Author Topic: Buy company stock?  (Read 3166 times)

Lifeblood

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Buy company stock?
« on: October 15, 2014, 03:08:55 PM »
My new employer, a very large company, offers its own stock to its employers at a 12% discount from fair market value. This sounds like a good deal, but doesn't fit in well with the idea of a diversified portfolio based on index funds. How can I best take advantage of this benefit while maintaining a diverse portfolio? Have any other Mustachians encountered this situation?

Beric01

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Re: Buy company stock?
« Reply #1 on: October 15, 2014, 03:18:50 PM »
Usually the only way to take advantage of these is to hold them for as short as a time as you can and then sell them without incurring short-term capital gains taxes. You do NOT want to hold these long term as they're horrible for your portfolio diversification. Not only is buying individual stocks bad, but the stock is likely to tank right when you might be laid off (and most need the money).

The other thing to ponder is what your company (and company's stock) is like. Is it generally stable? Could your company go under? Could your company (independent of market risk) suddenly lose half its value? You need to evaluate these risks in light of the potential 12% return on your investment, noting that you most likely can't sell the stock immediately, and thus could potentially be giving up better returns if your money were in index funds.
« Last Edit: October 15, 2014, 03:38:41 PM by Beric01 »

Numbers Man

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Re: Buy company stock?
« Reply #2 on: October 15, 2014, 03:49:00 PM »
Buy the stock but in moderation since you are getting a discount. Don't let it get to more than 5% of your investment portfolio. It's part of a diversified portfolio.

Dodge

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Re: Buy company stock?
« Reply #3 on: October 15, 2014, 05:59:49 PM »

My new employer, a very large company, offers its own stock to its employers at a 12% discount from fair market value. This sounds like a good deal, but doesn't fit in well with the idea of a diversified portfolio based on index funds. How can I best take advantage of this benefit while maintaining a diverse portfolio? Have any other Mustachians encountered this situation?

If you can sell immediately, it's a no brainer. Do it. It'd be silly not to.  A 15% discount is something like a 90% annualized return, since most of the money isn't invested for very long. Your 12% discount isn't too far off.

If they make you hold for a year before selling... That's when it gets complicated. Don't think I'd do that.

Spork

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Re: Buy company stock?
« Reply #4 on: October 15, 2014, 06:05:10 PM »
I've done it.  I think I got a 15% discount.  I just bought in moderation.  If your company is expected to be around for a while, you have a good chance of making reasonable money.  Just don't sink your life savings into it.

... and it turns out had I bought big, I would have made big money.  But that's not my point.  That was a timing/luck thing.  There was a big huge company stock crash during the program, which recovered... but we were buying at about 10% of the recovery value.

Cookie Monster

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Re: Buy company stock?
« Reply #5 on: October 16, 2014, 12:30:22 AM »
If the stock has enough liquidity, you can hedge with shorting or a put option. If possible, you should max it for a nice profit.

jnc

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Re: Buy company stock?
« Reply #6 on: October 16, 2014, 06:08:14 AM »
One thing to check is what is the price that the 12% discount gets applied to.

My company takes the lower of the 2 prices: beginning of the period (say jan 1) and end of period (june 30) and then applies the employee discount of 15% discount. So if the stock started the period at lower levels than the end of the period, you can make much more than 15%.

But yes, i agree with the other posts. If you can turn around and sell it right away, you should buy some (the amount is generally capped by the company anyhow) and sell it as soon as possible.

rocksinmyhead

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Re: Buy company stock?
« Reply #7 on: October 16, 2014, 07:20:04 AM »
One thing to check is what is the price that the 12% discount gets applied to.

My company takes the lower of the 2 prices: beginning of the period (say jan 1) and end of period (june 30) and then applies the employee discount of 15% discount. So if the stock started the period at lower levels than the end of the period, you can make much more than 15%.

But yes, i agree with the other posts. If you can turn around and sell it right away, you should buy some (the amount is generally capped by the company anyhow) and sell it as soon as possible.

+1

our ESPP is like this too and I do it. it's basically a free guaranteed return.

I'm a little torn on what to do at the end of this period. our stock is dropping like a rock because the whole energy sector is (low oil prices right now) and if it's still cheap when my ESPP shares get purchased at the end of December, it's gonna be tempting to hold on to it for a little bit... but I also don't have much in there so it's not THAT big of a risk.