A concentrated stock position occurs when a disproportionate share of an investor's net worth is tied up in a single company's shares. This is especially common among founders, early employees, and executives who accumulate equity compensation over years and then find themselves holding a position worth far more than a prudently diversified portfolio would suggest. Even a company with strong fundamentals can experience sharp, unpredictable price swings, so a concentrated position exposes an investor to risk that a diversified allocation would otherwise dilute.
The typical trigger for addressing a concentrated position is a liquidity event, such as an IPO lockup expiration, acquisition, or secondary sale, when shares finally become sellable. Deciding what to do with proceeds after a liquidity event often becomes the central financial planning question for these investors. Reallocating a portion of proceeds into assets like commercial real estate, which behave differently than a single stock, is one common way investors work to rebuild diversification.
Further reading: Real Estate Crowdfunding and Its Discontents
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