That's a good caution, but we have just been through a horrible bear market and dividend crippling credit crisis. I would think the risks are much lower now than in 2007.
We're having the wrong discussion here. I'm not trying to time the market or assess the risks; I'm suggesting that lack of diversification is bad for 99% of the population no matter how high or low the risks may be. I think VaCollector would agree that there was a significant component of investor psychology working against him, too.
If you're someone like Buffett who doesn't mind working 10-hour days on the background reading just to keep up with the business, then a lack of diversification is no problem. If you're not hard-wired to keep up with this stuff then it's tap-dancing in a minefield. It's running across a four-lane highway with a bag over your head. It's blissfully proceeding as if nothing bad is likely to happen-- until it does. Do I have to bring CuteFuzzyBunny back over here to torture some more analogies?
Speaking of Buffett, by early 2008 our ER portfolio was over a third Berkshire and our kid's college fund was over half. We'd been holding the shares for a few years and I was "comfortable" with that AA but I was beginning to wonder when we should rebalance. We sorta had an AA plan but we didn't have a rebalancing clue. Our kid was nearly 16 years old, and we were probably past the limit to holding equities for college tuition.
After some nudging from a few key E-R.org forum members (hint hint) it was with great reluctance (and gargantuan cap gains) that we finally sold at what turned out to be only a few percentage points off Berkshire's all-time high. Along the way we decided to put the college fund in CDs and to come up with a more mechanical rebalancing plan that didn't require so much of our debate and hand-wringing.
By 2009 our tax-swap cap losses had more than wiped out the previous year's cap gains, our portfolio was within its AA parameters, and we have no more debates about when to rebalance. The college fund also had enough for eight semesters at a private school instead of four.
This thread could turn into a debate about the precise degree of risk one is willing to accept. My point is that there's no acceptable degree of risk with this much concentration because the owner of the shares isn't willing to spend the amount of time & effort necessary to handle such a lack of diversification. He also doesn't appear to have an asset-allocation plan nor any mechanism for rebalancing. (But hey, I could be wrong about that.) This is the wrong time to be assessing risks. I don't think I'm wrong about that.
Even worse, if the taxes are based on options exercise and the shares are held for the long-term cap gains, then the risk has gone up by another order of magnitude. Not only could the share prices drop but there'd still be a huge tax bill to pay on the exercise. It's like tap-dancing through a second minefield and an eight-lane highway. Q: How much is "enough"? A: It's all too much.
I'll point out that a lot of people got to ER by exercising their options, selling their shares right away, paying humongous taxes, and not having to worry about "risk". A lot of their co-workers did not, and they're still working. And some of you guys think I was taking risks by volunteering to get shot at for 20 years?!?
After dealing with the basics of AA & rebalancing, I thought that by now this thread would be deep into the intricacies of NUA taxation, along with how much to sell how quickly. None of this "I think I can hold it for another year" stuff.