Author Topic: Can you FIRE if most of your wealth is concentrated in one stock?  (Read 2251 times)

danben

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Can you FIRE if most of your wealth is concentrated in one stock?
« on: September 18, 2020, 01:44:46 PM »
Hello everyone - does anyone know of a good read/research that discuss an undiversified portfolio and retirement ? Here is the situation that I'm in.

Family of 4. I'm 41. Looking to FIRE end of this year.

$2.4M in assets (90% in stocks and 10% in cash).  It moves a lot (let's say -/+10%; so let's say $2.2M-2.4M to be conservative).

Of the stock portion:
- ~50% of it sit in one (1) stock - a large cap growth company.  The reason - I was an employee that got a good package that appreciated a lot throughout the years and I never sold.  I also don't want to sell as I truly believe in the future of the company.  I'm a buy an hold guy.  Love to read financial news and investments.
- The other ~50% of stocks sits with other stocks and index (let's say 50/50) 

Accounts: Only $500k are locked in IRAs and 401k, so I can sell when I need.

Expenses - $6,500/month - 78k/year.

Dividend on a yearly basis in the taxable accounts - not much. Ignore for the purpose of this.

Question - can I Fire? As you can see, our withdrawal rate is 3.25% (move 3.25%-3.5%). Below the 4%.  I'm looking on a research/approach that balance that SWR with a riskier portfolio.  So wonder if there is any research that has been done about it.

Few additional thoughts -
1) as you can see, at this point, I have 3 years of expenses in cash available.   
2) I understand that my portfolio can be hit hard... and if so, I'm willing to go back to work to fill the gap.
3) I understand there is risk that this can be next Enron and staff - but my thought is that the chances for it happen are very low.
4) I'm very happy with the portfolio and sticking with this buy and hold portfolio.  All companies that I own - I love and know well.  I don't sell anything on a downturn from fear.
5) Overall, I agree with he boglehead investing approach and I started that way, but at one point I realized that big wealth can be built much faster trough investing in good growth companies that I understand (Peter Lynch approach). In a way - it worked.  Anyway - it doesn't matter now, this is how our wealth building evolved. 
6) my approach in FIRE will be to rebalance (90/10) quarterly, usually moving money from the 1 stock into cash.  Over time, hopefully it means that over time the cash cushion will be 5+ years of expenses.

Would love to hear your thoughts and suggestions.  Thanks!
« Last Edit: September 18, 2020, 02:00:52 PM by danben »

soccerluvof4

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #1 on: September 18, 2020, 02:05:42 PM »
You do what you want in theory you have the money BUT no one is going to tell you to retire when 50% of your holdings are in one stock whether you believe in it or not. At least not that I know of. Lets see, maybe I am wrong BUT to many eggs in one basket.

Financial.Velociraptor

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #2 on: September 18, 2020, 02:16:42 PM »
You could buy puts to protect your concentrated position and probably be just fine. 

ixtap

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #3 on: September 18, 2020, 02:33:26 PM »
Personally? No, I couldn't.

Theoretically? There is a reason that scenarios are run with index funds and various stock to bond mixes. There is a non zero chance of that one stock going to zero.

robartsd

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #4 on: September 18, 2020, 04:45:24 PM »
I could retire on your portfolio; mostly because ~$1 million in diversified stocks plus ~$200K in cash sounds sufficient for my needs.  I could consider your concentrated stock holding completely unneeded wealth. Would I actually plan to keep a portfolio with that much riding on a single company - absolutely not.

secondcor521

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #5 on: September 18, 2020, 05:38:04 PM »
The 4% rule approach relies on several assumptions.  Two relevant to you are that the portfolio is invested in diversified stocks and bonds, and that the future is no worse than the past.

The 4% rule is a guideline - there is a chance that following the 4% rule and matching all of its assumptions won't work because the future turns out to be worse than the past.  There's also a chance that not matching all of its assumptions will work because you happen to be somewhat lucky.

Certainly the fact that you've at least pregamed what you would do if your one stock tanks is a positive.  I'd probably carefully assess the probability that I could go back to work in, say, 5 or 10 years if the stock tanked then and I needed to.  Would I still be willing to?  Would someone still hire me?  At a similar salary?  Regarding that first question, I would note that most people who FIRE end up deciding that going back to work is something they'll work really hard to avoid doing.  Once you're out and free for a while, it makes going back rather difficult.  (I am of this mindset after FIREing about 4 years ago at age 46.  Thankfully I don't have to face going back to work, at least not at this point.)

Another thing to consider is the one stock and the kind of stock it is.  If it were a large cap stock that was a conglomerate, like Procter and Gamble, then that is qualitatively less risky than a midcap narrowly-focused company, like Micron.

You're on the younger side and you have a family who are probably relying on your economic productivity.  How does your partner feel about these things?  Do they support you FIREing and your contingency planning about what to do if this stock tanks?  Would your kids' lives be upended if something went sideways - would their college funds be raided to keep from returning to work or in the scenario where you can't get a job?

If I were in your shoes, if I didn't hate my job I'd probably try to work at least a few more years to pile up more assets.  I'd also try to establish a disciplined program of divesting from the one stock into diversified, low-cost, high-quality stock or bond funds according to your target AA.  If you're high income, you could consider doing this diversification after leaving your job to lessen the tax hit, but that also increases your risk exposure.  There is also some political risk that capital gains rates may increase in the near future, so that is something to consider.

lutorm

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #6 on: September 18, 2020, 07:14:09 PM »
If you had 1.2M in cash sitting in the bank, would you go and buy that one stock if you didn't have the history?

I'm in a similar boat, approx 50% net worth in one company stock due to employment. I believe in the company, but there's no way I'm comfortable with that risk posture. (Additionally, the company is private so the stocks are illiquid, which makes it more complicated) I'm intending to diversify as fast as possible until I have maybe 25% left. I'm still working, though, so I also get more every year.

As far as "at one point I realized that big wealth can be built much faster trough investing in good growth companies that I understand", that sounds like confirmation bias -- it worked out for you, so you feel like it was because you understood the company. But how many people who think they understand the company they invest in end up with nothing?

Since you can FIRE now, you've got it made. Why continue to take the additional risk?

bacchi

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #7 on: September 18, 2020, 08:11:59 PM »
There are plenty of former dotcom millionaires who are still working because they lost 95% of their millions in a year or two.

Don't be that guy.

terran

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #8 on: September 18, 2020, 08:29:40 PM »
I agree with the others, I wouldn't feel comfortable with this. Time to take your 23.8% tax hit on the gains (although some will be taxed at less).

SwordGuy

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #9 on: September 18, 2020, 09:21:10 PM »
I wouldn't take on that kind of risk.   Why do that?

I know people who believed in Enron.

I know people who believed in Worldcom.

I know people who believed in Sears.

In JC Penney, too.

And they were wrong.   

reeshau

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #10 on: September 18, 2020, 10:45:04 PM »
- ~50% of it sit in one (1) stock - a large cap growth company.  The reason - I was an employee that got a good package that appreciated a lot throughout the years and I never sold.  I also don't want to sell as I truly believe in the future of the company.  I'm a buy an hold guy.  Love to read financial news and investments.

If you like to read about news and investments, you must be familiar with specific company risk.

https://www.investopedia.com/terms/c/company-risk.asp

You say you were an employee.  How long has it been?  Are you still in touch with current employees?  Internal chat boards?

And how about the top management?  Has it been stable?  Are the people stable?

Any company could face scenarios like:

1)  Coronavirus pandemic:  wiped out movie theaters, travel and leisure.  The services will be back, but there is no guarantee that current stockholders will still run the assets.
2)  China / US trade war:  WeChat is in the crossfire.  Previously, it was Qualcomm.  When a for-profit enterprise is caught in a political game, you have to understand they are playing a different game, and the rules won't make sense through an investor's lens.  The solar power industry was caught in this for several years, with the Chinese government propping up companies that couldn't cover their variable costs--because they viewed the technology as strategic.
3)  CXX is found philandering / embezzling / self-dealing / being unethical.  Too many examples to count.
4)  You are doing so well that Europe decides to go after your monopoly.  Microsoft was the whipping boy for a long time.  Now Google and Facebook face a "digital tax" because so much money is being funneled into them via global accounts.
5) Visionary leader has the pedal to the metal.  Tesla has been nearly bankrupt 3 times.  Once, they prepared and had agreed a buyout by Google, if a secondary stock offering didn't go through.  The auto industry is capital intensive--they are not through with near-death experiences.  Elon does not care, in a personal sense--he has enough money.  He is taking shots at doing big things.  Some will fail.  Even he is diversified, even just from companies he is running.

and so on.

If you think you are on top of these for your chosen company, more power to you.  But I would propose it is impossible to deal with all these risks, as well as other external circumstances, for the balance of your life.  Therefore, diversification is worth the reduced reward potential, to keep this portion of your portfolio from going splat.

I am an individual stock investor, too.  I generally have 10-20 stocks, and I have them in different proportions depending on their prospects.  Some of them will blow up.  But I can do well by paying attention to the risk / reward:  a stock can only go down 100%.  It can go up infinitely.  But, if your one stock goes down 100%, there is no chance to recover.  You have to have a well-cultivated garden to truly flourish.

Good luck to you, however you proceed.  For me, who is heavily weighted stocks in the first place, and an informed participant, I couldn't sleep at night with 50% in one stock.  Numbers aside, that would decide it for me.

terry1979

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #11 on: September 19, 2020, 05:03:21 AM »
You could cash out of your 1 stock, and invest in a nice blend of high yield dividend stocks with stable business models in an industry that will always be around (think AT&T).

You could also invest in dividend growth stocks like Costco, Walmart, Colgate Palmolive, etc.

norajean

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #12 on: September 19, 2020, 07:16:41 AM »
Yes you can retire but you must remain prepared to return to work if your one stock underperforms.

Malcat

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #13 on: September 19, 2020, 07:36:12 AM »
The only way I'm staying primarily invested in one company is if I run that company.

Kem

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #14 on: September 19, 2020, 09:54:19 AM »
Father-in-law worked for GM.  Put all investments into GM over the history of his work.  Retired, in 2008 expecting to travel and enjoy life.   A year later those shares were worthless.  Now, the pension just covered housing and food.
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A bit later his pension was handed over as a lump sum buyout for pennies on the dollar.  100% of this went into medical payments for depression treatments and heart complications (both began after life savings in GM stock flatlined).  He died in significant debt 2 years ago.
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You do you.  Me, I'd sell and take tax hit, keep a 3-5 year yeild shield and place the rest into vtsax or VT.
« Last Edit: September 19, 2020, 09:55:50 AM by Kem »

John Galt incarnate!

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #15 on: September 19, 2020, 03:31:27 PM »
I wouldn't take on that kind of risk.   


Neither would I.

Villanelle

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #16 on: September 19, 2020, 03:45:32 PM »
Sure, you can.  You can retire with a 12% withdraw rate.  You can assume that Social Security will pay double what it does now.  You can base your math on 0% inflation.

But I wouldn't be comfortable doing any of those things.  I don't think I'd be comfortable with anything more than 10% in any one stock.  Even that might be pushing it for me. 

scottish

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #17 on: September 19, 2020, 04:16:07 PM »
Geeze, 50% ?   Lock in some gains and diversify that stock.

Or like the velociraptor says, hedge against a big downturn and then diversify a bit more slowly.

Steeze

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #18 on: September 19, 2020, 06:29:31 PM »
I say - take 25x current expenses in broad base index funds (2M~) Let the rest ride in a single stock if that makes you happy.

Keep a year or so in cash and top up once a year. Keep 10% in bonds for rebalancing.

You have enough, just need to diversify to lower your risk. Congratulations.

chasesfish

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #19 on: September 20, 2020, 05:21:46 AM »
You could buy puts to protect your concentrated position and probably be just fine.

I wanted to second this comment.  Either you could (or through an advisor) just have an on-going rolling option strategy that protects your downside.

You *should* earn more by taking an individual stock concentration (or why take the risk?), part of those additional gains are offset by constantly purchasing new put options, which are essentially insurance against the price going down.

Retire-Canada

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #20 on: September 20, 2020, 06:33:48 AM »
A guy I worked with had all his $$ invested in one stock. Told his wife it was time to retire once he got home from his last deployment in Europe. Stock crashed. 20+ years later he is now about to retire finally after rebuilding his wealth.

If you want to keep an outsized portion of your NW in a single stock...like say 10% okay. But, 50%+ sounds insane to me. However, you can do whatever you want only time will tell how it works out.

MustacheAndaHalf

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #21 on: September 20, 2020, 09:41:09 AM »
Family of 4. I'm 41. Looking to FIRE end of this year.
$2.4M in assets (90% in stocks and 10% in cash) ... - ~50% of it sit in one (1) stock
Have you weighed the upside and downside of this decision?

What do you gain if the stock keeps going up?  If you have enough to retire, you can't doubly retire on double the amount.  Recalling a quote from one of Larry Swedroe's books, "when you've won the game, stop playing."

That one company collapsing would take your withdrawal rate from about 3.5% to 7.0%.  And you aren't retiring for 30 years, but closer to 50 years.  If that company goes under, your money will run out - it's unrealistic to sustain a 7% withdrawal rate for that long.

ChpBstrd

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #22 on: September 20, 2020, 02:32:51 PM »
You can absolutely retire right now. However your portfolio as currently configured is more risky than an index fund portfolio. This only means your 3.25% WR is not similarly risky as 3.25% from a portfolio of all index funds, and the conclusions of studies on WR might not apply. Itís impossible to calculate an equivalent WR. You could reduce your ďasystemic riskĒ by doing two things:

1) Take the tax hits and reduce your allocation to the stock. I would do this by selling call options on chunks of the stock for the next 3-5 years. As your shares get slowly assigned away, you live off the proceeds of the calls and reinvest the principal. E.g. This quarter I sell calls against 10-20% of my single stock allocation. I receive 2% of this blockís value in exchange for the calls, which mostly covers my expenses for the quarter. If I am not assigned, I play again. If I am assigned, I pay long term capital gains on the allocation and move it into an index fund. Then play again. Meanwhile the diversified portion of the portfolio continues growing without withdrawals. You might liquidate your single stock allocation in a controlled way so that your LT gains are tax free or at least in the first bracket. The downside is the exposure to asystemic risk during the next few years, but I think youíre fine given your other assets.

2) Hold the stock, but use the ďcollarĒ options strategy to reduce volatility and protect against a devastating loss of value. A collar strategy involves holding the stock, selling a call, and buying a put. You can engineer your own risk tolerance and tax consequences by picking the strike prices. For example, I can decide Iím willing to lose up to 10% in the next 12 months and Iím OK with being forced to sell if the stock goes up 10%. Or maybe Iíd like to engineer a small tax loss each year in exchange for more upside potential on the stock. In any case, your two options positions both move opposite the stock, and your portfolio cannot fall below a certain floor. The downside is the potential to be forced to sell, generating a large taxable event that would put you in a high tax bracket, so you might want to have multiple tranches of collars.

Reynold

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #23 on: September 20, 2020, 04:27:54 PM »
Father-in-law worked for GM.  Put all investments into GM over the history of his work.  Retired, in 2008 expecting to travel and enjoy life.   A year later those shares were worthless.  Now, the pension just covered housing and food.
.
A bit later his pension was handed over as a lump sum buyout for pennies on the dollar.  100% of this went into medical payments for depression treatments and heart complications (both began after life savings in GM stock flatlined).  He died in significant debt 2 years ago.

I know a few people who worked at AT&T, similar story, when shares were at $60 and rising one had a friend who mortgaged his house and put every penny into AT&T.  I mean after all, AT&T had been the largest stock in the U.S. for 43% of the last 95 years, it was the Apple of its day, how could you go wrong!  When the shares went down to $5 or so, a lot of people had to keep working or find a new job. 

cincystache

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #24 on: September 20, 2020, 07:23:03 PM »
I guess it comes down to your goals.. It sounds like you have a good understanding of the potential downsides but what are you hoping to gain by having such a concentrated stock exposure? Presumably you are hoping this company outperforms the overall stock market or why else would you own it? In that case, what are your plans for all of this extra money you hope to gain? Will it make your life substantially better? If so, great(!) go for it, or keep working, or do both and then call it quits after you amass a bigger number to where you don't give a shit about more money. If having even more money won't make your life any better, then ring the register, take away the risk, index everything and enjoy your life. You already reached the finish line of thinking about money, you are 41 with $2M+ in the bank, congratulations! Go live your life and enjoy time with your kids instead of reading about stocks in your free time unless that truly brings happiness to you. If it were me, I would 100% get rid of single stock exposure and index everything.

AdrianC

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #25 on: September 21, 2020, 04:43:39 AM »
A recent piece by Ben Carlson that seems relevant:

Why Even the Best Stocks Have to Crash
https://awealthofcommonsense.com/2020/09/why-even-the-best-stocks-have-to-crash/

Apple has fallen more than 75% on three different occasions.
Netflix has fallen 50% or worse four times including two 75% or worse crashes.
Amazon had a plunge of almost 95%.

Only you know if you could take that kind of volatility.


habanero

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #26 on: September 21, 2020, 04:59:19 AM »
If you move to live off your portfolio then not loosing becomes vastly more important that winning big once again (considering that you already won). If you have been playing offense - which you have by having that much AA to a single stock, you have to be able to switch to running a more defensive play. That means diversify,

It might well mean that you loose out on large future gains from this Great Stock, but you have mitigated the probability of loosing a very large part of your wealth due to some company-specific issue. That's the price you pay and the value you get from paying the price.

You have to decide if the possibility of getting filthy rich is so valuable to you and weight that against increasing the likehood of preserving your wealth.

And it's a classic example of bias. As someone said, if you had 2.4 million in the bank, would you now buy that stock for 1.2 million of your stash or would you invest in another way?


BicycleB

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #27 on: September 21, 2020, 07:01:52 PM »
You can't safely retire at your current spend, based on the finances you described. You might be able to get the option hedge that others have described to work out, but that's not what you described.

78,000 at 4% requires 1.92 million in a portfolio that has adequate diversification. Once you sell enough stock to get 1.92M diversified, and pay the needed tax, you won't have 50% of stock in one company any more. The price of retiring is either give up some of the Great Stock, or pencil out the option hedge very carefully, or gamble with your family's future (in other words, not be safe).

Btw, my first 401k employer's stock collapsed to less than 1% of peak value. 50% of my investments were in their stock. So much for being in a big famous growth company. At least I learned something. :)

Maybe nothing like that will ever happen again though.

robartsd

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #28 on: September 21, 2020, 07:17:37 PM »
Maybe nothing like that will ever happen again though.
I'm sure it will happen, but maybe not to the OP's company within the OP's lifetime.

hodedofome

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #29 on: September 23, 2020, 09:37:39 AM »
There are a lot of replies but nobody has asked you what stock you have. Go ahead and tell us and that can give us more info as to the advice we give.

If it's something like AAPL, AMZN, FB, GOOGL, CRM, ADBE, and maybe a few others, you would probably be ok. Albeit with more volatility than an index fund. Those companies aren't ridiculously overpriced compared to their growth, dominance and future prospects. But you could still see your holdings drop by half in a bear market. It would make sense to sell a chunk each year and diversify. Bill Gates did this in the late 90s and that greatly helped cushion him for the next 10 years.

If you are in something like ZM, TSLA, SNOW, PTON etc, then yeah I'd advise you to diversify for sure before retiring. Those are hot stocks and could definitely go down by 80% whenever the tech bubble eventually pops.

ChpBstrd

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #30 on: September 23, 2020, 01:26:04 PM »
There are a lot of replies but nobody has asked you what stock you have. Go ahead and tell us and that can give us more info as to the advice we give.

If it's something like AAPL, AMZN, FB, GOOGL, CRM, ADBE, and maybe a few others, you would probably be ok. Albeit with more volatility than an index fund. Those companies aren't ridiculously overpriced compared to their growth, dominance and future prospects. But you could still see your holdings drop by half in a bear market. It would make sense to sell a chunk each year and diversify. Bill Gates did this in the late 90s and that greatly helped cushion him for the next 10 years.

If you are in something like ZM, TSLA, SNOW, PTON etc, then yeah I'd advise you to diversify for sure before retiring. Those are hot stocks and could definitely go down by 80% whenever the tech bubble eventually pops.
1) There's a tech bubble that will eventually pop.
2) It'll "probably be OK" to retire with a concentrated tech position.

Buffaloski Boris

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #31 on: September 23, 2020, 04:02:29 PM »
In my opinion, no. Keep in mind that the Trinity Study was based on a diversified portfolio of stocks and bonds, and it was at a time when stocks were less expensive and bonds actually had a return. The diversified portfolio wasnít a detail, it was an important underlying assumption. They actually used the SP 495+5.

Frankly I think the 4% rule is overly optimistic. I think 3 to 3.25% is probably more reasonable right now. So the OP could get by if this were a diversified portfolio but since it isnít, my answer would be no.

Malcat

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #32 on: September 24, 2020, 04:21:39 AM »
There are a lot of replies but nobody has asked you what stock you have. Go ahead and tell us and that can give us more info as to the advice we give.

If it's something like AAPL, AMZN, FB, GOOGL, CRM, ADBE, and maybe a few others, you would probably be ok. Albeit with more volatility than an index fund. Those companies aren't ridiculously overpriced compared to their growth, dominance and future prospects. But you could still see your holdings drop by half in a bear market. It would make sense to sell a chunk each year and diversify. Bill Gates did this in the late 90s and that greatly helped cushion him for the next 10 years.

If you are in something like ZM, TSLA, SNOW, PTON etc, then yeah I'd advise you to diversify for sure before retiring. Those are hot stocks and could definitely go down by 80% whenever the tech bubble eventually pops.

The world could radically change over the next few decades in terms of tech and you think some tech giants of today are a safe bet??

Are they likely to grow dramatically bigger than they already are? IDK, but "no" is probable. If there's no major upside to miss out on, then what's the point of the risk of a very possible downside?

Who says Amazon and Apple are safe bets by the time millenials are seniors?? Think of the "safe bet" companies that failed over the past 30 years.


reeshau

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #33 on: September 24, 2020, 06:35:08 AM »
There are a lot of replies but nobody has asked you what stock you have. Go ahead and tell us and that can give us more info as to the advice we give.

If it's something like AAPL, AMZN, FB, GOOGL, CRM, ADBE, and maybe a few others, you would probably be ok. Albeit with more volatility than an index fund. Those companies aren't ridiculously overpriced compared to their growth, dominance and future prospects. But you could still see your holdings drop by half in a bear market. It would make sense to sell a chunk each year and diversify. Bill Gates did this in the late 90s and that greatly helped cushion him for the next 10 years.

If you are in something like ZM, TSLA, SNOW, PTON etc, then yeah I'd advise you to diversify for sure before retiring. Those are hot stocks and could definitely go down by 80% whenever the tech bubble eventually pops.

The world could radically change over the next few decades in terms of tech and you think some tech giants of today are a safe bet??

Are they likely to grow dramatically bigger than they already are? IDK, but "no" is probable. If there's no major upside to miss out on, then what's the point of the risk of a very possible downside?

Who says Amazon and Apple are safe bets by the time millenials are seniors?? Think of the "safe bet" companies that failed over the past 30 years.

Regarding this point, the book Life After Google by George Gilder provides an interesting perspective on the threat of blockchain (think privacy, not bitcoin) on the "free product in exchange for your info" advertising-supported model.  George is an interesting guy; a creature of Silicon Valley venture capital, but a natural skeptic.

hodedofome

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #34 on: September 29, 2020, 10:14:24 PM »
There are a lot of replies but nobody has asked you what stock you have. Go ahead and tell us and that can give us more info as to the advice we give.

If it's something like AAPL, AMZN, FB, GOOGL, CRM, ADBE, and maybe a few others, you would probably be ok. Albeit with more volatility than an index fund. Those companies aren't ridiculously overpriced compared to their growth, dominance and future prospects. But you could still see your holdings drop by half in a bear market. It would make sense to sell a chunk each year and diversify. Bill Gates did this in the late 90s and that greatly helped cushion him for the next 10 years.

If you are in something like ZM, TSLA, SNOW, PTON etc, then yeah I'd advise you to diversify for sure before retiring. Those are hot stocks and could definitely go down by 80% whenever the tech bubble eventually pops.

The world could radically change over the next few decades in terms of tech and you think some tech giants of today are a safe bet??

Are they likely to grow dramatically bigger than they already are? IDK, but "no" is probable. If there's no major upside to miss out on, then what's the point of the risk of a very possible downside?

Who says Amazon and Apple are safe bets by the time millenials are seniors?? Think of the "safe bet" companies that failed over the past 30 years.

Google, Apple, Microsoft, Amazon, Facebook are the modern day Ford, GM and Chrysler. They are here to stay and will dominate for several generations before something better comes along. Itís a safe bet if youíre over the age of 30.

Of course, predicting the future 50 years from now is tough so as the facts change, my opinion may change as well.

Malcat

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #35 on: September 30, 2020, 06:14:31 AM »
There are a lot of replies but nobody has asked you what stock you have. Go ahead and tell us and that can give us more info as to the advice we give.

If it's something like AAPL, AMZN, FB, GOOGL, CRM, ADBE, and maybe a few others, you would probably be ok. Albeit with more volatility than an index fund. Those companies aren't ridiculously overpriced compared to their growth, dominance and future prospects. But you could still see your holdings drop by half in a bear market. It would make sense to sell a chunk each year and diversify. Bill Gates did this in the late 90s and that greatly helped cushion him for the next 10 years.

If you are in something like ZM, TSLA, SNOW, PTON etc, then yeah I'd advise you to diversify for sure before retiring. Those are hot stocks and could definitely go down by 80% whenever the tech bubble eventually pops.

The world could radically change over the next few decades in terms of tech and you think some tech giants of today are a safe bet??

Are they likely to grow dramatically bigger than they already are? IDK, but "no" is probable. If there's no major upside to miss out on, then what's the point of the risk of a very possible downside?

Who says Amazon and Apple are safe bets by the time millenials are seniors?? Think of the "safe bet" companies that failed over the past 30 years.

Google, Apple, Microsoft, Amazon, Facebook are the modern day Ford, GM and Chrysler. They are here to stay and will dominate for several generations before something better comes along. Itís a safe bet if youíre over the age of 30.

Of course, predicting the future 50 years from now is tough so as the facts change, my opinion may change as well.

Umm...okay.
Yeah, that's one quite plausible version of the future. I don't agree that it's as much of a given as you seem to think it is though.

ChpBstrd

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #36 on: September 30, 2020, 07:43:35 AM »
There are a lot of replies but nobody has asked you what stock you have. Go ahead and tell us and that can give us more info as to the advice we give.

If it's something like AAPL, AMZN, FB, GOOGL, CRM, ADBE, and maybe a few others, you would probably be ok. Albeit with more volatility than an index fund. Those companies aren't ridiculously overpriced compared to their growth, dominance and future prospects. But you could still see your holdings drop by half in a bear market. It would make sense to sell a chunk each year and diversify. Bill Gates did this in the late 90s and that greatly helped cushion him for the next 10 years.

If you are in something like ZM, TSLA, SNOW, PTON etc, then yeah I'd advise you to diversify for sure before retiring. Those are hot stocks and could definitely go down by 80% whenever the tech bubble eventually pops.

The world could radically change over the next few decades in terms of tech and you think some tech giants of today are a safe bet??

Are they likely to grow dramatically bigger than they already are? IDK, but "no" is probable. If there's no major upside to miss out on, then what's the point of the risk of a very possible downside?

Who says Amazon and Apple are safe bets by the time millenials are seniors?? Think of the "safe bet" companies that failed over the past 30 years.

Google, Apple, Microsoft, Amazon, Facebook are the modern day Ford, GM and Chrysler. They are here to stay and will dominate for several generations before something better comes along. Itís a safe bet if youíre over the age of 30.

Of course, predicting the future 50 years from now is tough so as the facts change, my opinion may change as well.

Umm...okay.
Yeah, that's one quite plausible version of the future. I don't agree that it's as much of a given as you seem to think it is though.

Yahoo, IBM, Netscape, Wal-Mart, eBay, and the big 3 TV networks were also going to dominate for several generations as recently as one generation ago.

But then Yahoo was displaced by Google, IBM was displaced by Apple, Netscape was displaced by Microsoft, Wal-Mart and eBay were displaced by Amazon, and the TV networks were displaced by Facebook. Some of the old leaders survived, and some, like eBay, were index-beating investments.

I suspect we're moving beyond the era when name recognition was critical because people were typing URLs into browsers, and we're moving into an era of apps that people pick up, try, and drop within months. The network effects of Facebook and the economies of scale and scope enjoyed by Amazon are real factors keeping users on their platforms, but each of these moats have been overcome many times before. Look how fast TikTok rose out of nowhere.

ericrugiero

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #37 on: October 01, 2020, 08:21:28 AM »
Think about why you don't want to sell this company stock. 
-  Don't want to miss out on future gains you expect?  (You already won, you don't need to beat the market in the future.)
-  Loyalty to the company?  (Company loyalty is great, keep 10% in this company.  Your first loyalty should be to your family.)
-  Concerned about capital gains taxes?  (Look at spacing out the sale of the stocks over a few years.  In the meantime you can use puts as mentioned above.)

At the end of the day, you can do whatever you want.  Just remember all the other great stocks that have lost all or most of their value.  Single stocks GREATLY increases your risk.  It might work out for you or it might not. 

Think about risk vs reward.  The risk is that you won't have enough money for retirement.  That seems like a pretty big risk to me.  The reward is that you beat the market and have extra money for your retirement.  What would that extra money do for you and is it worth the chance of going broke?

Financial.Velociraptor

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #38 on: October 01, 2020, 08:46:56 AM »
Think about why you don't want to sell this company stock. 
-  Don't want to miss out on future gains you expect?  (You already won, you don't need to beat the market in the future.)
-  Loyalty to the company?  (Company loyalty is great, keep 10% in this company.  Your first loyalty should be to your family.)
-  Concerned about capital gains taxes?  (Look at spacing out the sale of the stocks over a few years.  In the meantime you can use puts as mentioned above.)

At the end of the day, you can do whatever you want.  Just remember all the other great stocks that have lost all or most of their value.  Single stocks GREATLY increases your risk.  It might work out for you or it might not. 

Think about risk vs reward.  The risk is that you won't have enough money for retirement.  That seems like a pretty big risk to me.  The reward is that you beat the market and have extra money for your retirement.  What would that extra money do for you and is it worth the chance of going broke?

This makes a lot of sense.  If nothing else, your 4% (or whatever) withdrawal should be 100% from the concentrated position and at least most of the remaining 96% should be protected with a put.

hodedofome

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #39 on: October 01, 2020, 09:50:56 AM »
There are a lot of replies but nobody has asked you what stock you have. Go ahead and tell us and that can give us more info as to the advice we give.

If it's something like AAPL, AMZN, FB, GOOGL, CRM, ADBE, and maybe a few others, you would probably be ok. Albeit with more volatility than an index fund. Those companies aren't ridiculously overpriced compared to their growth, dominance and future prospects. But you could still see your holdings drop by half in a bear market. It would make sense to sell a chunk each year and diversify. Bill Gates did this in the late 90s and that greatly helped cushion him for the next 10 years.

If you are in something like ZM, TSLA, SNOW, PTON etc, then yeah I'd advise you to diversify for sure before retiring. Those are hot stocks and could definitely go down by 80% whenever the tech bubble eventually pops.

The world could radically change over the next few decades in terms of tech and you think some tech giants of today are a safe bet??

Are they likely to grow dramatically bigger than they already are? IDK, but "no" is probable. If there's no major upside to miss out on, then what's the point of the risk of a very possible downside?

Who says Amazon and Apple are safe bets by the time millenials are seniors?? Think of the "safe bet" companies that failed over the past 30 years.

Google, Apple, Microsoft, Amazon, Facebook are the modern day Ford, GM and Chrysler. They are here to stay and will dominate for several generations before something better comes along. Itís a safe bet if youíre over the age of 30.

Of course, predicting the future 50 years from now is tough so as the facts change, my opinion may change as well.

Umm...okay.
Yeah, that's one quite plausible version of the future. I don't agree that it's as much of a given as you seem to think it is though.

Yahoo, IBM, Netscape, Wal-Mart, eBay, and the big 3 TV networks were also going to dominate for several generations as recently as one generation ago.

But then Yahoo was displaced by Google, IBM was displaced by Apple, Netscape was displaced by Microsoft, Wal-Mart and eBay were displaced by Amazon, and the TV networks were displaced by Facebook. Some of the old leaders survived, and some, like eBay, were index-beating investments.

I suspect we're moving beyond the era when name recognition was critical because people were typing URLs into browsers, and we're moving into an era of apps that people pick up, try, and drop within months. The network effects of Facebook and the economies of scale and scope enjoyed by Amazon are real factors keeping users on their platforms, but each of these moats have been overcome many times before. Look how fast TikTok rose out of nowhere.

I think the big tech companies have found a way to get big and stay big. IBM's problem was that it didn't innovate, nor have an engineer CEO to see where the industry was headed. Big tech today (Apple, Amazon, Netflix, Google, Facebook, Microsoft, Tesla) knows they have to innovate, tech is always changing and they have to change with it. When they can't change their core product enough to keep up, they just buy whoever is out-innovating them (they have the money to do this now, as they are the wealthiest companies in the world). They also know they have to install engineer-backgroud CEO's (Google, Microsoft, Apple-sorta). Business and finance CEO's won't cut it at a tech company anymore. Engineer CEO's know where the industry is going and move their company in that direction, or buy the companies going that direction.

Just look at the horrible purchases Steve Balmer made at Microsoft vs Nadella these days. Balmer bought Skype (not horrible, but not great either), Nokia, aQuantive, Yammer. Skype was ok but the rest have been duds, with Microsoft writing down their investment almost completely. Nadella changed Microsoft to a subscription business (huge), and announced on day one Microsoft was a cloud business and mobile first. Perfect. He embraced open source. He bought LinkedIn, Minecraft, GitHub, and now ZeniMax. None have been duds. And Microsoft, despite being 40 years old, is back on top and will not be getting replaced for a very, very long time. They are now #2 in cloud hosting which is going to serve them well for decades as everyone uses either AWS or Azure.

iPhone and iOS is not getting replaced anytime soon, Apple is fine as long as they don't install a business or finance CEO that screws it all up.

Google has the best AI engineers in the entire world and a ridiculous amount of data to train algorithms on, as long as they maintain that, anything AI will be better at Google than anywhere else. That's why their searches are the most accurate, OK Google gives the best responses vs Alexa or Siri, and why their AI is more accurate in it's predictions than other AI's.

Amazon has spent billions upon billions making their fulfillment network better than anyone else's. You think that can get replaced by anyone outside of WalMart? Hint - Walmart isn't going to be able to change their company culture enough to compete with Amazon. Amazon's fulfillment is set for decades, and AWS is industry standard, also set for decades. Can't be replaced without spending tens or even hundreds of billions of dollars.

I could go on but there are very good reasons for the current crop of tech to stay in their place for a very long time. Yahoo, Netscape, Blockbuster, IBM etc all had very good reasons for being passed up. Yahoo and Netscape were not big enough to go around buying up competition, Blockbuster and IBM were not smart enough with their business CEO's to figure out how tech can replace them. The current tech CEO's can see that and adjust accordingly.

ChpBstrd

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #40 on: October 01, 2020, 11:27:24 AM »
There are a lot of replies but nobody has asked you what stock you have. Go ahead and tell us and that can give us more info as to the advice we give.

If it's something like AAPL, AMZN, FB, GOOGL, CRM, ADBE, and maybe a few others, you would probably be ok. Albeit with more volatility than an index fund. Those companies aren't ridiculously overpriced compared to their growth, dominance and future prospects. But you could still see your holdings drop by half in a bear market. It would make sense to sell a chunk each year and diversify. Bill Gates did this in the late 90s and that greatly helped cushion him for the next 10 years.

If you are in something like ZM, TSLA, SNOW, PTON etc, then yeah I'd advise you to diversify for sure before retiring. Those are hot stocks and could definitely go down by 80% whenever the tech bubble eventually pops.

The world could radically change over the next few decades in terms of tech and you think some tech giants of today are a safe bet??

Are they likely to grow dramatically bigger than they already are? IDK, but "no" is probable. If there's no major upside to miss out on, then what's the point of the risk of a very possible downside?

Who says Amazon and Apple are safe bets by the time millenials are seniors?? Think of the "safe bet" companies that failed over the past 30 years.

Google, Apple, Microsoft, Amazon, Facebook are the modern day Ford, GM and Chrysler. They are here to stay and will dominate for several generations before something better comes along. Itís a safe bet if youíre over the age of 30.

Of course, predicting the future 50 years from now is tough so as the facts change, my opinion may change as well.

Umm...okay.
Yeah, that's one quite plausible version of the future. I don't agree that it's as much of a given as you seem to think it is though.

Yahoo, IBM, Netscape, Wal-Mart, eBay, and the big 3 TV networks were also going to dominate for several generations as recently as one generation ago.

But then Yahoo was displaced by Google, IBM was displaced by Apple, Netscape was displaced by Microsoft, Wal-Mart and eBay were displaced by Amazon, and the TV networks were displaced by Facebook. Some of the old leaders survived, and some, like eBay, were index-beating investments.

I suspect we're moving beyond the era when name recognition was critical because people were typing URLs into browsers, and we're moving into an era of apps that people pick up, try, and drop within months. The network effects of Facebook and the economies of scale and scope enjoyed by Amazon are real factors keeping users on their platforms, but each of these moats have been overcome many times before. Look how fast TikTok rose out of nowhere.

I think the big tech companies have found a way to get big and stay big. IBM's problem was that it didn't innovate, nor have an engineer CEO to see where the industry was headed. Big tech today (Apple, Amazon, Netflix, Google, Facebook, Microsoft, Tesla) knows they have to innovate, tech is always changing and they have to change with it. When they can't change their core product enough to keep up, they just buy whoever is out-innovating them (they have the money to do this now, as they are the wealthiest companies in the world). They also know they have to install engineer-backgroud CEO's (Google, Microsoft, Apple-sorta). Business and finance CEO's won't cut it at a tech company anymore. Engineer CEO's know where the industry is going and move their company in that direction, or buy the companies going that direction.

Just look at the horrible purchases Steve Balmer made at Microsoft vs Nadella these days. Balmer bought Skype (not horrible, but not great either), Nokia, aQuantive, Yammer. Skype was ok but the rest have been duds, with Microsoft writing down their investment almost completely. Nadella changed Microsoft to a subscription business (huge), and announced on day one Microsoft was a cloud business and mobile first. Perfect. He embraced open source. He bought LinkedIn, Minecraft, GitHub, and now ZeniMax. None have been duds. And Microsoft, despite being 40 years old, is back on top and will not be getting replaced for a very, very long time. They are now #2 in cloud hosting which is going to serve them well for decades as everyone uses either AWS or Azure.

iPhone and iOS is not getting replaced anytime soon, Apple is fine as long as they don't install a business or finance CEO that screws it all up.

Google has the best AI engineers in the entire world and a ridiculous amount of data to train algorithms on, as long as they maintain that, anything AI will be better at Google than anywhere else. That's why their searches are the most accurate, OK Google gives the best responses vs Alexa or Siri, and why their AI is more accurate in it's predictions than other AI's.

Amazon has spent billions upon billions making their fulfillment network better than anyone else's. You think that can get replaced by anyone outside of WalMart? Hint - Walmart isn't going to be able to change their company culture enough to compete with Amazon. Amazon's fulfillment is set for decades, and AWS is industry standard, also set for decades. Can't be replaced without spending tens or even hundreds of billions of dollars.

I could go on but there are very good reasons for the current crop of tech to stay in their place for a very long time. Yahoo, Netscape, Blockbuster, IBM etc all had very good reasons for being passed up. Yahoo and Netscape were not big enough to go around buying up competition, Blockbuster and IBM were not smart enough with their business CEO's to figure out how tech can replace them. The current tech CEO's can see that and adjust accordingly.

Maybe so, but there are two additional factors at work, even within the paradigm just described:

1) Potential business CEOs often out-politic potential engineer CEOs for a reason. They can come in with a plausible-sounding plan to boost ROE or reduce taxes by doing things like larding up on debt or spinning off slow growing (but reliable income) parts of the business or buying growth from someone else. The board, who answer to investment funds looking only 2-6 quarters ahead, says sure and off they go, leaving in the dust anyone focused on product improvement or new ideas. This happens often enough to be a known process.

2) People with world-changing product visions could either earn an upper middle class salary while answering to clueless middle managers at an existing big tech firm, or they could found their own companies and be multi-millionaires within 2-3 years. This is why Mark Zuckerberg did not take an internship at MySpace, and Marc Benioff didnít apply for a developer gig at Oracle. This dynamic will always be present, so many revolutionary products will be impossible for an incumbent to create. In some cases, employees leave a company to start a competitor. The payoff is so much higher.

ericrugiero

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Re: Can you FIRE if most of your wealth is concentrated in one stock?
« Reply #41 on: October 01, 2020, 11:41:24 AM »
I think the big tech companies have found a way to get big and stay big. IBM's problem was that it didn't innovate, nor have an engineer CEO to see where the industry was headed. Big tech today (Apple, Amazon, Netflix, Google, Facebook, Microsoft, Tesla) knows they have to innovate, tech is always changing and they have to change with it. When they can't change their core product enough to keep up, they just buy whoever is out-innovating them (they have the money to do this now, as they are the wealthiest companies in the world). They also know they have to install engineer-backgroud CEO's (Google, Microsoft, Apple-sorta). Business and finance CEO's won't cut it at a tech company anymore. Engineer CEO's know where the industry is going and move their company in that direction, or buy the companies going that direction.

Just look at the horrible purchases Steve Balmer made at Microsoft vs Nadella these days. Balmer bought Skype (not horrible, but not great either), Nokia, aQuantive, Yammer. Skype was ok but the rest have been duds, with Microsoft writing down their investment almost completely. Nadella changed Microsoft to a subscription business (huge), and announced on day one Microsoft was a cloud business and mobile first. Perfect. He embraced open source. He bought LinkedIn, Minecraft, GitHub, and now ZeniMax. None have been duds. And Microsoft, despite being 40 years old, is back on top and will not be getting replaced for a very, very long time. They are now #2 in cloud hosting which is going to serve them well for decades as everyone uses either AWS or Azure.

iPhone and iOS is not getting replaced anytime soon, Apple is fine as long as they don't install a business or finance CEO that screws it all up.

Google has the best AI engineers in the entire world and a ridiculous amount of data to train algorithms on, as long as they maintain that, anything AI will be better at Google than anywhere else. That's why their searches are the most accurate, OK Google gives the best responses vs Alexa or Siri, and why their AI is more accurate in it's predictions than other AI's.

Amazon has spent billions upon billions making their fulfillment network better than anyone else's. You think that can get replaced by anyone outside of WalMart? Hint - Walmart isn't going to be able to change their company culture enough to compete with Amazon. Amazon's fulfillment is set for decades, and AWS is industry standard, also set for decades. Can't be replaced without spending tens or even hundreds of billions of dollars.

I could go on but there are very good reasons for the current crop of tech to stay in their place for a very long time. Yahoo, Netscape, Blockbuster, IBM etc all had very good reasons for being passed up. Yahoo and Netscape were not big enough to go around buying up competition, Blockbuster and IBM were not smart enough with their business CEO's to figure out how tech can replace them. The current tech CEO's can see that and adjust accordingly.

You are probably right in most or all of these cases.  But, you also have the benefit of 20/20 hindsight.  You can look back and see what caused these companies to fail in the past.  Did you accurately predict their failure 2 years before they lost their top spot?  It's a lot harder in real time. 

I haven't heard anyone predict that Apple, Facebook or Amazon is going to fail (or lose 90%) in the next couple years.  They probably won't drop significantly any time soon.  But, the odds of it happening to them are a lot higher than the odds of an index fund dropping the same amount.  Over a 20 year period the odds are even more in favor of index funds.