Concentrated Risk

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Stone Creek Global’s stock loans offer tremendous security to borrowers, insiders, and investors by hedging their risks and allowing for the full benefit of appreciation in value. All stocks are susceptible to major dramatic moves at any time. The wise investor understands and minimizes the risk of losses.

Today, high inflation and slowing economic growth have contributed to stagflation worries. As of August 2022, the U.S. inflation rate has risen to 8.3%, above the central bank target of 2%. Yet unlike the last period of stagflation in the 1970s, unemployment—a key ingredient for stagflation—remains low.

The key markers of stagflation are weak growth, persistent inflation, and structural unemployment—meaning that high unemployment levels continue beyond a recession. In a stagflationary scenario, inflation expectations continue to rise each year. This can happen when inflation stays too high for too long, enough for expectations to shift across the economy. This was the case in the U.S. in the 1970s, until the Federal Reserve fought inflation with steep interest rate hikes.

The term stagflation is the combination of ‘stagnation’ and ‘inflation’. The primary causes include the expansion of the money supply feeding into higher inflation, as well as supply shocks, which can drag on economic growth.

During periods of stagflation, consumers spend more on items such as food and clothing, while earning less—reducing their purchasing power. Less purchasing power can eventually cause people to buy less, leading to falling corporate revenues, which can ripple across the economy. The stagflation of the 1970s saw inflation, as measured by the Consumer Price Index, increase from 1% to 14% between 1964 and 1980.

Price pressures, driven by skyrocketing energy prices in the 1970s, contributed to a sharp economic downturn. By 1980, unemployment reached 7.2%. In response, the Federal Reserve raised interest rates as high as 20% in 1981. Soon after, inflation sank to 5% by 1982 and unemployment levels improved. Inflation is the rise in the price of goods and services across the economy. Broadly speaking, low and stable inflation is associated with periods of economic growth and low unemployment. It can be driven by rising consumer demand.

The expectation of predictable inflation allows consumers and businesses to prepare for the future, in terms of both their purchases and investments. Over the 1990s and 2000s, the U.S. saw relatively low and stable inflation. Rapid global population growth, the absence of oil shocks, and expanding global trade contributed to falling costs across industries. Between 1990 and 2007, inflation averaged 2.1% compared to 8.0% during the 1970s as price pressures became less volatile.

Today, several central banks adhere to a 2% inflation target to ensure prices remain stable and predictable. Moving forward, let’s examine the importance of mitigating risks associated with concentrated stock positions. How De-risking & De-leveraging – Taking money off the table – Transferring risk to SCG can allow for reallocation of securities into other asset classes.

★ Let’s Discuss Risk Mitigation ★

Taking Money Off The Table – Transferring The Risk To SCG


Will Your Company Stock Survive A Stock Market Crash?

Stock market crashes are only clearly identifiable in hindsight, but many investors have worried about a crash in 2022. Throughout the year, the markets have been experiencing extreme volatility over concerns about rising inflation, interest rates and global geopolitical uncertainty.

While investors found some relief mid-summer, by the end of August, worries of a sustained downturn resumed, as the S&P 500 and Dow both fell more than 4%. Higher-than-expected inflation numbers and fears of sharp interest rate increases to curtail inflation caused another downturn Sept. 13.

The Dow fell more than 3.5% that day, the S&P 500 fell more than 4%, and the tech-heavy NASDAQ-100 index fell more than 5.5%. Markets continued to drift downward for several more days. Although history can tell us how long crashes, stock market corrections and bear markets typically last, no one gets a calendar notice announcing the time, nature and projected magnitude of future dips.

Warren Edward Buffett is an American business magnate, investor, and philanthropist. He is currently the chairman and CEO of Berkshire Hathaway. He is one of the most successful investors in the world and has a net worth of over $95 billion as of October 2022, making him the world’s sixth-wealthiest person.

Buffett was born in Omaha, Nebraska. He developed an interest in business and investing in his youth, eventually entering the Wharton School of the University of Pennsylvania in 1947 before transferring to and graduating from the University of Nebraska at 19.

He went on to graduate from Columbia Business School, where he molded his investment philosophy around the concept of value investing pioneered by Benjamin Graham. He attended New York Institute of Finance to focus his economics background and soon after began various business partnerships, including one with Graham. He created Buffett Partnership, Ltd in 1956 and his firm eventually acquired a textile manufacturing firm called Berkshire Hathaway, assuming its name to create a diversified holding company.

In 1978, Charlie Munger joined Buffett as vice-chairman. Buffett has been the chairman and largest shareholder of Berkshire Hathaway since 1970. He has been referred to as the “Oracle” or “Sage” of Omaha by global media. He is noted for his adherence to value investing, and his personal frugality despite his immense wealth.

Buffett is a philanthropist, having pledged to give away 99 percent of his fortune to philanthropic causes, primarily via the Bill & Melinda Gates Foundation. He founded The Giving Pledge in 2010 with Bill Gates, whereby billionaires pledge to give away at least half of their fortunes

★ Concentrated Risk ★

Warren Buffett’s Berkshire Reports $44B Loss As Value of Investments Falls

Warren Buffett – Berkshire Hathaway

Updated on August 7, 2022 3:03am EDT


Shares in Berkshire’s holdings such as Apple, American Express and Bank of America all fell, but rebounded in the current quarter

Warren Buffett’s Berkshire Hathaway reported a $43.76 billion loss in the second quarter as the value of the company’s investments plummeted, in what was a tumultuous quarter for the markets.

Berkshire said Saturday that a largely unrealized $53 billion decline in the value of its investments forced it to report a loss of nearly $44 billion, or $29,754 per Class A share. That is down from $28.1 billion, or $18,488 per Class A share, a year ago.

Buffett has long said he believes Berkshire’s operating earnings are a better measure of the company’s performance because they exclude investment gains and losses, which can vary widely quarter to quarter.

By that measure, Berkshire’s earnings were up significantly to $9.28 billion, or $6,312.49 per Class A share from last year’s $6.69 billion, or $4,399.92 per Class A share.


If It Happened to Warren Buffett’s Berkshire Hathaway

It Can Happen To Anyone!

Analysts covering Berkshire expected the company to report operating earnings per Class A share of $4,741.64. Berkshire said its revenue grew more than 10% to $76.2 billion in the quarter as many of its businesses increased prices. Berkshire’s many companies still performed well, suggesting the overall economy is weathering the pressure from inflation and rising interest rates.

It was a rough quarter for shares of three of Berkshire’s biggest investments — Apple, American Express and Bank of America.

They all fell significantly during the second quarter, but rebounded during the third quarter, boosting the value of Berkshire’s portfolio since the end of the quarter.

Besides investments, Berkshire owns more than 90 companies outright. Berkshire said operating profits were up at all of its major units, including its insurance companies, major utilities and BNSF railroad. 

Berkshire did report a $487 million pretax underwriting loss at Geico, which reported bigger auto claims losses because of the soaring value of vehicles and ongoing shortages of car parts.

Berkshire is often seen as a microcosm of the broader economy because its collection of manufacturing, retail, insurance, utility and service businesses touches so many different industries, and Berkshire’s profits tend to follow whatever the economy is doing. 

Berkshire said it was sitting on $105.4 billion cash at the end of the quarter, which was little changed from the $106 billion it reported at the end of the first quarter. 

Let’s Examine Warren Buffett’s Berkshire Hathaway Report Above

Berkshire said on Saturday, August 6, the drop in global financial markets had weighed heavily on its stock portfolio which fell in value to $328bn, from $391bn at the end of March.

The company’s filing with US securities regulators showed its purchases of new stocks dwindled to about $6.2bn in the quarter, down from the $51.1bn it spent between January and March. Berkshire also spent $1bn buying back its own shares in June.

A $3 Trillion Loss: Big Tech’s Horrible Year is Getting Worse

Apple, Amazon, Alphabet, Meta, and Microsoft 

Oct. 28, 2022 

Big Tech companies are taking a heavy beating this week, to the tune of more than $255 billion in lost market capitalization that’s helped make a bad year even worse for the once-beloved sector. 

The five tech giants that posted results this week have now lost a combined $3 trillion in market cap on the year, according to Dow Jones Market Data, showing that Big Tech isn’t immune to the macroeconomic storm sweeping up the broader stock market. 

It’s worth asking at this point following the internet stock’s near-record Thursday plunge according to Dow Jones Market Data. That’s leads us to the most obvious. 

Could there be any value in evaluating a non-recourse stock loan for mitigating risks on a concentrated position? Do you feel your company is recession proof? Is it possible it can happen to you? 

Facebook’s $232 Billion Fall Sets Record For The Largest

One-Day Value Drop In Stock Market History

Facebook Parent Meta Lost More Than $232 Billion In Value Thursday.

That’s the biggest one-day drop in value in the history of the U.S. stock market. Meta’s plunge, based on a weaker-than expected revenue forecast, topped the prior record set by Apple, when it lost $182 billion in market value in September 2020.

PUBLISHED THU, FEB 3, 2022, 4:28 PM EST – UPDATED FRI, FEB 4, 2022, 8:03 AM EST

The seven biggest drops in stock market history have all occurred in the last two years, as Apple, Microsoft, Tesla and Amazon have ballooned in valuation. Prior to 2020, the largest drop was from Facebook — a $119 billion decline in 2018. That also occurred after Facebook forecast revenue below analyst estimates.

Meta’s drop in value comes as the company is looking past its current businesses, such as Facebook, Instagram and WhatsApp, and toward the metaverse, a virtual world based on new technology. Chief Executive Officer Mark Zuckerberg announced Wednesday Meta had a net loss of $10 billion in 2021 attributable to Meta’s investment in the metaverse.


Meta’s drop in value comes as the company is looking past its current businesses, such as Facebook, Instagram and WhatsApp, and toward the metaverse, a virtual world based on new technology. Chief Executive Officer Mark Zuckerberg announced Wednesday Meta had a net loss of $10 billion in 2021 attributable to Meta’s investment in the metaverse.

★ Moderna Stock Crash ★

Losses Top $140B – Insiders Sell Millions Of Dollars In Shares

BREAKING NEWS | Feb 14, 2022,04:45 pm EST

TOPLINE | Shares of Moderna plummeted Monday as Covid-19 vaccine-makers led a turbulent market decline, pushing the stock to its lowest level in nearly a year after disappointing study results and a slew of sales from the firm’s top executives added to concerns that have made one of last year’s top-performing stocks crash more than 70%.

KEY FACTS | Moderna stock fell as much as 13% on Monday to a 10-month low of less than $140, pushing shares down more than 30% over the past month amid a sell-off largely centered on technology and healthcare firms that skyrocketed in value during the pandemic. The rout has been particularly bad for Covid-19-related stocks in recent weeks, says Bank of America analyst Geoff Meacham, who points out pharmaceutical giant Pfizer, down 2% Monday, has also been caught in the mix despite the promise of its Covid antiviral pill after it warned in its fourth-quarter earnings report that vaccine sales will decelerate this year. Moderna’s recent losses also follow a slew of regulatory filings released Friday evening which showed four Moderna executives—including billionaire CEO Stéphane Bancel—sold a combined 23,281 shares for about $3.6 million last week.

SURPRISING FACT | Monday’s worst-performing stock in the S&P 500, Moderna has plunged 72% from an all-time closing high of $484 on August 9, wiping out more than $140 billion from the firm’s market capitalization, which now stands at less than $57 billion.

BIG NUMBER | $4.6 billion. That’s how much Bancel, who joined the firm in 2011 and was at one point worth more than $12 billion, is worth Monday after shedding some $660 million during the one-day stock plunge, according to Forbes. Even after his pandemic share sales, the French native owns a nearly 8% stake in Moderna, including exercisable options


When owning a concentrated holding, the primary risk is a major and permanent loss of capital. But offsetting this risk is complex, due to issues ranging from the psychological challenge of selling a “winner” and potential family connections to a company to potential regulatory constraints and the ever-present tax consequences.

Fear of missing future appreciation: Behavioral finance experts have identified the fear of regret as a strong impulse among investors and even stronger than the satisfaction of making a profitable investment. This psychological bias may help explain why many investors put off selling concentrated positions, which requires forfeiting the opportunity to benefit from future appreciation, despite compelling reasons to diversify their holdings.

1. Negative Market Impact

For low-volume traded stocks, the sale of a large position could put downward pressure on the price of the stock, thus reducing the value of the seller’s proceeds.


2. Psychological Stress

Often, an investor’s loyalty to the company may make it difficult to part with a stock that has generated significant wealth for the investor. This attachment is particularly strong when the investor founded or helped build the company. Children and grandchildren may feel it would be inconsistent with the family legacy to divest stock of a company that is so closely tied to the family’s identity.

3. Public Perception

Officers and directors of public companies and anyone owning more than 5-10% of a public company’s stock are required to report their holdings and transactions involving the stocks. When senior executives announce plans to sell their shares in a company, the stock market may perceive this as a bearish signal for the company’s prospects, and the stock price may drop.

4. SEC Restrictions

The Securities and Exchange Commission places significant restrictions on the sale of securities owned by corporate insiders, such as senior executives and directors, as well as those who may have received securities in a transaction that did not involve a public offering. Although there are numerous restrictions on the sale of these “Restricted” and “Control” securities, there are exemptions that permit these securities to be sold under certain circumstances (Rules 144/145).

5. Investing in What You Know

Many corporate executives hold onto large positions of company stock because they feel comfortable investing in a company and industry they know intimately. Outside investors may feel similarly, having gained extensive knowledge of the firm’s management and business model through years of owning the stock. That said, regardless of how well an investor understands the company, unpredictable macroeconomic events beyond the company’s control can negatively impact the stock price.

6. Tax Consequences

Selling a large position of highly appreciated stock creates a significant tax liabilities.


Local Banks & Financial Institutions Provide SBLOC Recourse Loans

Leveraging Severe Cross-Collateralization Covenants


✅ Corporate & Personal Liquidity Needs
✅ Concentrated Stock Positions
✅ Disruption of Balance Sheets
✅ Negative Impact On Market
✅ Public Perception
✅ SEC Restrictions
✅ Taxes

Whether the stock is received through executive compensation, inheritance, or opportune investing, large positions of individual securities have created tremendous wealth for countless investors. However, with the opportunity for growth in concentrated holdings, so too come significant risks.

Provided below is a short-list of highly notable benefits for solving client problems while leveraging SCG’s industry-leading non-recourse, no cross collateralization & non-title transfer stock loan program (including title-transfer stock loans which can fund in a minimum of three business days).

✅ Borrower immediately taps into money and liquidity for corporate & personal needs
✅ Borrower shifts all downside risk on concentrated stock positions to SCG, unlock their assets by taking money off the table
✅ Borrower eliminates disrupting balance sheets leveraging non-recourse stock loans in a private & secured transaction
✅ Borrowers eliminates any negative impact on the market
✅ Borrower diffuses any/all negative public perception
✅ Borrowers eliminate public disclosure on non-recourse, no cross-collateralization and private transactions
✅ Borrower unlocks assets without creating major tax consequences