Research note · Risk

Unwinding a Concentrated Position: A Decision Framework

Brian McRae · Founder & Portfolio Manager · Current as of July 2026 · 8 min read

Every concentrated position is a story about how someone got wealthy, told by someone who has not yet decided whether to stay that way. The stock did something extraordinary for you. What you owe it in return is nothing. This note is about deciding how much to keep, how fast to reduce the rest, and which tools to use.

Three problems, one position

A concentrated position is a risk problem, a tax problem, and an identity problem, in that order of importance and the reverse order of how much attention they get. People fixate on the tax problem because it has numbers. The risk problem gets a shrug because the stock has only ever gone up, which is precisely how it became a concentration. The identity problem goes unmentioned because it sounds soft, then drives every decision.

My operating rule: solve for risk first, optimize taxes second, and acknowledge the feelings without letting them decide.

The risk, quantified

Since 1926, roughly four percent of U.S. stocks account for all of the stock market's net wealth creation above Treasury bills. The majority of individual stocks, over their full public lives, returned less than cash.¹ The market's famous long-run compounding is a property of the portfolio, not of the typical stock inside it. Holding one name is not a smaller version of holding the market. It is a different bet with a different distribution, and the distribution has a long, ugly left side.

Two objections come up in nearly every first meeting, so let me handle them here. "But I know this company." You know the company; the market knows the company too, and everything both of you can legally know is already in the price. What remains is conviction, and conviction is not information. "But it keeps going up." So did every position that later became a case study. A great company and a great stock return from today's price are two different claims; the second is much harder.

The magnitudes matter. A single mid-cap name commonly runs 40 to 60 percent annualized volatility; a clinical-stage biotech runs higher, with binary events that can reprice it 40 percent overnight. Positions like that routinely lose half their value at some point, including on the way to good outcomes.

Find your number first

Before touching any tactic, compute one figure: the amount that, invested boringly, sustains the life you actually want. Housing, education, the annual spend, the buffer. Call it the walk-away number. Everything up to that number gets protected first. Concentration with money above the line is a choice you are entitled to make. Concentration with money below the line risks the essentials for upside you do not need.

Rules of thumb say to keep any single stock to 10 or 15 percent of your net worth. Rules of thumb do not know your mortgage, your risk appetite, or your vesting schedule, which is why the walk-away number comes first and the percentage second.

The toolbox, with honest labels

• Staged selling. The default, and usually the answer. A schedule spanning one to three tax years, sized to your bracket, executed through a 10b5-1 plan if you are an insider. Boring is the feature.
• Tax-loss harvesting alongside. A direct-indexed sleeve funded with sale proceeds banks losses that offset later gains, letting the unwind run faster than the raw tax math suggests. Realistic expectations: harvesting is richest in the first year or two, then fades. Useful, not magic.
• Giving shares instead of cash. If you already give to charity, donating appreciated stock or funding a donor-advised fund is the best-priced generosity available: full fair-value deduction, embedded gain never taxed. Give because you were going to give anyway; the tax feature is secondary.
• Exchange funds. Contribute shares, receive a diversified basket, defer the gain, wait seven years for the tax treatment to hold up. You trade concentration risk for illiquidity, fees, and a still-all-equity outcome. A legitimate tool, currently oversold.
• Collars and hedges. Options can cap the downside while you wait, at a real cost, with a tripwire: hedge too tightly and the IRS treats it as a constructive sale, tax bill included.² Situational, and worth professional hands.
• Borrowing against it. A securities-backed line of credit adds margin-call risk on top of concentration risk. There are narrow good uses; avoiding taxes indefinitely is not reliably one of them.

Speed, which is where the money actually is

The real decision is not whether to diversify but how fast, and it is a trade between a known cost and an unknown one. The known cost: long-term capital gains at 23.8 percent federal plus up to 13.3 percent in California, paid once, on gains only. The unknown cost: the position's volatility, charged continuously against the whole value, in either direction, with no cap.

None of which means liquidating everything at Monday's open. Multi-year schedules that respect brackets, harvest losses, and route the charitable dollars intelligently usually recover a meaningful share of the tax cost. Just be honest about what the schedule is: risk you are choosing to keep, priced in years. Stretch it for bracket reasons. Do not stretch it to avoid a feeling.

What this looks like assembled

A hypothetical, and I want to be plain that it is a composite illustration, not a client of the firm. A 38-year-old scientist has $5 million of net worth, $4 million of it in her employer's stock after an IPO. Her walk-away number pencils out near $3 million. The framework says her current arrangement bets the walk-away money on one clinical-stage ticker, so the plan brings the position under 25 percent of net worth within 18 months: a 10b5-1 schedule through two tax years, the year's charitable giving switched from cash to shares, sale proceeds landing in a diversified sleeve that harvests losses along the way, and a QSBS review before any of it starts, because if some lots qualify, the order of sales changes. Eighteen months later the stock can triple or crater and her life is fine either way. That is the entire objective.