Firm Philosophies on Bitcoin and Concentrated Stock Positions

In this video, the firm discusses its philosophy regarding private equity investments, concentrated stock positions, and cryptocurrencies like Bitcoin. The key principles emphasized by the firm are as follows:

  1. Financial Plan First: The firm recommends ensuring that your major financial goals, such as college and retirement planning, are on track with a diversified, asset-allocated portfolio before considering these alternative investments.
  2. 10% Rule: It is advised not to allocate more than 10% of your net worth to private equity investments, concentrated stock positions, or cryptocurrencies. This rule helps mitigate the risks associated with these investments.
  3. Diversify Concentrated Stock: For those with a large concentrated stock position in their company due to employment, the firm suggests diversifying to reduce correlation between personal finances and employer success.
  4. Due Diligence: Before investing in private equity, it’s crucial to conduct substantial due diligence. Understand the terms, capital call requirements, exit strategies, and risks associated with the investment.
  5. Bitcoin Considerations: While acknowledging the potential of blockchain technology, the firm views investing in cryptocurrencies as speculative with both significant upside and downside. It recommends separating such investments from core financial planning goals.

The firm emphasizes that these alternative investments should complement a well-established financial plan rather than replace it, and that cautious and informed decision-making is essential when considering them.

Video Transcript

Sometimes clients ask us about private equity investments, cryptocurrencies like Bitcoin, or having a concentrated stock position within their company. Matt, we have a similar philosophy on how to deal with really all three of those topics. What are some implications that we have as a firm with regards to private equity investing, a large concentrated stock position and cryptocurrencies?

Great question, Ben. So in generalities, when it comes to Bitcoin and private equity, we would recommend that first have a strong financial plan on track for your major goals such as college planning and retirement planning, and have those on track without these type of investments involved.

So just with a purely diversified, asset -allocated portfolio, 401k, IRAs, non -qualified investing, once those plans are on track, the first principle that we recommend is to not tie private equity and Bitcoin type of investments as part of that plan because they do have a higher risk.

But assuming your plan is already on track, those type of investments are completely fine as long as due diligence is put into them specifically. But then this principle number two is we would recommend not to have more than 10% of your net worth tied up in these type of investments.

So if you have a million -dollar net worth, we would recommend that you’re, and assuming your financial plan is already on track, we recommend that you keep private equity, Bitcoin, less than $100 ,000 on your balance sheet. And make sure that gets tracked long -term as well.

Now for the concentrated stock, we do recommend the same principle. Less than 10% of your balance sheet should be in one specific stock. Oftentimes, we find that some clients, some executives that have a lot of restricted stock or stock that could be seen politically bad if they sell it for the company they currently are employed at, is that sometimes this makes up half or even two -thirds of a balance sheet.

And this is already your employer that is giving you a paycheck. So there’s already a strong correlation of your financial success being tied to one employer, let alone your personal balance sheet also being tied to that employer. So we would recommend to diversify and make sure that your financial plan is also on track regardless of that one concentrated position.

And then we take the same principle where not more than 10% of your net worth should be tied into one stock specifically. Sometimes this is impossible because there’s requirements for certain C -level executives that they need to have a certain amount of company stock because of restrictions of the company.

So outside of that exception, we’d recommend to follow these principles. Some considerations for concentrated stock would be if you have an employee stock purchase program that allows you to purchase at a discount, we would recommend to participate up to the max and then follow the principles that we’ve set.

So get the stock purchase and then immediately sell the stock. That’s an immediate guarantee return especially if the stock is only purchased every six months. For private equity, we’d recommend a substantial amount of due diligence be put into place and know what you’re getting into.

For example, if you put in $50 ,000 or $100 ,000 upfront, are there going to be capital calls that you’re forced to make? If you don’t make those, are you going to lose part of your position or all of your position in the investment? Are capital calls or is this a one -time thing?

What does the exit look like? Are you going to receive any kind of preferred dividends along the way or is this just purely a 5 or 10x return if it hits or a 0 return if it doesn’t hit? So understanding the implications of the private equity investment is very important and knowing that this is extremely risky compared to normal public equity markets.

And then Bitcoin specifically is here to stay. The blockchain technology has been adapted by some of the biggest, most reputable companies. Investing in the blockchain is a very low risk way for exposure and investing in the currencies themselves have a lot of implications that are positive but purely from an investment standpoint, we still view this as a huge upside, huge downside.

Very speculative. So if you do it, just make sure it is tied outside of the context of your financial planning goals being on track above and beyond this, follow the principles of the 10% rule and you will be set.

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