Case Studies

Boom And Bust

The co-founder of a small technology company came to us in 2000 after the company he had helped start in 1997 was bought out by a larger firm during the dot-com boom. His portion of the sale was $12 million.

Most of his colleagues kept their profits tied up mostly in the shares of the purchasing company, but we strongly recommended that our client diversify his portion of the proceeds. The well-known brokerage firm that underwrote the sale told our client that he should keep his position intact like his colleagues in order to save on taxes. At the time, the outlook for the larger company and for the entire tech sector was very promising.

We reviewed our client’s life goals and, based on his objectives, convinced him to resist letting Uncle Sam determine the structure of his portfolio. Instead, he agreed to pay the taxes he owed and invest the remaining assets in a well-diversified portfolio based on Economic Hedging, which calls for a mix among cash, bonds, domestic equities, foreign equities, real estate, and commodities. In that way he lowered his company-specific risk profile by spreading his financial risk among different asset classes.

While most of his colleagues soon saw their assets plummet when the dot-com boom went bust, our client retained the financial freedom to pursue other life goals. Most of his colleagues, on the other hand, are still working.


Spread The Wealth

When a senior executive with a local high-tech company came to us for financial guidance, we immediately saw that his compensation came disproportionately in the form of restricted stock and non-qualified stock options. After determining his family’s goals, we started working with an accountant who specializes in that area in order to minimize taxes and effectively diversify his portfolio.

Many people fail to realize the enormous risk they are taking by tying too much of their income and assets to one company and one industry. Even though our client had lost money in a similar situation in the past, he at first resisted our advice to diversify because he believed that he had inside information on the future value of the company. When his wife pointed out what happened the last time he made a similar decision, he changed his mind.

We minimized his risk profile by spreading some of his assets into different areas including cash, bonds, domestic equities, foreign equities, real estate, and commodities. The resulting well- diversified portfolio will support a very comfortable retirement for him and his wife.