Author Topic: Company stock and sleeping well at night — what's your price?  (Read 2022 times)

Chairman

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So my company stock has done really well, but past performance is not a bullet-proof predictor of future performance (in fact, due to mean reversion, it can actually predict underperformance), so I knew I would sleep much better at night if I sold my stock and invested it in a broad index fund instead. Even as an "insider trader" with reason to believe that the company will do well in the future, tying up a large chunk of your net worth in a single company is very risky compared to owning a well-diversified portfolio: in an economic downturn, or in the face of a company-specific disaster scenario, you could lose your job and see your equity value plummet at the same time. Double whammy!

Anyway, I just did the math. If I had kept my company stock instead of selling it, it would now be worth 1.5 million (pre-tax; about 932k post-tax). Instead, I sold it for 1.1 million (pre; about 711k post). So, I'd have 221k more net worth today — and possibly more in the future — but for me, I have been happy that I set a rational IPS and stuck to it. I've slept very well at night knowing I owned the total domestic and international markets, plus a decent chunk of fixed-income (bonds). Is 221k too high a price to pay for this peace of mind? Perhaps it is, as that would be enough to put me very close to FI territory, if it weren't for the darn taxes. But still, I am pretty happy with my decisions.

What's your price? How much potential upside are you prepared to leave on the table in exchange for peace?

talltexan

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Re: Company stock and sleeping well at night — what's your price?
« Reply #1 on: May 01, 2017, 07:37:09 AM »
What time zone are you in? You're posting about sleeping well, but your post is time-stamped 12:40 am. Perhaps your company is Australian?

Now for my serious post (please set the above teasing aside): major respect for setting an investor policy statement and sticking to it. One factor that you don't mention is how your company correlates with the larger market. Is it very low beta? I think there's value to having a higher stake in company stock that is uncorrelated with the larger market.

Chairman

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Re: Company stock and sleeping well at night — what's your price?
« Reply #2 on: May 01, 2017, 08:40:08 AM »
Also you invested in other appreciable assets. So, I don't think you can just look at the net delta with respect to the investment in your company, but you would have to factor in the appreciation of your index fund purchase as well.  By any chance do you know how much your 711K has appreciated since its investment?
That's a good point. I think my index investments have shown a return of about 7.6% annually (it's been a good run of late).
One factor that you don't mention is how your company correlates with the larger market. Is it very low beta? I think there's value to having a higher stake in company stock that is uncorrelated with the larger market.
I am not sure how I would know that. Like I said, it's done well lately (better than the market), but the market itself has still done well, so I'd bet that the correlation is quite high.

Car Jack

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Re: Company stock and sleeping well at night — what's your price?
« Reply #3 on: May 01, 2017, 09:09:13 AM »
I used to play the game of holding, thinking that the price would go up, I could get LTCG and reduce taxes and all the other gambling behaviors that can come over people.  Well, one company stock went from my buy price of 48 down to 12 as I left the company.  Great.  Cured me of this bad behavior forever.  All my ESPP, RSUs are set to sell at vesting.  100% of something is better than gambling on red.

talltexan

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Re: Company stock and sleeping well at night — what's your price?
« Reply #4 on: May 01, 2017, 09:11:39 AM »

One factor that you don't mention is how your company correlates with the larger market. Is it very low beta? I think there's value to having a higher stake in company stock that is uncorrelated with the larger market.
I am not sure how I would know that. Like I said, it's done well lately (better than the market), but the market itself has still done well, so I'd bet that the correlation is quite high.
[/quote]

Look up the "Beta" listed for your company on Yahoo!Finance. It's fairly standard for many platforms to report this. For example, I work for a fairly large utility company whose Beta is about 0.3, which I consider far enough below 1 that it's a decent choice for protecting myself in a down market.

GreatLaker

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Re: Company stock and sleeping well at night — what's your price?
« Reply #5 on: May 01, 2017, 09:20:55 AM »
I look at company stock as I would any other stock, that is never hold too large a % of your assets in any one security. For me that is 10% max.

Where I worked we could put 6% of our income into the ESOP and the company would match 25%. With most people saving maybe 10-20% of their gross income each year, holding the company stock purchases long-term could mean 1/2 to 1/3 of your savings in one stock, that is also where you work.

Some people feel disloyal selling company shares, others were just too clueless to learn how to sell. I look at it as sending the money to a better place.

Khan

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Re: Company stock and sleeping well at night — what's your price?
« Reply #6 on: May 01, 2017, 07:23:16 PM »
Most of us don't get nearly as large stock unit grants AFAIK. At best, about 8% of my pay comes in as stock(5% as 15% ESPP discounted, and 2% a year for RSU grants. My company stock is unlikely to blow the doors out or crater, and so I let it fluctuate between 10k-40k. At about 40k I sell some of it off usually, which has also coincided with decent periods about once every 3 years. Next planned sell is probably 2020 ish.

Livewell

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Re: Company stock and sleeping well at night — what's your price?
« Reply #7 on: May 01, 2017, 07:36:08 PM »
The way I look at it is even if you sell you'll continue to reap the benefits of the company being successful via more stock options, RSU, ESPP....plenty of ways to continue to make money while  simultaneously hedging your bets and sleeping well!

You made the right choice

Heckler

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Re: Company stock and sleeping well at night — what's your price?
« Reply #8 on: May 02, 2017, 07:38:48 AM »
Holy shitsnacks!  A million on one company?   You made the right call for sure.  I hope its actually your company, as in you are the CEO.

My SIL worked for Nortel (now closed). Her pension and bonuses are worth zero.  My company has gone from $50 down to $1.30. My previous company closed and sold assets (luckily to 3 previous employees, now owners, but the other employees were shitouttaluck). I learned my lessons a long time ago before I started investing.