His desire for income in retirement would be feasible, but his high concentration of net worth in a single equity was financially precarious. Assuming a five percent withdrawal rate, his yearly income potentially could reach $125,000. However, when faced with selling his company stock, Mr. Brown experienced a high degree of anxiety. He was apprehensive about selling the very stock that would enable him to retire early. He also was concerned about the potentioal tax consequences of such a sale.

        The benefit of portfolio diversification should alleviate the anxiety of selling company stock, but the phenomenon of not wanting to sell is known as the "endowment effect". This states that people tent to place values on personal possessions far higher than the true market value. A classic example of this is when you sell your home. While a house is a financial investment, for most of us it also has an emotional attachment. The memories of our child's first step or when they leave the nest for college have no economic worth, but to you, they are priceless. When homeowner's price their home, they irrationally faxtor these sentiments into the price. A homebuyer beings no emotional baggage to the bargaining table and naturally discounts the asking price.

        Human nature is naturally predisposed to optismism. For example, imagine you are presenting investors with the opportunity to invest in a bitoech company that markets a drug allowing 50% of patients who take it to survive an otherwise fatal disease. You will find fewer takers if the scenario is framed with 50 out of 100 patients dying of the given disease. If you insist that out of 100 sick patients, half will survive, you will get better results.

        To help with the decision, a positive frame of thinking is helpful. Instead of thinking that a diversified portfolio has less risk, think in terms of a diversified portfolio being more likely to succeed with your goals. It also is realistic to imagine the value of the stock at a dramatically lower market price. What is at stake if the stock is held and the price drops? Is it merely an inability to own a luxury automobile or would it threaten an early retirement?

       For every decision we make, there is an "opportunity cost" involved. In Mr. Brown's case, the opportunity cost of selling is the potential price appreciation of the company stock. However, the opportunity cost of holding the stock could be Mr. Brown's retirement.