Random Ramblings

August 8, 2008

Investment strategies for company stock

Filed under: finance — Tags: — camotop @ 4:11 pm

I am way overinvested in stock of the company that I work for. The knee-jerk reaction is that that is a bad thing. But there’s more to it.

  • ESPP: For years I maxed out in ESPP contributions, getting company stock at a nice discount. I’m a buy and hold person, so I never sold any of it. The stock has been up and down since I started working, but right now selling would mean selling at a loss.
  • Stock Options: For the first several years employees annually received stock options in addition to a cash bonus. We sometimes also received options when we got a promotion. Options of course are a mixed blessing — if they are underwater (as most of mine are today), they are worthless. But they also pose no risk, and since I got them for free, as a bonus, I really have nothing to lose. They vest over 4 years, and expire at 10, and my first batch of options still has several years before expiring.
  • RSU: As part of an incentive bonus we sometimes receive Restricted Stock Units. They vest over 3 and 4 years, buy pay out dividend even before they vest. It’s a great incentive to stay with the company, because unlike options even with the lower stock price, my take when I sell is 100% (minus taxes, etc).
  • 401k: many of the funds in the 401k portfolio available to us have our company in their portfolio as well — so I have some exposure there as well.

I’m optimistic about the company’s future (and I really should take emotion out of investing!), so see no reason to sell these shares or execute the options, but I am trying to come up with an exit strategy. Part of me says to just hold everything. It’s easy, and I hope to ride the market’s recovery in a year or two, just like I’ve been riding it down with this stock.

The other part of me feels the exposure as a great risk. I could start by selling of the ESPP account, perhaps in a piece-by-piece basis, (like my previous post on automatic investing). Automatic sales would be a wonderful thing, I wonder if ShareBuilder does that too ?  Ie. each month, sell a certain number of shares, or a certain dollar amount. That would cost me the $10 fee for the sale each month ($120/year), but it would get me out of my position at lower risk than selling everything in one shot.

Of course I could then use the proceeds for an automatic investing plan, so it almost becomes and automatic diversification plan. How cool would that be — to put in maximum exposures and let the system diversify for you.

Since we’re in a down market right now (and my company’s stock pretty much followed the indexes up and down the past few years), this might not be the smartest time to start this sales cycle. Not trying to time the market, but I could set a lower limit that would first have to be reached before I kick of this plan. And I feel no rush — I can wait two years and see how things look at that time.

Once I do start selling, the question becomes when to stop ? Let’s say I dump all of the ESSP shares (is that a bad idea?), I cannot do much with the options, but I could sell the RSU as soon as they vest. I could also reshuffle the 401k into different funds, but the funds are doing fine, so I don’t feel as strong a need to do anything in that area.

How much exposure to the company I work for is too much ?  Another way to ask the question: how much exposure to any single company is too much ? 10% of my portfolio ?  I do not want to get spread too thin either.


1 Comment »

  1. Nice post.Keep up with the good information!


    Comment by VASTINE Alexis — August 13, 2008 @ 1:03 pm

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