Half of client's Rs 1.2Cr is in direct stocks, including inherited shares and ESOPs: should they keep picking stocks myself?

Holding half your wealth in individually picked stocks, especially inherited shares and ESOPs, exposes you to severe company-specific risk that can take years to recover from.

If you are mostly holding blue chips, it helps to ask what makes you feel you can select them better than the large fund houses in this country, which have full teams doing this all day. Somehow people treat stocks as a different animal from a mutual fund, quietly exposing their overall wealth to a huge amount of single-company risk.

Almost every HNI portfolio I have studied shows some obsession with stock picking, yet I rarely get a complete answer from clients on why they hold what they hold. I have had clients who inherited a stock and simply did not want to sell it out of emotional attachment, but it is not really their job to pick stocks.

ESOPs add another layer of risk because your salary already depends on that company, meaning your income and your wealth are tied to the exact same fate. When a blue chip falls 40%, it may sound like a golden opportunity, but without proper rigour and a framework behind it, it is a hollow statement.

Also keep in mind that losses are not symmetric, as a one-third fall needs a 50% gain just to get back to where you started. Great stock pickers have patience that lasts decades and even generations, which is a temperament most of us simply do not possess.

If you are not sitting at a terminal for eight hours a day, you are probably not in the business of generating stock ideas, and frequent trading only creates tax liabilities that eat into wealth. A prudent rule of thumb many advisors use is that no single security should be more than about 10% of your total portfolio.

One may consider trimming the inherited and ESOP positions in stages, keeping an eye on capital gains tax in each financial year. If you enjoy markets, you could keep a small portion for direct stocks as a hobby while the core of your wealth sits in diversified, well-designed funds.

Based on Himanshu's podcast with Sachin: https://foliyo.ai/blog/investing-isnt-enough-managing-your-wealth/
Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.