How it works
Concentration feels like conviction until the chart turns, and then it behaves like leverage you forgot you had: a position at 60% of a portfolio transmits its every move to the whole. This survivability check applies a stress drawdown — single stocks have historically fallen 60–90% peak-to-trough across cycles, household names included, so the default 65% sits inside observed range rather than fantasy — and reports what it does to everything you own. On $400,000 with a 60% position, a 65% collapse deletes $156,000, a 39% total drawdown requiring roughly seven years of 7% assumed growth to restore. The identical shock landing on a capped 10% position produces a 6.5% portfolio dent healed inside a year. The side-by-side recovery table shows the compounding cost of the gap widening year after year. Where concentration comes from shapes the fix: employer stock arrives through grants and options and should be trimmed on a schedule precisely because salary already depends on the company — owning your paycheck and portfolio on one ticker doubles the exposure. Founder and inherited positions deserve the same arithmetic with tax advice attached. The tool takes no view on any stock's prospects; it prices the asymmetry of hoping a large bet avoids a historically ordinary outcome.
Formula
Hit = portfolio × share × drawdown | Portfolio drop = share × drawdown | Recovery years = ln(1/(1−drop)) ÷ ln(1+g)
Tips
- Cap any single name near 10% and trim back mechanically when growth breaches it.
- Double exposure warning: salary plus shares at one employer is one bet made twice.
- Stage sales of appreciated positions across tax years to manage the capital-gains bill.
- Stress-test at −70% and −90% too — survivability must hold at historical depths.
- Exchange funds or charitable Remainder strategies can diversify huge low-basis positions.
Frequently asked questions
- How much of my portfolio should be in one stock?
- Common professional guidance caps single names near 5–10% precisely because individual equities have historically drawn down 60–90% across cycles. Above 10%, one bad corporate decade dominates your financial life; above 50%, you effectively run a leveraged bet on one boardroom's decisions.
- What happens to a portfolio when one stock drops 50%?
- Arithmetic decides: a 10% position inflicts a 5% portfolio hit, recoverable within a year at typical growth; a 60% position inflicts 30%, demanding just over five years. Depth times weight is the whole story — the calculator reproduces it for any combination.
- Is holding employer stock riskier than other stocks?
- Yes, doubly. Your salary, bonus, options and health coverage already depend on the same company; concentrating investments there stacks market risk onto career risk. Enron-era employees lost jobs and retirement simultaneously — the canonical argument for trimming grants on a schedule regardless of optimism.
- How long does it take to recover from a 40% portfolio loss?
- At a 7% assumed pace, about eight years, since recovery requires a 66.7% gain. Faster assumptions shorten it; real sequences add uncertainty in both directions. The durable lesson is defensive: preventing depth beats engineering recovery, because required gains grow faster than losses.
- Should I sell a concentrated winner?
- Partially, on a schedule, rather than all-or-nothing. Trimming back toward a cap locks in life-changing money proportionally while preserving upside participation, manages the tax bill across years, and converts an existential bet back into an investment. Winners are exactly when discipline is hardest and most valuable.