Strategies for Concentrated Positions in Company Stock

Join us on May 4 for a webinar featuring insights and case studies from a panel of experts at managing concentrated stock holdings

Strategies for Concentrated Positions in Company Stock

Wealth has become increasingly concentrated and volatile as stock markets fluctuate and business conditions shift in uncertain times. Even S&P 500 companies are experiencing severe stock-price volatility. It’s more important than ever for advisors to understand the wide range of strategies available for managing wealth and mitigating wealth loss in concentrated company stock holdings to meet clients’ financial goals. In this webinar (100 minutes), experts at managing concentrated stock wealth explain the approaches.

– Role of the financial advisor in explaining over-concentration risks and solutions
– Strategies to diversify, create liquidity, and/or protect stock in a tax-efficient way
– Basic strategies: sales, gifts, and charitable donations of stock
– Short-term strategies: protective puts, covered calls, collars, and forwards
– Long-term strategies: exchange funds and stock protection trusts
– Tax, legal, and SEC complexities, including how Rule 10b5-1 plans can be used
– Key features of each strategy
– Checklist to evaluate which approaches are best
– Case studies

– Valerie Gospodarek, Owner, VG Financial Consulting LLC
– Marcel Quiroga, Founder and CEO, TQM Wealth Partners
– Brian Yolles, Founder and CEO, StockShield LLC
– Mark Leeds, Partner, Mayer Brown
– Bruce Brumberg (moderator), Editor-in-Chief and Co-Founder,

Wednesday, May 4, 2022
2pm to 3:40pm ET, 11am to 12:40pm PT
Registration Page

Peloton Stock Falls Off Treadmill

Peloton Stock Falls Off Treadmill

Peloton shares have continued their decline following an “urgent warning” from the United States Government, commanding owners of the company’s Tread+ treadmill to stop using the machine. The Consumer Product Safety Commission said it has become aware of 39 accidents involving the treadmill, including “multiple reports of children becoming entrapped, pinned, and pulled under” the machine. A child died in March of 2021 in an incident involving the machine.

While Peloton initially claimed the federal agency’s notice was “inaccurate and misleading,” they decided to switch gears and cooperate with regulators and have now issued a recall of their treadmills. From a high of $171 per share to now $82, the stock is down more than 50% from 2020, which saw shares soar more than 400%.

Peloton’s ordeal with its treadmill shows how quickly the fortunes of a high-flying Wall-Street “darling” can change. With social media, a company’s products are always under intense scrutiny. All it takes is a single “viral” tweet or video – casting a company’s product in an unfavorable light, rightly or wrongly – to cause significant and sudden damage to a stock.

If they participated in a Stock Protection Trust, the Peloton investor could have protected their gains without selling their shares. They could have avoided most, or all, of the damage sustained by this more than 50% decline in the value of their stock.

Their plight offers a lesson to other investors with highly-appreciated or concentrated stock positions: it is prudent to protect your gains when the Company’s outlook appears healthy, as it is possible shares can fall off the treadmill at any time.

Lessons and Performance through COVID-19

Lessons and Performance through COVID-19

For the past decade or so, investors have become accustomed to – even expected – above-normal returns from their stock investments. At StockShield we have viewed the upward move in equities skeptically, primarily because of the extremely precarious financial health of most Americans, including most American small businesses. It seemed curious – even bizarre – that the stock market continued to hit all-time highs while the economy’s productivity languished, many businesses and individuals had little to no savings, and most Americans were living in the same material conditions (or worse) than a decade or so ago.

During this time, we repeatedly recommended investors pursue sensible risk management strategies such as the Stock Protection Trust, Deferred Compensation Protection Trust, and ESOP Protection Trust. We warned that catastrophic risk to investments had not been eliminated by the decade-long bull market and would likely occur due to causes unpredictable and beyond the control of anyone, including even the most skilled company management.

2020 came and swiftly brought COVID-19, a human and financial catastrophe. Although the precise cause of loss was unexpected, the large losses suffered by many concentrated investors was entirely predictable and avoidable had prudent risk management strategies been established well before the crisis hit.

COVID-19 has revealed – and revealed beyond question – that the financial health of most American individuals and businesses is not strong. If a company like Boeing can teeter on the edge of bankruptcy after its stock declined more than 75% in 2020, any company could suffer the same fate. The current crisis is revealing in plain sight that U.S. individuals and businesses need trillions of dollars in bailouts to survive even after a mere week or two of suspended operations. The entire U.S. economy appears to be a “shoestring economy” hardly of a nature that would give a reasonable investor confidence in long-term viability.

COVID-19 is demonstrating that the past decade’s gains in stock market value were largely the result of the easy money policies and liquidity boost provided by the Federal Reserve in response to the financial crisis. Famed investor Julian Robertson predicted as early as 2008 that (excluding the value of the home) 80-85% of Americans were broke, which would cause a “very poor” U.S. economy for 10 or 15 years. We saw the logic of Robertson’s view then and we do so even more now.

Because of this, we urge investors of the 2020 decade and beyond to implement sensible, cost-efficient risk management strategies to prevent the financial devastation that we are only beginning to preview in the market this year.

As an example of performance of the Stock Protection Trust through this crisis, at the end of December 2020, stock losses are currently limited to 0.00% (referred to as our “Maximum Stock Loss” calculation). For a group of 20 stocks protected since August 2018, 5 have declined while 15 are posting gains. The largest loss – a decline of 45% – is limited to 0.00%, as noted above. Other losses – in the amounts of 44%, 26%, 22%, and 19% – are also “capped” at 0.00%.

As demonstrated above, the Stock Protection Trust substantially reduces an investor’s downside risk without limiting or capping upside potential.

Strategies for Concentrated Positions in Company Stock

Strategies for Concentrated Positions in Company Stock

Brian Yolles of StockShield, Tim Kochis of Kochis Global, and Michael Fulginiti of Columbia Threadneedle Investments will present on the topic Strategies for Concentrated Positions in Company Stock on June 18 at the Hilton San Francisco Airport Bayfront.

While executives and high-net-worth employees are often admirably loyal to their companies’ stock, their net worth is at risk if it is concentrated in a single stock. An important role of a financial advisor is to explain the risk of over-concentration and recommend solutions to manage it, including strategies to diversify and create liquidity, and/or protect the stock in a tax-efficient way. This session will discuss various approaches to managing concentrated stock wealth, along with the tax and legal issues they raise. Strategies covered include:

  • Sellinggifting, and donating stock
  • Hedging strategies (prepaid variable forwards, equity collars, protective puts, covered calls)
  • Exchange funds
  • Risk-pooling (stock protection trusts)

The presentation is part of myStockOptions’ annual conference Financial Planning for Public Company Executives & Directors.

Nonqualified Deferred Compensation: What Advisors Need to Know

Nonqualified Deferred Compensation: What Advisors Need to Know

Brian Yolles of StockShield and Jeff Roberts of ADP Executive Deferred Compensation will present on the topic Nonqualified Deferred Compensation: What Advisors Need to Know to Advise Executives on June 18 at the Hilton San Francisco Airport Bayfront.

Many executives and key employees have the opportunity to participate in NQDC plans to put more money away than they can under the limits of tax-qualified retirement and pension plans. This session will address:

  • How these plans work to defer compensation, including salary and/or bonus, and the taxes at various stages
  • Importance of NQDC in an executive’s overall financial goals and strategies
  • Decisions at enrollment on contribution amounts and on distributions, and the role for advisors in helping clients make the best choices
  • Risks associated with these plans, including ways to mitigate them 

The presentation is part of myStockOptions’ annual conference Financial Planning for Public Company Executives & Directors.

Rapid Collapse of Utility Underscores Need to Manage Risk

PG&E’s California inferno likely to cripple employees' retirement security

Rapid Collapse of Utility Underscores Need to Manage Risk

PG&E Corp. stock lost more than half its value yesterday and has traded today for as low as $5, down from its high of $70 per share in 2017 – a loss of more than 90% in 18 months.

In a regulatory filing, PG&E disclosed it will file for Chapter 11 bankruptcy protection. Three of its retirement plans – the Supplemental Retirement Savings Plan (SRSP), Supplemental Executive Retirement Plan (SERP), and Defined Contribution Executive Supplemental Retirement Plan (DC-ESRP) – are likely to experience substantial losses and may be worthless, as participants in these plans acquire status as General Unsecured Creditors (GUC).

PG&E’s financial problems began suddenly and accelerated dramatically after evidence pointed to its role in sparking a wave of historic wildfires in California. While the utility has still not been determinatively deemed the cause of any of the fall 2018 fires, investors have assumed that this is a foregone conclusion and abandoned the stock accordingly.

In an SEC filing, PG&E assessed the extent of its liability (predominantly legal liability resulting from civil lawsuits) resulting from the recent fires. It concluded that were it to be found liable for “certain or all” of the damages with respect to the 2017 and 2018 Northern California wildfires, the amount of such liability could exceed $30 billion – not including punitive damages, fines and penalties.

Even more remarkable, PG&E stated that even its estimate of $30 billion “is not intended to provide an upper end of the range of potential liability arising from the 2017 and 2018 Northern California wildfires, which management is not able to reasonably determine at this time. In certain circumstances, PG&E’s liability could be substantially greater than such amount.”

Over the last three months, PG&E stock has lost more than 80% of its value, causing the company’s valuation to crater to $2.8 billion from a peak of more than $36 billion in 2017.

Not a single analyst or market expert predicted such a precipitous decline. As recently as November 2018, Morningstar Equity Research re-affirmed its $53 per share fair value estimate and stated, “PG&E’s core business continues to track our 6% normalized growth outlook based on $6 billion of annual investment during the next few years. PG&E has substantial growth investment opportunities in distribution upgrades and disaster mitigation work following the new more-aggressive renewable energy standards in Senate Bill 100 and the implementation of SB 901.”

It has been widely believed in almost all corners of the investment community that utility companies are the most conservative stocks one can own, with large dividends and generally low risk of large losses given their conservative business model and recurring revenues.

There is no allegation or evidence that anyone at PG&E intentionally caused any of the fires. The company’s liability is solely based on negligence – and negligence with respect to merely a small percentage of its power lines.

One of the many lessons that can be learned from PG&E’s demise is that a few small negligent errors can decimate any company, no matter how large or long-standing or financially prosperous or seemingly “conservatively” operated and managed. Given how extensive the operations of most large companies today are, how many different business lines and geographical markets to which their reach extends, no executive or group of executives can ever ensure that their company never creates the type of liability that could cause its demise in a very short period of time. Human nature and behavior being what they are, negligent errors can never be eliminated. They can only be reduced, and one can only hope that the errors that ultimately result are not as catastrophic as those involved in the California wildfires.

StockShield designed its capabilities for those who take seriously the lessons offered by PG&E’s demise. Any company can at any time be brought to the brink of bankruptcy simply from a few careless errors on the part of any of its agents – or from events completely beyond the control of the company. Executives, retirees, and other employees who have worked and sacrificed decades of the very best years of their life could, within weeks, lose any realistic chance of realizing the financial resources they are otherwise rightfully due.