Employee Stock Purchase Program

[happychineseboy]

You know the drill: So, my company offers employees a 15% discount on company stock on the lowest of either the first or last day's price during the stock purchase period. Obviously, I buy as many shares as I am legally entitled to.

Part of me wants to sell my shares immediately and invest in a mutual fund or something less risky, but part of me wants to hang on to the company stock and ride it out. Like a gangster. I know there are Enron or AIG horror stories where employees' savings are blow to bits when company stock collapsed.

I was wondering if any of you guys/gals have been able to ride your ESPP all the way out into retirement or if any of you guys/gals have cashed out on your company stock only to see the value sky-rocket above your expectations or crater to the depths of the earth. Story time, please

[PlainsWalker]

I sell as soon as possible. Then I use the funds to re-balance my asset allocation in accordance with my IPS. It's terribly boring.

I already have enough of my financial well being tied to the performance of the company (continued employment). I have no reason to pile any more eggs in that basket by slanting my portfolio to company stock.

The value of the shares have nearly tripled since I started participating in the ESPP. Since I was selling as soon as possible my personal rate of return is much lower. But, I did manage risk by not being overweight in a single stock. And I got the match which was the entire reason I participated in the scheme. So mission accomplished and no regrets about what could have been.

[Quidnon?]

I don't have access to a ESPP anymore, but when I was, I'd buy the maximum that I was permitted to at a discount every cycle.  And I would keep most of it, because the option existed to take the dividends that the company stock threw off as current income without incurring an early withdrawal penalty within my 401K.  It never turned out to be important for me, but I liked the option of a small, backup income should I need it.  The total amount I had invested never exceeded 15% of my total portfolio.

When the company that I was working for at the time was bought out, I just liquidated at that time, and rolled everything over to the new 401k.  Which, I've learned since, is the wrong thing to do.  Now I'm trying to unwind the rollover a little each year, by rolling a bit to my roth ira each year.  All 401k's are definitely not created equal.

[Jammu]

I only had access to espp for 7 years. But it was the best 7 years ever! The Great Recession and the recovery. At the low point, one quarter I purchased 111 shares at about $13 each. They are now worth $120 each.

Had a friend whose father worked for Sears for 40 years. He never sold his stock. Became curmudgeonly and stubborn in his old age. Went down with the ship.

My company stock is at present about 2.5% of my total invested. So manageable imo. I keep up quarterly and have contemplated selling but the management team is alright I guess.

Good luck.

[SnackDog]

Regardless of the size of the company or stability of the industry, it can all go to hell faster than you think. Don't take the chance! If the stock was some other random company would you keep it?

[Heckler]

My $8500 bonus in stock options was worth $300 after the 3 year vesting period and inbelievable fees from the brokerage.  Sold them and bought a portion of a dirtbike (pre-MMM).   I'm so glad I've never bought individual stocks, and I never will.

[nach0s]

I want to sell my shares. Should I do a market order or limit order? Any advice for me? This will be my first time selling. Thanks in advance

[shuffler]

I want to sell my shares. Should I do a market order or limit order? Any advice for me? This will be my first time selling. Thanks in advance

You should do whatever this guy does.
http://forum.mrmoneymustache.com/investor-alley/market-order-vs-limit-order/msg1365427/#msg1365427

[Quidnon?]

I want to sell my shares. Should I do a market order or limit order? Any advice for me? This will be my first time selling. Thanks in advance

I literally never use a market order if a limit order is available to me.

[Spitfire]

I have the same 15% discount on my company plan. I sell it right away and put it in an index fund.

[lost_in_the_endless_aisle]

I stockpiled the shares and now have 1/4 my NW in ESPP stock. My company is being bought out so I will probably make out great if the deal doesn't fall through ($40K capital gain). The better strategy overall from a hedging and total return point of view should typically be selling and reinvesting in an index fund, however (I was stupid and lucky).

[MoonLiteNite]

I personally kept mine for 3 years, then sold everything in bulk, for a 100% gain. (12k in, 24k out!)
Then last period i sold a few months after the purchase for 100% again. Which was short term capital gains.

And this upcoming one i will prob doing a quick sale since i think my company stock is going to level out.

I think if there is a good chance the company stock will go up, stay flat, or pays good dividends, it is better to hold for the year to avoid the extra taxes.
But if you are not sure, just do a quicksale and take your easy profits and get taxed a bit harder.

[MrSpendy]

I assume that by the terms of the ESPP you are not able to hedge? Is there an active long term options market on the stock?

If the answer to the above is "you are able to hedge" and "yes" then:

 I'd buy 20% - 30% OTM puts and keep the stock. Depending on the volatility of the stock, those will cost you something like  1-7% / year and you'd be continuously investing at a 8-14% advantage to the market which would make it well worth the added concentration risk; the puts would prevent disaster.

Just as an example. CSCO (just picked a big tech co that probably has ESPP) trades for $30.23.

If you could buy at 15% discount, you could buy it for $25.70.
January 2019 $25.00 puts are $2.40. So if you bought the stock at the discount and the puts, you would be out $25.70 +$2.40 = $28.10, about a 7% discount. Your maximum downside would be $3.10 (11%). To start 7% ahead of where the market values the stock and only be able to lose 11% over 2 years is a very sexy payoff profile and risk/reward. You would also make 2 years of dividends (about $2.08) which decreases your risk to principle by even more. You still have "underperformance risk" but if you continuously invest at a 7% advantage that would be hugely mitigated in most market environments.

But it's probably moot because most ESPP's prohibit this.

[shuffler]

I think if there is a good chance the company stock will go up, stay flat, or pays good dividends, it is better to hold for the year to avoid the extra taxes.
But if you are not sure, just do a quicksale and take your easy profits and get taxed a bit harder.

There are no "extra" taxes.
The discount given from by the ESPP is ordinary-income.  That's just the way it is.
If you sell immediately, there will be no gain/loss, and thus no capital-gains tax (neither long-term or short-term).

I discussed it a bit more here:
http://forum.mrmoneymustache.com/ask-a-mustachian/espp-help/msg1228076/#msg1228076

[msilenus]

I was wondering if any of you guys/gals have been able to ride your ESPP all the way out into retirement or if any of you guys/gals have cashed out on your company stock only to see the value sky-rocket above your expectations or crater to the depths of the earth. Story time, please

You can tell this story with a spreadsheet.  Run a simulation of how much employer stock you have from doing this after 2, 5, 10, 20 years.  Make sure your simulation includes costs basis, so you can tell how much capital gains liability you have in an undiversified position when you reach your FIRE date.  The quandary this puts you in is whether to sell and take a huge tax bill (which you could have set yourself up for deferring earlier in life by diversifying when the bill to do so was lower,) tolerate the nondiversification when you don't have an ordinary income, or work longer because all the techniques people use for estimating portfolio longevity simply don't apply to big chunk of your 'stache.

You'll probably find that your exposure builds up fast, and takes up an unacceptable fraction of your portfolio.  Even for a gangster.

My own story is that I noticed that my asset distribution had skewed too much after only about 3 years.  I stopped.  I had too much capital gains liability to sell.  The stock has done well, esp. recently, but it's not diversified, and has a really awkward spot in my asset allocation.  Now I'm using tricks like a donor advised fund and UTMA accounts to erode those positions over time.  Those are both ways of giving away appreciated stock and transferring the capital gains liability to an entity that you expect to not pay capital gains taxes... but neither technique is suited for blasting away big positions.

Having up to one year of retirement expenses in company stock probably isn't extremely bad if you want to be a gangster.  After you sell it first to pay your first year's retirement expenses, you'll be back to a standard AA.  The key observation about this strategy is it sets things up so that on your retirement date you don't need to be predicting the future of one company in order to understand how that piece of your portfolio can reliably fit into your retirement strategy.

[MDM]

I was wondering if any of you guys/gals have been able to ride your ESPP all the way out into retirement.... Story time, please

Yes, but it's not a very interesting story.  Megacorp has returned more or less what the S&P 500 returned.  Maybe a little less overall (haven't done a specific comparison), so in hindsight we could have done a little better by selling immediately and reinvesting in some decent funds, but nothing earth-shattering.  Have been gradually selling it off since retiring, however, to avoid having too many eggs in that basket.

[Car Jack]

I always sell immediately after the buy.  I've had friends who have kept the shares, then the shares drop, then tax time comes and they have to pay tax on the 15% discount even though the shares are now below the buy price.  Not fun getting that back and of course you have to sell to get it back.

How about sell immediately, then decide what you want to do.