Hood River, Oregon.

If you have a concentrated position, meaning that most of your wealth is tied up in one or two stocks, you know that what made you rich can make you poor. But, when you talk to a wealth manager about diversifying, you hear they want to sell most or all of the position, which may not be a good investment and will almost certainly not make your accountant happy. We get it.


At OCS we have successfully helped several clients diversify out of concentrated positions, such as INTC and NKE over time. The relief of diversification over the years has provided peace of mind for clients that at one time or another have watched their single position crumble more than the market and hurt their financial security.


What we do is sit down with our clients and review the position. We discuss the clients valuable input along with our research on the position and the sector. Together we agree on the prices at which we are willing to part with a portion of the concentrated position. We have taken clients from 94% of their wealth in one stock to just have it be a 5% position or less. We've taken an average of five to six years to fully diversify.


A very popular way to do this is to establish the prices and time frame at which we diversify and use covered calls to sell the position in stages, typically above the current market price at which placed them. This can provide a significant amount of revenue for the account as we won't always get called away on the first series of calls.


Over time, as funds get released from the call premiums and the eventual sale of some shares, we begin to build a diversified portfolio around that concentrated position that provides peace of mind and less risk. Our clients remember the day they sell their first chunk of shares and when they have fully diversified with relief and confidence because they know they are closing the door on a significant risk. Nothing is more risky than a concentrated position, other than a concentrated position on margin.


"Ignoring a problem has the same consequences as failing to identify it."

- Ray Dalio