right now. Current NW excluding real estate is around $2.5M, my 400 shares in NVDA is worth about $240k. My cost basis is $4k. I continue to sell out of the money calls each month with the idea that if they get called I'll be fine with just having half the position left. However, That has only happened once, and it immediately dropped back down well below the call price, so I bought them back and made out even better. It's emotional at this point. I've made so much on it, its really hard to sell. It's a great company and I still believe that. Someone talk some sense into me.
brokrken is offline   Reply With Quote
Old 04-20-2021, 02:41 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
MRG's Avatar
 
Join Date: Apr 2013
Posts: 11,078
Quote:
Originally Posted by brokrken View Post
I'm in this position right now. Current NW excluding real estate is around $2.5M, my 400 shares in NVDA is worth about $240k. My cost basis is $4k. I continue to sell out of the money calls each month with the idea that if they get called I'll be fine with just having half the position left. However, That has only happened once, and it immediately dropped back down well below the call price, so I bought them back and made out even better. It's emotional at this point. I've made so much on it, its really hard to sell. It's a great company and I still believe that. Someone talk some sense into me.
Nice.
But the 4k investment is only a small percentage. .. .. I'm in a similar position with APPL a 15k investment that's now 7% of our net worth. I've sold a bunch over the years and write OTM calls except across earnings. At some point I'll drop 10% more or so. I'm guessing this is considered a first world problem.
MRG is offline   Reply With Quote
Old 04-20-2021, 03:18 PM   #13
Moderator
braumeister's Avatar
 
Join Date: Feb 2010
Location: Flyover country
Posts: 25,155
I have always said that 5% of portfolio value was the max I could tolerate for any individual stock.

But I find myself in the same dilemma now, with one of mine up enough to be fluctuating between 7 and 8%. The problem is that I believe it could easily double its current price within the next couple of years and I would really hate to miss out on that. So for this particular one I am making an exception. I'll start selling, bit by bit, once it gets over 10%.
__________________
I thought growing old would take longer.
braumeister is offline   Reply With Quote
Old 04-20-2021, 03:45 PM   #14
Full time employment: Posting here.
 
Join Date: May 2017
Posts: 796
Quote:
Originally Posted by MRG View Post
Nice.
But the 4k investment is only a small percentage. .. .. I'm in a similar position with APPL a 15k investment that's now 7% of our net worth. I've sold a bunch over the years and write OTM calls except across earnings. At some point I'll drop 10% more or so. I'm guessing this is considered a first world problem.
I actually did really well on AAPL, as well. Let half my position go when they got called and the stock never came back below that price. So, I still have half, but have missed out on some good gains on the half that sold. This also probably blurs my thinking on the NVDA
brokrken is offline   Reply With Quote
Old 04-20-2021, 06:00 PM   #15
Moderator
sengsational's Avatar
 
Join Date: Oct 2010
Posts: 10,622
Congrats on your choice of companies to invest in. Great problem to have.
sengsational is offline   Reply With Quote
Old 04-20-2021, 07:06 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Aug 2004
Location: Laurel, MD
Posts: 8,304
The rule of thumb I recall is 5% max unless your work for the company and then you could go 10%. That's from Bob Brinker, I think,
__________________
...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
jazz4cash is offline   Reply With Quote
Old 04-20-2021, 07:09 PM   #17
Thinks s/he gets paid by the post
 
Join Date: Feb 2021
Posts: 2,324
Quote:
Originally Posted by jazz4cash View Post
The rule of thumb I recall is 5% max unless your work for the company and then you could go 10%.
Why would it be higher if you work for the company? That's even riskier because then both your job and your portfolio are dependent on them.
disneysteve is offline   Reply With Quote
Old 04-21-2021, 04:54 AM   #18
Thinks s/he gets paid by the post
 
Join Date: Jul 2013
Posts: 1,871
Quote:
Originally Posted by gabrewer View Post
I would be interested in opinions/experiences here as to what is an appropriate percentage to have in any one individual stock.
0%

https://www.bogleheads.org/wiki/Bogl...g_start-up_kit
mrfeh is offline   Reply With Quote
Old 04-21-2021, 07:51 AM   #19
Full time employment: Posting here.
 
Join Date: May 2017
Posts: 796
Quote:
Originally Posted by disneysteve View Post
Why would it be higher if you work for the company? That's even riskier because then both your job and your portfolio are dependent on them.
Agree with this 100%. I sell all my shares as soon as they vest.
brokrken is offline   Reply With Quote
Old 04-21-2021, 08:22 AM   #20
Thinks s/he gets paid by the post
Markola's Avatar
 
Join Date: Nov 2013
Location: Twin Cities
Posts: 3,927
I agree with the comments about 5% or so, which is the portion to which experts say one should limit their gambling, which is what owning one stock is.
Markola is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Hello new to the site, seeking some advice/opinions. dirtbiker Hi, I am... 98 03-04-2024 12:33 PM
Seeking Experience/Opinions for LPL Financial jazz4cash FIRE and Money 3 01-24-2021 06:22 PM
Mortgage Refi situation, seeking opinions Mulligan FIRE and Money 10 09-20-2012 09:14 PM

» Quick Links

 
All times are GMT -6. The time now is 11:48 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.