confused on company stock

[dianita]

My husband has been buying stock through his company stock program for the past few years. He bought most of them at a price of $80 (with an employee discount of 10%). Now they are worth $15. We are still buying stock through his company discount program. What should we do?

- Stop buying up this stock and instead use those funds towards a vanguard index fund, and sell the company stock he owns if/when that stock recovers.
- Buy more company stocks and sell them right away to gain the 10 % discount he gets.
- Buy more company stocks with his discount and sell the old ones at a higher price to maybe offset taxes? not sure how that works, any recommended reading to learn more about that would be appreciated.

[maizefolk]

Does the program require he hold the stock for a minimum length of time? If not, buying at a 10% discount, selling at market rate, and using the proceeds to fund other savings is essentially free money.

Either way I would sell the old stock. It'll be much more volatile than the market as a whole, on average won't do any better than the market as a whole, and it concentrates risk because if the company does badly the value of your stock will decline at the same time his risk of being laid off increases.

[lutorm]

Typically for ESPPs (Employee Stock Purchase Plan) the tax treatment is unfavorable if you sell immediately (I'm pretty sure both any gains and the 10% discount will be taxed as income. I'm not too familiar with how losses work when it comes to taxes but I don't think you can offset income with capital losses.)

If you've really already lost 80% of the value, unless you know the company is doing poorly and is unlikely to survive, I'd hold on to the old stocks. If you don't need the funds, take a chance on the company recovering. (Although if these stocks were a majority of my net worth, I would not be comfortable with that risk exposure.)

Are these public stocks so you can unload them at will? The situation is also quite different if it's an illiquid private company. In that case, you may not be able to realize the "free money" from the 10% discount anyway.

[Car Jack]

This is a perfect example of "pigs get fat, hogs get slaughtered".  When ESPP shares post, sell them immediately.  Regardless of tax treatment.  This example is perfect for this.  Regular income tax on the 10% sure is better than taking a bath on a stock that's gone into the toilet.  Because I sell ALL shares.....ESPP, options, RSUs immediately, I was able one quarter to pay off my mortgage, buy my wife a brand new car and get myself a $2000 TV.  My co-worker (a hog) poo-poo'd my selling, saying it was going to skyrocket because it had dropped over the last 2 years.  Well, 4 years later, the stock had not gone above the strike price (I sold at 3X the strike price) and he was let go.  So I got my mortgage, car and TV and he got squat.  To boot, his ESPP shares LOST him actual money.

Do what you want, but if you're putting too much emphasis on the tax treatment, be prepared to be slaughtered.

[MustacheAndaHalf]

When company stock drops dramatically, that's also the time when layoffs are more likely.

Did the company stock drop from $80/sh before Covid to $15/sh during Covid?
You might want to check the stock price today, in Monday's stock market.  Vaccine news is pushing Covid sensitive stocks (cruises, department stores, restaurants) dramatically higher.  If the company survives, you might see big gains during a recovery.

What happens in the scenario the stock drops further, and layoffs occur?  Do you have an emergency fund, and is the company stock a small fraction of your investments?

[Dr. Pepper]

I think you can probably say that a drop from 80 to 15 is not just a market fluctuation, there is a story there. The market can get things wrong from time to time, but depending on what happened with the company it may never recover to the 80$ price. To really make an intelligent assessment, you would need to know how to value a business. I would guess from your question you probably don't know how to do that. If that is the case your best bet is to stop buying the stock, and index the money. You can sell stock at a loss and deduct that against ordinary income up to 3000$/ year. Index the money from the sales. Depending on what kind of losses your sitting on could take several years, and maybe could even offset retirement income. There is nothing wrong with indexing, and if you haven't spent the time to learn how to value businesses(nothing wrong with that, many people are not interested), then the smartest thing is to index.

[lutorm]

This is a perfect example of "pigs get fat, hogs get slaughtered".  When ESPP shares post, sell them immediately.  Regardless of tax treatment.  This example is perfect for this.  Regular income tax on the 10% sure is better than taking a bath on a stock that's gone into the toilet.  Because I sell ALL shares.....ESPP, options, RSUs immediately, I was able one quarter to pay off my mortgage, buy my wife a brand new car and get myself a $2000 TV.  My co-worker (a hog) poo-poo'd my selling, saying it was going to skyrocket because it had dropped over the last 2 years.  Well, 4 years later, the stock had not gone above the strike price (I sold at 3X the strike price) and he was let go.  So I got my mortgage, car and TV and he got squat.  To boot, his ESPP shares LOST him actual money.

Do what you want, but if you're putting too much emphasis on the tax treatment, be prepared to be slaughtered.

For a different perspective, the stock from my options are now worth 22x the strike price. I can't really unload them when I want because of transfer restrictions on private stock, but if I had done that immediately after they vested rather than sell them when I did, my stash would be half of what it is.  And the remaining equity would double my stash again if I could sell them today. Whether I manage to unload them or the company crashes and burns is obviously a crap shoot.

It's obviously risky but to say that it categorically is a bad deal isn't true. It depends on how you value the risk/reward and how diversified you are.

[PDXTabs]

For a different perspective, the stock from my options are now worth 22x the strike price. I can't really unload them when I want because of transfer restrictions on private stock, but if I had done that immediately after they vested rather than sell them when I did, my stash would be half of what it is.  And the remaining equity would double my stash again if I could sell them today. Whether I manage to unload them or the company crashes and burns is obviously a crap shoot.

It's obviously risky but to say that it categorically is a bad deal isn't true. It depends on how you value the risk/reward and how diversified you are.

I think that situations like this happen more with private stock than public stock, having been on both sides of that.

[Car Jack]

This is a perfect example of "pigs get fat, hogs get slaughtered".  When ESPP shares post, sell them immediately.  Regardless of tax treatment.  This example is perfect for this.  Regular income tax on the 10% sure is better than taking a bath on a stock that's gone into the toilet.  Because I sell ALL shares.....ESPP, options, RSUs immediately, I was able one quarter to pay off my mortgage, buy my wife a brand new car and get myself a $2000 TV.  My co-worker (a hog) poo-poo'd my selling, saying it was going to skyrocket because it had dropped over the last 2 years.  Well, 4 years later, the stock had not gone above the strike price (I sold at 3X the strike price) and he was let go.  So I got my mortgage, car and TV and he got squat.  To boot, his ESPP shares LOST him actual money.

Do what you want, but if you're putting too much emphasis on the tax treatment, be prepared to be slaughtered.

For a different perspective, the stock from my options are now worth 22x the strike price. I can't really unload them when I want because of transfer restrictions on private stock, but if I had done that immediately after they vested rather than sell them when I did, my stash would be half of what it is.  And the remaining equity would double my stash again if I could sell them today. Whether I manage to unload them or the company crashes and burns is obviously a crap shoot.

It's obviously risky but to say that it categorically is a bad deal isn't true. It depends on how you value the risk/reward and how diversified you are.

You haven't sold yet so......they can drop to zero and then you're sunk.  "On paper", they're worth double.  I'm pretty big on sure things, having been burned several times in the past.  If you're willing to risk it, that's your decision.  You get to decide that.  I'm much more risk averse.  My biggest risk is owning some BRK.