Pattie Lovett-Reid

Chief Financial Commentator, CTV

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They are often referred to as “super sellers.”

I’m talking about chief executive officers of large corporations who typically have systematic selling procedures in place to dispose of stock in their company.

Concentration risk is very real, especially with some of the gains witnessed over the past year – Microsoft, Amazon, Alphabet, Meta, and Tesla to name a few. Not surprising, CEOs and founders of large corporations sell off some of their holdings on a regular basis and often redeploy the money for taxes, to lock in gains and for philanthropic initiatives. Yet, often the reason typically cited is for personal financial planning purposes and diversification.

Most recently, John Chen, the CEO of Blackberry, filed his intent with the U.S. Securities and Exchange Commission to sell 32 per cent of his holdings in the company for personal financial planning purposes.

While we may not have as much money as these CEOs, what we do have in common is the risk they are exposed to – albeit, on a smaller scale.

Therefore, there are lessons to be learned here.

It’s not just CEOs and senior executives running the risk of over concentration of their company’s stock in their portfolio, so do many who work for the corporation. Here’s how – the company pays you your annual salary, you may also receive a bonus from the company, additionally you could be granted stock options, as well as the option to participate in the company’s pension plan if there is one and even employee savings plans. All of this combined gives you a concentration risk you may not even realize. Add to this, if the company also happens to be in your investment portfolio via mutual funds, sector funds or even index funds that exposure grows. When you look at the combined holdings it becomes evident very quickly you are way over exposed and like a senior executive need to rethink your strategy and pull some money off the table.

The problem is we don’t always look at it this way. Why? Simply stated, we believe in the company we work for.

I will give you an example. In my past, I worked for a large financial institution. A company I believed in then and still do today, however, when I retired I looked closely at my holdings. Added to the list, as a senior executive, I also had ownership requirements of stock in the company. My portfolio was skewed to not only one company, but one sector and one currency. I quickly realized I needed to  diversify just like a CEO for personal financial planning purposes.

For illustration purposes, I reflect to when Nortel’s stock was approaching north of $120 and I remember thinking if the former CEO John Roth is selling some of his shares shouldn’t the average employee be doing the same thing? At the time, I had a tradesman in our home and remember him vividly saying to me, “I work for Nortel and that stock is going to the moon and I have double down on it,” and of course it didn’t go to the moon and to this day I still worry about the potential loss he experienced. I know of others who bet their entire pension on the company and lost it all and while they have moved on, they continue to have regrets to this day.

All that said, now is a great time to act like the CEO of your family, review all your holdings and look closely at the unintended risk you may have taken on. It is just prudent financial planning.