I have friends /clients with concentrated portfolios and they also need some kind of a portfolio management. Let us take the case of one person who has had the luck of 3 esop entitlements..and hence a slightly less concentrated portfolio. Let me call the 3 companies A, B and C.

Figures are actual, but the names are of course imaginary. This person has a net worth of about Rs. 70 crores (so including the house or not including does not matter, his house is worth about Rs. 5 crores).

He has Rs. 12 crores of A, Rs. 10 crores of B, and Rs. 8 crores of C. He has one son who is studying abroad, and a wife who is into philanthropy and does not have any income earning activity. He has a salary of about Rs. 2 crores and his job is likely to continue for another 10-12 years at least. This person (let us call him John Galt) has very little expenses and has a tremendous saving/investing capability. Had a chat with him..and he is now working in company D – and not in any of the companies from where he has got ESOP. He also has lots of shares of an unlisted company – but the listing could happen soon. He does not work in that company also. In the current job he does not have any ESOP but has a draw down of profits in a phased manner. I have not included the unlisted shares in the ESOP calculation -as these shares are currently illiquid. It also adds up to a nice 12% of liquid net worth..

So what should he do to reduce the concentration? (remember reducing concentration may not increase returns, but it will reduce risk). Luckily he did not have too much of emotions about selling A, B or C. In fact he was hoping for a Nasdaq listing of D and that was his super hedge against the dollar rising and the rupee falling. He was sure that he would make some large currency gains byt the time he sold.

So what we did was very simple. He would sell 1% of the shares (quantity, not value) every month. So in the first case say he had say 100,000 shares @ 1200 – he decided to sell 1000 shares a month for the next 100 months!! Similarly he decided to sell 10,000 shares of co. B and about 500 shares @ 180 each of company C.

He was now generating Rs. 30,00,000 per month…on the 6th of every month. I used the money by transferring it to 3 fund houses in 3 equity fund schemes as a SIP for a 5 year period.

Why a 5 year period? No logic. I expect his daughter to be married around that time, and once that happens this person may also quit and join a social service organisation….

I am sure that the process of selling off a particular share and putting it in a fund with about 80 companies is a sensible idea.

Done.

Now explaining all this over to his son is going to be difficult……so i guess the quantum will remain same, and the son may put it in different funds. He could have done something else also – he could have bought more real estate – a completely different asset class.