Managing Concentrated Stock Positions

Overview

Concentrated stock positions — large holdings of a single company's shares — are among the most common features of the portfolios of high-net-worth individuals. They arise from various sources: founders who built and floated a company; executives who received stock options, restricted stock units (RSUs), or performance shares; individuals who inherited shares; and investors who made an early bet that paid off dramatically.

The challenge is that concentration is simultaneously a source of wealth and a significant risk. The same characteristics that allowed an entrepreneur to build a large position in their company — focus, conviction, long holding period — work against a sensible investment portfolio. This guide covers why concentration is dangerous, and the strategies available for managing it.

This guide is for general information only. Tax rules change and individual circumstances vary. Nothing here constitutes personal investment or tax advice. Always consult qualified advisers before taking action on concentrated positions.

Why Concentrated Positions Are Dangerous

Financial theory is unambiguous: concentration in a single asset introduces idiosyncratic (company-specific) risk that the market does not compensate you for. A well-diversified portfolio of, say, 30–50 stocks has exposure only to market risk — the risk that the overall market falls. The diversification eliminates the risk that any individual company underperforms or fails.

A portfolio concentrated in a single stock has both market risk and idiosyncratic risk: it can fall because the market falls, but it can also fall — or fall to zero — simply because that company does badly. History is full of examples of companies that were widely regarded as excellent businesses, whose share prices then fell by 70%, 80%, or more, or whose shares became worthless:

• Enron: a blue-chip energy company that collapsed to zero in 2001.
• Lehman Brothers: once one of the world's most prestigious investment banks.
• Nokia: the world's dominant mobile phone maker reduced to near-irrelevance within a decade.
• Numerous retail chains, newspaper companies, and oil majors that were once considered safe holdings.

The lesson is not that you should never hold a concentrated position — founders who never sold any shares in successful companies became extremely wealthy. The lesson is that maintaining a very large concentrated position requires an explicit decision, an honest assessment of the risks, and a plan for what you will do if it goes wrong.

The Options for Managing Concentration

Outright Sale

The most straightforward approach to reducing concentration is simply to sell shares. The obstacles are primarily tax-related: selling a large appreciated position in one tax year generates a large capital gains tax bill.

Strategies to manage the tax cost of selling:

• Spreading sales over multiple tax years: Using each year's annual CGT exemption (£3,000 as of 2026) reduces the gain taxed in any single year. Over 5–10 years, a meaningful proportion of the position can be sold with the exemption applied.
• Timing relative to residence: If you plan to be non-UK resident in the near future (and the 5-year temporary non-residence rules do not apply), the timing of disposal may be significant.
• Losses to offset gains: If there are losses available in the portfolio or arising in the same year, these can be set against the gains on the concentrated position.
• Bed and ISA or pension: Selling shares outside an ISA and immediately buying back inside an ISA uses the ISA's tax-free wrapper for future growth (but the capital gain on the sale outside the ISA is still taxable).

Exchange Funds

In the United States, "exchange funds" allow investors to contribute concentrated stock positions to a fund in exchange for a diversified portfolio interest, without immediately triggering capital gains tax. This is a widely used structure in the US for founders and executives.

In the UK, equivalent structures exist to a limited extent but are less common and the rules are more restrictive. A specialist corporate finance or tax adviser with access to UK exchange fund structures can advise on whether this is available for a given position.

Derivatives: Protective Puts and Collars

As described in the FAQs, options strategies can provide downside protection on a concentrated position while deferring the need to sell.

A protective put insures the position against a fall below the strike price. The cost is the option premium, which can be substantial.

A collar combines a put with the sale of a call, reducing the net premium cost at the expense of giving up upside above the call strike.

These strategies require access to listed options or to over-the-counter derivatives through a prime broker or structured products provider. They are typically available for listed shares only. The tax treatment of derivative transactions is complex, and professional advice is important.

For corporate executives, collars and puts are subject to restrictions under insider trading and "window period" rules — they cannot be put in place when the executive holds material non-public information about the company.

Lending Against the Position

A further option is to borrow against the concentrated position, using the shares as collateral. This provides liquidity — cash to invest in diversifying assets — without requiring a sale of the shares and therefore without triggering CGT.

The risks:

• If the share price falls significantly, the lender may issue a margin call — requiring the borrower to repay part of the loan or pledge additional collateral.
• If the margin call cannot be met, the lender sells the shares into the market, potentially at a very unfavourable price.
• The loan carries interest, which is an ongoing cost.

Borrowing against concentrated positions is appropriate for specific situations — for example, bridging before a planned sale — rather than as a permanent strategy. It is not a risk-free alternative to selling.

Charitable Giving of Shares

For UK taxpayers who wish to give to charity, gifting appreciated shares directly to a UK charity is highly tax-efficient:

• The gain on the shares is exempt from CGT (the disposal is treated as exempt).
• The donor may claim income tax relief at their marginal rate on the market value of the shares.

For a 45% taxpayer donating shares worth £100,000 with a cost of £5,000:

• CGT avoided: approximately £22,800 (24% of £95,000 gain, at the time of writing).
• Income tax relief: £45,000 (45% of £100,000 market value, claimed through self-assessment).
• Total tax benefit: approximately £67,800 on a £100,000 donation.

This makes direct share giving one of the most powerful forms of charitable donation for holders of large appreciated positions.

In the US, the donor-advised fund (DAF) model allows shares to be contributed to the DAF without triggering capital gains tax, with an immediate income tax deduction. The DAF can then hold or sell the shares and direct grants to charitable organisations over time.

Gradual Diversification Over Multiple Years

For many holders of concentrated positions, the most practical approach is a planned programme of gradual diversification — selling a defined percentage or number of shares in each tax year, investing the proceeds into a diversified portfolio. This limits the tax cost in any single year, allows time for price averaging, and creates a clear path to a less concentrated position.

The plan should be written down, with defined targets and triggers — not left to ad hoc decisions subject to the psychological barriers described below.

The Psychology of Holding On

The most significant obstacle to managing a concentrated position is not usually the tax or the legal complexity — it is the psychology.

Anchoring: Fixation on the price paid for the shares, or on the previous peak price, makes it feel wrong to sell at a lower price. But the relevant question is not what you paid or what it was worth at peak — it is what the investment is worth today and whether you would buy that much of it today.

Ownership bias (endowment effect): Shares feel more valuable when they belong to you. The founder who spent 15 years building a company finds it harder to sell the shares objectively than an outside investor would.

Regret aversion: The fear of selling and then watching the price continue to rise is a powerful deterrent. But regret at having sold a stock that kept rising is mild and short-lived compared with regret at having held a concentrated position through a catastrophic fall.

Inertia: The concentrated position exists; maintaining it requires no action. Taking action — deciding to sell, managing the process, paying the tax — requires effort and decision-making. Inaction is the path of least resistance, even when it is not the right path.

Recognising these biases explicitly and building a plan that does not require constant active decision-making — a standing instruction to sell a defined amount each quarter, for example — can help overcome them.

How Global Investments Can Help

Global Investments works with HNW investors who hold concentrated positions to develop and implement a thoughtful strategy: modelling the tax costs of different approaches, designing a diversification programme, identifying charitable giving opportunities, and constructing the diversified portfolio that will receive the proceeds. We understand the emotional complexity of concentrated positions as well as the financial mechanics.

Contact us to arrange a conversation about your specific situation.