Author Topic: Company stock and FOMO  (Read 576 times)

appleshampooid

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Company stock and FOMO
« on: August 02, 2018, 06:52:53 AM »
After one year at my employer (coming up this fall) I will start to receive RSUs. This is the 3rd company I've been with where I have received equity. I am aware of the standard advice (common among MMM but also elsewhere) that it's not good to hold too much company stock, or any at all given a few factors. Concentration of risk being one (if the company hits rough times, your stock will go down and you are also at risk of being laid off). Also the adage of "if you had been given a cash bonus, would you immediately buy your company's stock?"

But the first company I worked at was Amazon (was employed there form 2006-2010). I followed the "standard" advice and as a result sold ~900 shares of AMZN between 2007-2010 for prices between $40-$117 (rough estimates). I ran the exact numbers a couple years ago and the shares would have been worth about $600K at that point. Now it's well over a million. This is not counting my 401k match which was paid in AMZN stock and I transferred into my regular asset allocation in the account periodically.

It makes me sick thinking about it - I could probably be retired now if I had held on to the stock, but of course hindsight is 20/20. It could have easily gone the other direction, in fact I sold a bunch of my 2nd employer's stock around $10-$12/share and they are now in the $2-$3 range (not even close to as much money in this case though).

So now I'm faced with what to do at my current employer. I'm thinking I might keep 25% of the after-tax shares delivered to me and sell the rest. I still believe the rational decision is to sell all and invest in index funds, but keeping that small amount will quell my FOMO. If the stock goes up 50x like Amazon has done since 2006, I'll make enough gains that I'll be tremendously happy. And if the company and stock both tank, the amount lost won't be so much to keep me up at night.

As a last aside, if you followed my plan, would you include the company stock in your domestic equity slice for asset allocation, or consider it a separate pool than your index fund percentages?

sokoloff

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Re: Company stock and FOMO
« Reply #1 on: August 02, 2018, 07:22:23 AM »
I also hold shares in my company's stock against conventional wisdom, so you're not alone.

Your 25% plan seems reasonable to me.

You should absolutely consider it part of your asset allocation, IMO.

Car Jack

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Re: Company stock and FOMO
« Reply #2 on: August 02, 2018, 07:31:31 AM »
Be careful that you're not looking at a specific leaf on a tree in the forest.  That leaf has grown from nothing into something so big that it could shade your whole family.  But there could be a forest fire all around you and other leaves are burning up to nothing.

Sure.....I could talk about owning Tesla at $1.  I could tell you about my son and his nerdy friend mining bitcoin when it first appeared, then with 1 bitcoin in their wallet, they managed to forget their password, then forgot which hard drive the wallet was on when they rebuilt the machine.

I'll tell you the other side.  I had SMTC as options shortly after they had hit a high of $140.  They became vested at $13 when the stock had dove, then come up to $38.  I sold them all.  Friends' of mine at the company called me crazy and held on, saying it would go back up to $140.  It didn't.  All my friends were laid off and their options expired under water.  That was about 15 years ago.

I worked for Fairchild and unknowingly bought in on their ESPP plan.  $48 buy price.  After leaving the company, I discovered I had these shares (I didn't think I'd qualify until the next buying period).  The level when I discovered I had these shares?  $12.

This happens.  My current employer gives me RSUs that vest 4 times a year.  I'm set up with eTrade to with hold shares for taxes, but otherwise sell on vest.  Sure....I could hold them a couple days as they'd go up a bit...most likely.  But I want guaranteed gains.  Not chances for losses.  I hold zero shares of my company stock.

neil

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Re: Company stock and FOMO
« Reply #3 on: August 02, 2018, 12:50:29 PM »
Would you really hold AMZN since 2010?  If you project back, you'd start to see some pretty hefty paper losses at times in a company that is not guided by profits.  What size of your portfolio?  Sure, it's a great company, but I'm fine holding my roughly 2% or so via index funds and no more. 

I always have RSUs and as they only vest 25% at a time.  Yes, they are worthless if I leave, but on paper they are still around 10% of my portfolio (and MUCH larger in the past) so I already participate significantly.  At some point, I had near 20% in company stock and while the dividend growth was fun to watch, I started realizing this is not a good idea as I watched the ticker prices a lot.  I spent three years unwinding it to minimize tax bracket growth.  Of course, after I did this the stock had a good year relative to the market, but I am much happier where I am now.

RSUs have no special tax advantage because you pay ordinary income tax immediately upon vest.  It might as well be a bonus check with a post-it recommending to buy company shares.  Would you do that with your regular paycheck?  (If so, then fine - but I'd still prefer my own entry points if I were an active investor.)

appleshampooid

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Re: Company stock and FOMO
« Reply #4 on: August 02, 2018, 02:10:41 PM »
Would you really hold AMZN since 2010?  If you project back, you'd start to see some pretty hefty paper losses at times in a company that is not guided by profits.
I don't know about hefty losses. From 2010-now AMZN hasn't gone below the price in 2010 (rough numbers here): https://yhoo.it/2O750jQ
If I do keep shares of my current company, the plan will be to hold them long term and consider them part of my retirement portfolio. Especially if they go way up, selling while I still have a high wage income will incur capital gains taxes - long term rates sure, but the end game would be to sell the shares during retirement, when I have no wage income and not pay any taxes on the gains.

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What size of your portfolio?  Sure, it's a great company, but I'm fine holding my roughly 2% or so via index funds and no more.
Thinking again to the future, since the past is done, if I followed my current plan and kept 25% of my post-tax shares, my first grant would mean about 1.5% of my portfolio would then be in company stock (ignoring, of course, the amount included in my index funds). I feel like that's not too crazygonuts. If I look at my entire grant (which vests over 5 years), 25% of the after-tax proceeds would be about 7.6% of my current portfolio. But of course my portfolio will grow in those intervening years as well. I can always decide to sell all of future grants if I feel like I have enough exposure.

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RSUs have no special tax advantage because you pay ordinary income tax immediately upon vest.  It might as well be a bonus check with a post-it recommending to buy company shares.  Would you do that with your regular paycheck?  (If so, then fine - but I'd still prefer my own entry points if I were an active investor.)
Of course, that's the conventional wisdom (that I laid out in my initial post). You guys are doing a good job trying to talk me out of it. I think I will probably stick to keeping 25%. Don't want to miss out...

neil

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Re: Company stock and FOMO
« Reply #5 on: August 02, 2018, 03:09:17 PM »
Not necessarily losses, but you'll remember the highs.  For instance, $500K in 2014 would see a dip on the order of -$75K at various points in a year when the market is up.  You're not on the inside anymore, and you might go out of your way trying to understand what is going on.  Or, even when it was up big and blowing through all time highs, you might keep feeling it can't grow any more.  The shorts will have very convincing arguments.  Every person in the US (and probably most countries) could have sunk their net worth in Amazon (or Apple, or whatever) in 2007 and held through to today with massive net worths.  Most didn't.  I certainly didn't. 

Over the last decade, I've also been fed a lot of kool-aid.  Any advantage you gain as an insider is diminished by the propaganda and cheerleading I am exposed to on practically a daily basis.  Megacorps pay a lot for good marketing folks and have every incentive to direct that at employees.  It's the CEO's job to tell you the corporate direction is right and the future is great.  Doesn't mean it will be.  It's tough to have a fair opinion, especially when corporate failure can also feel like personal failure as a contributor.

I only try to make the point that your employment record isn't a reasonable criteria for investment selection.  There's no significant barrier to entry that your corporate overload vanquishes through their stock compensation programs, especially if you already have investment accounts set up.  At the same time, it's not going to be a disaster to own a bit either.  You just don't want to be in a situation where one entity can create a huge shift in your portfolio, and your FOMO shifts along with it.  Develop a plan that you can stick to and accept the consequences.

chasesfish

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Re: Company stock and FOMO
« Reply #6 on: August 03, 2018, 06:03:31 AM »
I'm on the opposite side of this argument, I receive RSUs and unload that stuff immediately and put it in an index fund.  I've far exceeded my company returns.  Its actually pretty sad, we have plenty of people working well into their 60s due to a concentrated portfolio of a stock that's not gone up more than the rate of inflation then pays a paltry 2.5% dividend.

I also worked for a boss who was with Regions Bank for 20+ years and he had a huge concentration position in the company stock from all his RSUs.  The company got into trouble and had to issue a TON of stock.  The price today is $19 and it was $37 ten years ago.  It cost him his retirement home at the time.

The one case for holding company stock:  You may have better insight than the market, especially if you work for a smaller company.

As for your specific question, pick an allocation that you're okay with being concentrated in a stock.  For some people that's 5%, for others its 10% or 20%.   Personally I've only hit a 10% concentration, and that was after Costco stock went on a rampage from $80 to $160 from 2012 to the end of 2015 (it followed that by doing nothing for two years before going off and running this year).  I'm now 80%+ mutual funds.

Its all about the concentration risk, pick how much you're okay with as part of an investment policy, then stick with it.


talltexan

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Re: Company stock and FOMO
« Reply #7 on: August 03, 2018, 08:15:29 AM »
I wrote a short essay for some younger co-workers attempting to persuade them to buy into the stock of our particular company, which is a public utility with a very low beta. While Amazon has had a very nice return, seeking alpha computes a beta for them of 1.2 over the last 60 months, essentially indicating that they would do little to hedge against periods of market drops. There may be a case for adding a risky asset (as would be any individual stock) to your portfolio if it reduces aggregate risk, but I cannot see how Amazon would do this.

appleshampooid

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Re: Company stock and FOMO
« Reply #8 on: August 03, 2018, 09:49:21 AM »
As for your specific question, pick an allocation that you're okay with being concentrated in a stock.  For some people that's 5%, for others its 10% or 20%.
...
Its all about the concentration risk, pick how much you're okay with as part of an investment policy, then stick with it.

Develop a plan that you can stick to and accept the consequences.
Thanks folks for the measured responses. I definitely expected trying to be talked out of holding any. That being said, the advice to come up with a plan and stick to it is good. I will probably stick to my plan of keeping 25% of the shares I receive, with a max of 5% of my investment portfolio. Anything more than that is way too much concentration, and shouldn't happen anyway unless the broader market tanks and our shares don't.

FWIW my company hasn't turned a profit since founding in 2002. But we have had tremendous revenue growth over that time, and plowed all revenues back into development in addition to raising new capital. It's the Amazon model for sure, but we don't have an AWS in the wings to float our core business. So I'm skeptical as hell, but I'm not a business guy. I'm an engineer so my inclination is to say "HOLY SHIT let's spend a little bit less on commercials and try to turn a profit," but maybe without the marketing blitz, we wouldn't have the revenue growth. Most experts say we won't turn a profit for another 1-2 years at minimum, so the price is all driven by speculation of future dominance in the sector.

I don't think I have any magic insight being on the inside. It's a big company, so I only see my tiny part. That part is run by smart, competent people as far as I can tell.

I know I'm making a great case for holding some of the stock, hah.

PaulMaxime

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Re: Company stock and FOMO
« Reply #9 on: August 03, 2018, 09:52:02 AM »
I'm probably more of a risk taker than many on these boards. I don't necessarily believe in just reducing risk for example. I also invest largely in individual stocks rather than index funds.

Think about your company. If you believe in them and they are doing well, holding some of the shares might be good. Just don't go all-in.

I still hold some small amount of the stock in my last company now though I generally sold most of it as it vested. It's worked out well for me.

My current company is a high-growth pre-IPO startup. Earlier this year we were able to sell a portion of our equity to outside investors. I sold every share they would let me sell. But at the same time I took some of that cash to exercise and hold a small percentage of my vested options. The downside to me is small but the upside could be large.

I'd say your plan is reasonable - if you are willing to risk that 25% on your current company and you see that there is a path to a large upside, why not?

This is true especially if you are otherwise sound and well diversified in your other investments.


appleshampooid

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Re: Company stock and FOMO
« Reply #10 on: August 03, 2018, 10:27:59 AM »
I'm probably more of a risk taker than many on these boards. I don't necessarily believe in just reducing risk for example. I also invest largely in individual stocks rather than index funds.

Think about your company. If you believe in them and they are doing well, holding some of the shares might be good. Just don't go all-in.

I still hold some small amount of the stock in my last company now though I generally sold most of it as it vested. It's worked out well for me.

My current company is a high-growth pre-IPO startup. Earlier this year we were able to sell a portion of our equity to outside investors. I sold every share they would let me sell. But at the same time I took some of that cash to exercise and hold a small percentage of my vested options. The downside to me is small but the upside could be large.

I'd say your plan is reasonable - if you are willing to risk that 25% on your current company and you see that there is a path to a large upside, why not?

This is true especially if you are otherwise sound and well diversified in your other investments.
To your point regarding diversification, we have a small position (about $6k) in my wife's former company (UNH) from their ESPP plan. Followed a similar strategy there (keep about a quarter, sell the rest). They've outperformed the broader market over the past 2 years, but are much more a value play than my current company. I'm comfortable holding that for the upside potential as well. Of course, if the next administration goes back in the direction of ACA, health insurance companies are probably not the way to go to try to beat the market.

I only mention that to say that the rest is all in index funds, about $500k right now, 70/20/10 VTSAX/VTIAF/VBTLX (some equivalents at Schwab). So the amounts in question are a drop in the bucket of our portfolio.
« Last Edit: August 03, 2018, 10:35:19 AM by appleshampooid »

PaulMaxime

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Re: Company stock and FOMO
« Reply #11 on: August 03, 2018, 11:12:30 AM »
I don't think there's anything wrong with a "Barbell" investment strategy.

Most of your investment portfolio is in more stable predictable assets like your index funds and then you take some bigger bets with a portion of your assets. The high risk/reward part should be small enough that it won't destroy you if it blows up but large enough to make a real difference if things play out.



Jenny1974

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Re: Company stock and FOMO
« Reply #12 on: August 03, 2018, 11:48:15 AM »
I use to hold on to my company stock as my RSUs vested.  However, I got really burned when oil prices plummeted so now I just sell as soon as I vest.

Maenad

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Re: Company stock and FOMO
« Reply #13 on: August 03, 2018, 12:10:18 PM »
If you want to balance out your experience with Amazon, just read up on ENRON. You had no way of knowing you weren't working for a similar company.

I don't get much in the way of RSUs (<5% of my salary), so I just consider it a bonus on top of my actual investments.

FIRE@50

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Re: Company stock and FOMO
« Reply #14 on: August 03, 2018, 12:29:45 PM »
My company matches 100% of my 401k contributions in company stock meaning that if my company matches the market, it should be 50% of my portfolio. Within my first two years of working here, the stock tanked. I didn't sell. I feel that my company will outperform the market(my S&P500 index fund) over the long term, so I came up with the plan that when my company stock rose to 1/2 of my 401k, I would sell 50% of it. Then, I would wait until it rose to 1/3 of my 401k and I would again sell 50% of it. And so on. I'm currently waiting for the stock to get to 1/5th so that I can sell 50% again. My plan is to continue this until my company stock is less than 1/10. I plan to keep it under 10% until I retire at which point I will move it to a bond index fund and roll with a 90/10 allocation.

This plan might not be the best for you as it sounds like you work for a much smaller and younger company that I do, but I'm pleased with how it worked out. While I can't choose the buy price, I feel like I've been able to sell when my company is outperforming without being emotional about it.