Imagine being the typical SpaceX employee over the last few months. Your shares IPO at $135 and within a few days they peak at $225/share (up 67%) before they begin to decline. As of this morning they sit at around $139, or about 3% above the IPO price. Given this, what percentage of your shares would you sell once your lock-up ends?
This question isn’t just relevant to SpaceX employees, but to anyone who’s ever held a concentrated position in an individual stock. After all, do you hold on in hopes of future growth? Or do you get out in case things get worse?
The research related to IPOs is crystal clear—IPO shares are likely to underperform the rest of the market (after adjusting for firm size). Jay R. Ritter looked at over 9,200 IPOs from 1980-2024 and found that, during their first year, IPO firms underperformed similar-sized public companies (“size-matched firms”) by 5.8%.
Table 20-1 (from his IPO findings) highlights how most of this underperformance occurs in the 6 months following the end of the share lock-up (or the “Second six months” after the IPO):
You can see a similar story when you compare SpaceX’s returns (up through July 22, 2026) to the average performance of the top 10 IPOs (by size) since 1999 (chart from Exhibit A):
This underperformance relative to the market isn’t just true for IPOs either. In his paper Underperformance of Concentrated Stock Positions, Antti Petajisto, from Brooklyn Investment Group, found the same thing was true for individual stocks. As he concluded:
Since 1926, the median ten-year return on individual U.S. stocks relative to the broad equity market is –7.9%, underperforming by 0.82% per year.
This means that if you picked a stock at random, we would expect it to underperform the overall market by about 0.82% per year. Note that the aggregate return of all stocks must equal the market’s return, so the average underperformance should be 0% per year. But this is only true because a small number of huge winners bring up the average. As Hendrik Bessembinder stated in his paper Do Stocks Outperform Treasury Bills? (emphasis mine):
When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills.
With this context, how should one go about exiting a concentrated position? What options are out there? Let’s dig in.
How to Exit a Concentrated Position
When it comes to exiting a concentrated stock position, below are some options at your disposal.
Sell Everything (Wealth Maximization)
Based on the research above, the wealth-maximizing strategy is to sell all of your concentrated position immediately. Statistically, selling everything and moving it all into a broad market index fund would outperform holding on the vast majority of the time.
While this strategy maximizes your median wealth (or the middle outcome across all the ways the future could unfold), many still won’t choose it. Why? Because of two things—taxes and regret. Let’s look at each now.
Sell a Chunk, Then Tranches (Tax Optimal)
While selling everything now is the simplest and lowest-risk approach, technically you could end up with more wealth if you optimize for your taxes. For example, imagine you have a single stock position with a $1M capital gain. If you sold it all now, you’d have to pay taxes on the full $1M. But there’s a better way! You could sell a large chunk now ($700k) and then sell the rest in tranches ($100k) over the next few years to reduce your total tax burden.
Of course, the devil is in the details. How you decide to do this will depend on the size of your position and your tax situation (e.g., married/single, high income/low income, etc.). While this approach is riskier than selling everything immediately, it’s possible to generate more total wealth with proper tax planning.
Sell Based on Tax Losses (Tax Deferral)
Another tax-friendly approach to exiting a concentrated position is to only sell based on tax losses that you generate. Direct indexing providers have the ability to generate losses in your portfolio that can be used to offset the gains in large, concentrated positions. This will allow you to sell down your concentrated positions (in a tax-deferred way) while diversifying your portfolio.
This approach won’t work for all investors in all market environments. Once again, the devil is in the details. Nevertheless, it’s something you should consider if you want to exit a large single stock position while minimizing your taxes.
Sell Half (Naive Regret Minimization)
Putting taxes aside, sometimes the best approach for getting out of a concentrated position is the simplest—sell half. This comes from what Harry Markowitz, the father of modern portfolio theory, told Jason Zweig in an interview:
I visualized my grief if the stock market went way up and I wasn’t in it — or if it went way down and I was completely in it. My intention was to minimize my future regret…So I split my contributions 50/50 between bonds and equities.
This 50/50 approach can be generalized such that you sell half of your position and let the rest ride. While this isn’t likely to maximize wealth, it is a naive approach to regret minimization whether the single stock soars or falters.
Sell Based on a Schedule (Pre-Commitment)
In addition to selling a specific amount once, you can also pre-commit to sell based on a specific schedule. Maybe you sell 50% now and then 10% each year over the next five years.
Committing to a predetermined schedule takes the emotions out of selling so that you can make your decisions based on logic rather than whatever the stock happens to be doing.
Sell to a Wealth Level (Lifestyle Floor)
Lastly, my favorite way to approach this problem is to sell up to a given wealth level to lock in a certain lifestyle, then let the rest ride. As a reminder, below are the wealth levels (household net worth) from The Wealth Ladder:
- Level 1 (<$10k)
- Level 2 ($10k-$100k)
- Level 3 ($100k-$1M)
- Level 4 ($1M-$10M)
- Level 5 ($10M-$100M)
- Level 6 ($100M+)
I like these wealth levels because they map nicely onto different spending freedoms, or lifestyle floors:
- Level 1. Paycheck-to-paycheck (<$10k): You are conscious of every dollar you spend. This includes people with crippling debt.
- Level 2. Grocery freedom ($10k–$100k): You can buy what you want at the grocery store without worrying about your finances.
- Level 3. Restaurant freedom ($100k–$1M): You can eat what you want at restaurants.
- Level 4. Travel freedom ($1M–$10M): You travel when and where you want.
- Level 5. House freedom ($10M–$100M): You can afford your dream home with little impact on your overall finances.
- Level 6. Impact freedom ($100M+): You can use money to have a profound impact on the lives of others (e.g., buy businesses, engage in large-scale philanthropy, etc.)
So, if you found yourself with $5M in a single stock (and nothing else), you could sell $3M (and diversify) to solidify your position in Level 4 ($1M-$10M) and keep the remaining $2M invested as a moonshot. While this won’t maximize your median wealth, it may be your only way to make it to Level 5 ($10M-$100M) and beyond.
I like this approach because it recognizes that the difference between $4M and $5M is far smaller than the difference between $0 and $1M, despite them both being $1M apart. As a result, the extra $1M-$2M in Level 4 isn’t as life changing as the possibility of an additional $10M to get you into Level 5.
Now that we’ve looked at some different ways to exit a concentrated position, let’s revisit our typical SpaceX employee to see how they could approach this problem.
How Much SpaceX Equity Should You Sell (As an Employee)?
Before we can figure out how much equity the typical SpaceX employee should sell, we need to know how much money they have in SpaceX in the first place. Though we don’t have this data, the New York Times recently provided some insight into the distribution of equity among SpaceX employees:
More than 4,400 current and former SpaceX employees are likely to become millionaires in the I.P.O., according to an analysis by Hill.com, a San Francisco-based investment platform. Of those, about 400 are expected to earn $100 million or more.
Given that SpaceX has 22,000 employees and we know the distribution of equity is skewed to the right tail (i.e., some employees have much more than others), we can estimate what the typical employee has.
If we assume a Pareto distribution based on the NY Times data, the answer comes out to around $100k (assuming the initial IPO price of $135). You can see this simulated distribution of equity among SpaceX employees below:
Assuming this is roughly accurate, the typical SpaceX employee saw their equity peak at around $167k in the first few days of trading before dropping back to around $103k today.
So what should the typical SpaceX employee do with their $103k once the lock-up ends?
Let’s run through each of the options above. The tax strategies don’t make sense at this size. Most SpaceX employees have their lower federal brackets filled up by their salary and the tax savings of spreading out $103k over multiple years will be small in absolute terms.
The wealth level approach could make sense here if you are in Level 1 (<$10k) and want to lock into Level 2 ($10k-$100k) while hoping for a shot at Level 3 ($100k-$1M). My gut tells me this isn’t the case for the typical SpaceX employee, who is very likely already in Level 3 ($100k-$1M) or higher. Additionally, if you consider SpaceX’s already high valuation (>$1T), it seems unlikely that it goes up 10x (or more) from here.
Therefore, the most reasonable approach for the typical SpaceX employee is to sell almost all of it and diversify. It’s probably not life-changing money for the typical SpaceX employee anyway, but selling a good chunk of it down still helps.
Unless you have significantly more equity than the $103k modeled here, any other strategy is likely to make you worse off. This is especially true during the post-lock-up phase, which is the period with the worst relative performance (historically).
In reality, most of you are not SpaceX employees. But if you hold RSUs or a big winner in your taxable account, the same logic applies. You should spend the time to figure out what selling could lock in for you as well as what holding on could allow you to reach.
Most of the time, this exercise will tell you to sell more than you’d like. You won’t get filthy rich by doing so, but you’ll never be poor either.
Happy investing and thank you for reading.
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This is post 515. Any code I have related to this post can be found here with the same numbering: https://github.com/nmaggiulli/of-dollars-and-data
