Let us say you have a net worth of Rs. 20 crores, and of this you have Rs. 17 crores which was your ESOP. This is from a friends portfolio …so I can’t name the company. Let it be Google, Facebook, Hdfc Bank, ….does not matter.

So this means this guy (or gal) has made a lot of money without any professional help, not paid any fees, just applied for the ESOP and got rich. Of course in retrospect EVERYBODY says “I know Facebook would be a winner” or “I knew …Bank is the next Hdfc bank” – but that is sheer bullshit aka hogwash.

Now if you tell him/her “sell 1000 shares a month (you have it in lakhs) and put it in an index fund” – well this is what one CEO of a big software company did, but that was long ago -2004 I think when I met him.

However the answers I get are:

• the index has done nothing over the past 3 years (or some such shit)
• why should I put in a steel mill in …or a bank…in…- when you talk of international diversification
• actually I lead a simple life, even if this Rs. 18 crores were to become zero, my life will not be too bad
• when I started my life I did not know I will make so much money, so I am fine..

Honestly, all are stupid answers. In their hearts they know that they got lucky. I know at least 100 employees of Hdfc bank who sold many shares on this phenomenal journey. Nothing wrong, just stating that many of them sold, and many, many did not sell. I have friends and relatives who have Hdfc bank shares which they got in 1994 at the time of the IPO. However, for an original allottee this can’t be 20% of his portfolio. However for an employee when it is 80% of one’s portfolio (in this case, even more), it is time that you diversified. Remember you make money by taking concentrated bets, but you preserve wealth by diversifying risk.

What happens when an investor (not just an esop holder) who has a ten bagger, a 20 bagger and a 50 bagger. How do you get him to reduce the stake in the big big bagger. Now with a 10% LTCG (hey this has no indexing) diversifying is tough. The right thing is TOUGH to do especially when the result MAY perhaps be different from what you do!

So how will an adviser advice his client to cut down an oversized winner (bought or got as esop) ?

Here are the things that I have done/ tried. Not all of them have worked for me. Not everything will work for you. Check it out:

1. Use your shares for funding your foreign vacations
2. Use your shares for furnishing your house
3. Use your shares to buy a house for each of the kids (inefficient..but works)
4. Use Google to show that this company is NO LONGER giving great returns (sometimes true)
5. Sell the share on reaching a milestone – if it is up 10%, sell 1000 shares

Normally getting such people to sell  20,000 shares is tough even if they have 200,000 shares. So the lots have to be smaller…say 5000 or even 1000, but can do higher frequency. Asking him to sell 5000 a month is tough, but 1200 a week is possible.

Many of them will be in denial for long. Some force selling is a must. I know a few people who shifted to Index funds…and now have less risky portfolio NOW…

Well all the best ….to all of you!!