Company stock can play a meaningful role in building long-term wealth. For many professionals, it represents years of effort, loyalty, and belief in the organization they help build. At the same time, company stock can introduce risks that are often overlooked—particularly when it grows into a large portion of total net worth.
In my work with professionals who receive equity compensation, I consistently see thoughtful, highly capable individuals make sub-optimal decisions around company stock. These decisions usually stem from a lack of objective analysis, limited access to relevant data, or the absence of a structured decision-making framework.
Below are three common mistakes and why addressing them may help individuals better align their company stock decisions with their broader financial goals.
Mistake #1: Underestimating the impact of concentration and “one-stock volatility”
The most common challenge associated with company stock is concentration risk. When income, career prospects, and investment assets are all linked to the same employer, portfolio concentration has even more impact than at first glance.
Concentration can be difficult to recognize during periods of strong performance. When a stock appreciates significantly, volatility may feel like an advantage rather than a risk. Historically, however, periods of strong returns have often been followed by meaningful drawdowns—even for well-known and successful companies– based on factors both within and beyond their control.
Volatility can be measured objectively using beta, which compares a stock’s historical price movements to those of the overall market (commonly represented by the S&P 500, which has a beta of 1.0). A beta greater than 1 indicates higher volatility relative to the market; a beta below 1 indicates lower volatility.
For context, historical betas for selected technology companies (approximate, rounded values) have been:
- NVIDIA: ~2.3
- Tesla: ~1.8
- AMD: ~2.0
- Meta Platforms: ~1.3
- Salesforce: ~1.3
- Apple: ~1.1
- Alphabet (Google): ~1.1
A higher beta means that during market declines, losses may be amplified.
Illustrative example (hypothetical):
Assume a 20% market decline—a magnitude that has occurred multiple times historically. An investor holding $1,000,000 entirely in a higher-beta stock may experience a significantly larger drawdown than a diversified portfolio.
| Portfolio Composition | Value After Market Decline |
|---|---|
| 100% single tech stock (beta ~1.3) | ~$740,000 |
| 70% stocks / 30% bonds (diversified) | ~$860,000 |
| 50% single stock / 50% diversified | ~$800,000 |
Historically, market corrections of 10–19% have occurred every 1–2 years on average, and bear markets (20%+ declines) roughly every 6–7 years. While past performance does not predict future results, these patterns illustrate why concentration risk deserves careful evaluation.
Mistake #2: Knowing the company, but not the stock
Employees often feel confident in their company’s prospects because they understand the business, leadership team, products, and competitive landscape. While this knowledge can be valuable, company fundamentals and stock performance are not the same thing.
Stock prices—particularly for growth-oriented technology companies—are largely driven by expectations of future performance, not current or past results. Market valuations incorporate assumptions about revenue growth, margins, capital efficiency, and long-term profitability.
When expectations are high, even modest changes in assumptions can result in significant stock price declines. Importantly, these declines may occur even when the company continues to grow and operate successfully.
In practice, this means it is possible for:
- The company to execute well operationally, and
- The stock price to decline due to valuation compression or changing market sentiment.
Understanding how valuation, expectations, and market dynamics influence stock prices can be as important as understanding the underlying business.
Mistake #3: Allowing uncertainty to lead to inaction—or emotional decisions
Deciding when and how much company stock to sell is rarely simple. Cash-flow needs, tax considerations, your portfolio risk tolerance, and personal financial goals all play a role. Without a structured framework, many individuals default to “doing nothing,” particularly if holding the stock has been rewarding in the past.
In some cases, prolonged inaction gives way to decisions driven by short-term market movements or emotions, often made without fully evaluating tax implications or long-term consequences.
Both extremes—indefinite inaction or reactive decision-making—can lead to outcomes that are misaligned with an individual’s broader financial objectives. A disciplined process may help bring clarity to decisions involving assets that represent a substantial portion of net worth.
Final Thoughts
Having previously worked in the technology industry, I have personally held stock options, RSUs, and ESPP shares. I understand both the opportunity equity compensation can create and the complexity involved in managing it thoughtfully.
Company stock decisions are inherently personal and can have long-term financial implications. For many individuals, the most productive starting point is gaining a clearer understanding of how their company stock fits within their overall financial picture and risk profile.
If you are uncertain about your level of concentration, exposure to volatility, or available planning approaches, that uncertainty itself may be a useful signal to begin a more structured evaluation.
Important Disclosures
This material is for informational and educational purposes only and should not be construed as personalized investment, tax, or legal advice. All examples are hypothetical and for illustrative purposes only. Past performance is not indicative of future results. Investment strategies involve risk, including the potential loss of principal. Individual circumstances vary, and decisions should be made in consultation with appropriate financial, tax, and legal professionals.
