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To: The AI employee at the center of a defining wealth-creation moment
From: An independent wealth manager
Re: How much of your stock should you keep?
A few months ago, we published An Open Letter to AI Employees that focused on whom to trust when navigating the financial decisions that come with sudden wealth. Its central message was simple: The plan should come before the products. In this letter, we turn to a question we raised then, but that deserves a deeper review: How should you think about wealth concentrated in a single company?
Even high expected returns do not necessarily translate into greater lasting wealth when that wealth is also funding your life. If those returns come with sufficiently high volatility, withdrawals during drawdowns can leave a concentrated portfolio with less terminal wealth than a lower-returning, more diversified portfolio.
When you joined your company, the risk was clear. You committed a meaningful part of your career to a business with an uncertain future, and your equity compensation reflected the risk you were taking. The outcome may now have moved substantially in your favor, creating wealth capable of supporting or even exceeding your loftiest financial goals.
That success creates a different set of considerations. The position that generated the wealth may now be the largest source of risk on your balance sheet. Your central concern is no longer simply whether the company can continue to succeed. You must now also weigh how much of your financial future should continue to depend on that single company’s prosperity. One useful starting point is to ask: If this same exposure were sitting in cash today, how much would you choose to put back into this one stock?
A thoughtful plan can preserve meaningful participation in the company’s future while establishing a diversified foundation that is not dependent on a single outcome. Stock-specific risk can produce outsized returns, as you have already experienced. It can also create a much wider range of potential outcomes than you’re likely to experience with a diversified portfolio. That difference points to an important distinction between creating wealth and preserving it: Concentration can make you rich; diversification can help keep you rich.
Start with the historical record of single-stock performance. A handful of companies can generate extraordinary returns, but the distribution of outcomes has always been remarkably uneven.
According to research from Hendrik Bessembinder at Arizona State University, across the 29,754 U.S. common stocks that were publicly listed between 1926 and 2025, only about 28% outperformed the S&P 500 over their listed lifetimes. The median stock trailed the index by approximately 102percentage points cumulatively. Just 46 companies accounted for half of the $91 trillion the U.S. stock market created over the last century, while fewer than 4% of listed companies produced all that net wealth.¹
You hear about the winners because they often make compelling stories. The much larger number of companies that underperform or ultimately disappear receive far less attention.
Of course, we can’t anticipate your company’s future performance, and this historical review doesn’t suggest that your company is average. It may ultimately prove to be one of the small number of businesses responsible for a disproportionate share of long-term wealth creation. But even transformational companies experience major drawdowns. Protecting your financial well-being means recognizing that reality and planning accordingly.
Apple, NVIDIA, Microsoft, Alphabet, and Amazon together accounted for more than 21% of all net shareholder wealth created in U.S. public markets over the last 100 years. These companies delivered extraordinary long-term wealth creation, but capturing all the gains required enduring severe declines and lengthy recoveries.²
These five extraordinary companies experienced 73 separate declines of at least 20%, including 20 that cut the stock’s value by more than half. Extended drawdowns were not unusual. Apple and NVIDIA spent more than half of their trading histories at least 20% below a prior peak, compared with just 13% for theS&P 500.
Notably, Amazon declined 94% and took more than nine years to regain its prior high. A $20 million position would have fallen to $1.2 million, requiring a subsequent 1,570% gain to recover its original value. Microsoft peaked in January 2000 and did not return to that level until July 2014, despite being dominant and financially successful throughout much of that period.
These companies were among the greatest wealth-creating enterprises in U.S. market history. Owning them successfully still meant enduring losses and recovery periods that would have been extraordinarily difficult in real time.
For an investor who is committed to staying in the market over the long term and has sufficient liquidity, even severe drawdowns may be manageable. But risk tolerance is only part of the equation. You might need that capital for spending or meeting other financial goals, but selling during a major drawdown can turn a temporary decline into a permanent loss. Given these factors, the amount of concentrated stock you can afford to hold may be very different from the amount you are willing to hold.
Morgan Housel’s The Psychology of Money emphasizes that investment outcomes depend as much on behavior as analysis. Most shareholders understand that a concentrated position is risky. How they will respond when that risk becomes real is more difficult to predict.
A 50% decline looks the same on a statement whether it proves to be a temporary setback or a permanent impairment. In real time, there is no way to know with certainty which one it will be. And the challenge is not merely psychological. If too much of the wealth you need for spending, taxes, or other goals remains tied to the stock, a severe decline can create pressure to sell into the decline— potentially converting a temporary drawdown into a permanent loss.
Concentration may have created your fortune, but preserving wealth requires a margin for error.
Once you spend from the portfolio, every decline is funded by selling shares that are never there to recover.
“Selling when it feels right” is not a strategy. Eliminating concentration completely is not the goal. The point is to size that concentration so that no single outcome can derail the life your wealth is intended to support.
A disciplined plan should incorporate four steps:
The objective is not to maximize the chance of ending with the highest possible net worth. It is to increase the probability that the wealth you have already created can support your goals across a wide range of outcomes, while preserving meaningful participation in your company's future. How much stock you should keep follows from that objective.
Sincerely,
Baker Street Advisors
