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Common Investment Mistake: Concentration Risk

By Paul J. Carroll, CFP®October 16, 2023February 6th, 2024Videos


Last week I came back from a great vacation to Greece, and of course, I always leave with a reading list. And in that list was an interesting book called The Missing Billionaires by Victor Haghani. I learned some very interesting lessons that I want to share with you.

I read prolifically, and I’ve gotten to the point now, I can get into the beginning of a book and decide quickly that there is no more intel for me. But Victor Haghani, who I’d never heard of, actually possesses quite the resume. He’s a superstar trader with enormous success and also some pretty big failures. He was at Long-Term Capital Management when they had their spectacular wipe out in 1998, where they wiped out something like 90% of the value of the fund overnight.

So Victor learned a few things, and I found it just a fascinating lesson. The crux of “The Missing Billionaires” isn’t about what you should invest in, but rather how much you should allocate. He talks extensively about the human heuristics and the behavioral factors that cause people to take unnecessary risks, even when not taking those risks makes more sense. One of his fundamental recommendations is to define rules for spending, saving, and allocation to investments. It makes a lot of sense. I mean, who hasn’t heard the advice to save 10% of your income every year?

More importantly, though, is to not expose more than X percent of your wealth to any specific investment. We see this all the time, especially with people with an enormous amount of company stock from their employer. Maybe they’ve seen the investment that you can’t lose. Well, if you couldn’t lose, it wouldn’t be paying what it’s promising to pay. That’s rule one with investing, but limiting your exposure to each and every opportunity that comes your way will cause you to suffer much less regret than you would otherwise. His book’s a good read. It’s a bit of a dense read, so you can treat this as the synopsis, but it very much reiterates our investment philosophy here at Avion. Contact us to learn more.

We wish you the best of investing success. Thank you.



Founder & CEO at Avion Wealth

Paul is the founder and CEO of Avion Wealth, LLC. He leads a team of wealth managers in building and executing financial plans for high net worth individuals and families. Contact Avion Wealth to speak with a financial advisor.