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Holding Old Company Stock, Still Waiting for Recovery

This article was written by in Investing. 14 comments.


A few days ago, I asked if you were better off now than you were at the start of the recession. I mentioned that I considered myself in a better financial position today — overall, there wouldn’t even be an argument — but there are small details that still bother me. Not every piece of my portfolio has recovered.

At the height of the economy, I worked for a large, historied corporation in the financial industry. I took advantage of every benefit the company offered that was appropriate for my situation, assisted by additional income from extravocational activities such as operating this website and others, easing cash flow while allowing me to invest a little more aggressively. I took full advantage of the company’s discounted stock purchase program. The maximum I could invest was 10 percent of my salary, and I enrolled as soon as the program was announced.

The benefit included one purchase opportunity every three months, and the price offered for company stock was discounted 15 percent from the price at either the first day or the last day of the quarter, which ever price was lower. It was a great way to get an immediate 17.6 percent return on an investment. I decided, in an effort to take advantage of the lower long-term capital gains rate, to hang onto the stock for at least two years before selling each lot.

That plan worked for some time, but then the stock price fell sharply, coordinated with the rest of the financial industry. The company was not in trouble, at least not like other companies that were in danger of bankruptcy or needed bailout loans from the public or government investment to survive. Perhaps it was my bias as an employee at the time, but I decided to stop selling in a way that ensured I’d lose money. In fact, I used the recession as a time to buy more shares at an extreme discount — the discounted market price with the additional 15 percent discount.

After leaving the company in 2010, I sold about half of my company stock, but the lots I sold were those purchased at a price that allowed me to cash in a profit overall. The stock is sitting at about half of the price it was at the top of the market (not taking the 15 percent discount into account). I have about $9,000 worth of my former employer’s stock sitting in a E*TRADE account, waiting for the stock price to recover. The lots remaining were purchased after the stock price had crashed during the recession, so even though I could sell now at a profit, I’m holding on.

Here is my reasoning, even if it may be irrational:

  • I’ve seen the stock price at double what it is today, and that seems to imply a return is possible. Of course, this is a somewhat irrational thought.
  • It’s a high-quality company with a long history. It probably isn’t going away any time soon — but then again, the same might have been said about Bear Stearns just prior to its collapse.
  • The company is in an industry of which I am not a fan. I’ve complained about insurance companies loudly, but I can’t deny their profit potential.
  • I invested 10 percent of my salary in company stock, but what’s remaining is a very small percentage of my overall net worth. Today, at least, I can afford to keep $9,000 — or twice that amount, if the stock price recovers fully — in one company.

I can afford the risk, so having this amount of money in one investment is not keeping me up at night. I’m not holding onto the stock because I miss working there — I do not one bit — but because I still think it’s a good investment. I do miss seeing my former co-workers — working at home by myself all day can be unsatisfying from a social perspective — but I try to limit my emotional attachment to the company to just that.

In fact, I may be looking to take on significantly more risk in the future by investing a larger percentage of my net worth in opportunities where I could be more than just one of one million shareholders. My investing philosophy in the past has been to put as much as possible into broad stock market funds, giving me the greatest chance of somewhat predictable long-term growth, but I may be at a position where I can adjust my approach by diversifying even more, with different goals for different portions of my investable net worth. If that’s the case, I would keep a significant percentage in a less volatile investment than the stock market, to ensure a minimum of income or growth each year (barring another recession), while dedicating a larger percentage of my net worth to business opportunities requiring a more direct involvement from me.

Published or updated August 28, 2012. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 14 comments… read them below or add one }

avatar Steve

I too held a smallish position in my former employer’s stock, bought via ESPP, for years after I left the company. At the time it was a somewhat large fraction of my somewhat small net worth. I eventually sold it and bought some broad index funds.

I am currently enrolled in a new employer’s ESPP. Said employer is basically in a dying industry (I work for a profitable, modern subsidiary) so I will be selling my shares as soon as I get them.

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avatar William @ Drop Dead Money

Flexo, here’s the logic: when contemplating what to do, you have to first take the view of converting everything to cash today, win or lose. Then, once you are (mentally) all cash, now ask yourself the question: what’s the best investment for me today?

If you think you can do way better than that stock, you owe it to yourself to sell it and shift the proceeds to that best investment. It’s hard to do mentally, I know, because nobody likes the thought of losing money. However, you will achieve the best success by always taking the future view. Of course, you’ll never be right every time, but it is the best way to give yourself the best chance going forward.

For example, if you think it will take 5 years for that stock to double, your challenge is to see if you can find a stock that will double sooner, or will do much better over 5 years. Neither the past nor our feelings put us in the best place to profit from the future.

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avatar Luke Landes ♦127,373 (Platinum)

If anything, I would move the investment into a broad fund once sold. I try to avoid stock picking unless there’s some kind of major benefit — the 15% discount in the ESPP case, or some other kind of benefit, like a say in the operations, if choosing a specific company.

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avatar Gen @ Gen Y Dividends

Has the company at least been paying a dividend while you’ve held on?

Looking out 1-2 years: Does your stock/industry have the growth ability to outperform other sectors or investments available to you? If not, I agree with William @ DDM to take the loss (and possibly exit other positions to offset capital gains) and move on to something you believe can grow faster.

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avatar Luke Landes ♦127,373 (Platinum)

I think the sector (finance / insurance) has room for growth. There are a lot of variables… so I don’t know if it will be in the next couple years or extended. Or, I could just be flat out wrong and the finance sector is dead… but I don’t think so.

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avatar qixx ♦1,816 (Half-Dollar)

My philosophy on stock from former employers is to get out as soon as possible after you leave a company. The reason for getting the stock was likely to be the discount. If you were looking at the stock at regular price then ignore the discount now in your decision. To me it is similar to that of leaving a 401(k) with a former employeer. You would move the 401(k) to another venue. Do the same with stock.

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avatar Steve

The reason you don’t want employer stock because a large part of your finances are already dependent on that employer. Therefore, once you have left the employer, the risk of holding that individual stock actually goes down. (Of course there are other reasons to sell it: It’s still in your industry (in most cases); and you shouldn’t have too much (more than 5%) in any single stock.)

I agree that you should, again in most cases, roll over your 401(k) after you leave the employer, but it’s for totally separate reasons.

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avatar Manette @ Barbara Friedberg Personal Finance

When I decided that I will be leaving the company I was working for and I knew that it will be final, I immediately sold my stocks and put it on our savings. At present, we are already starting to invest with stocks trading and we are enjoying every minute and learning from it.

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avatar Kurt @ Money Counselor

I suspect that, given the 2008 debacle, all financial industry stocks will trade at reduced multiples for the foreseeable future. Investors’ perception of the industry’s riskiness has been, perhaps permanently, ratcheted up, and rightly so in my opinion. Higher risk means demand for a higher return which means the same cash flow as pre-2008 translates to a lower share price today than pre-2008. This is all as it should be, I think. As I think you recognize, your former company will likely have to reach a higher level of financial performance than would have been the case pre-2008 for your stock to get back in the black for you.

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avatar jim

We have an employee stock purchase program at work as well. We also get a 15% discount on the price. For a while I accumulated that stock as I bought it and wasn’t selling it. I ended up with too much money invested in my company, which is a bad idea if the company has trouble. Eventually I wisened up and stated selling it off. Now I still buy to get the 15% discount but I sell as fast as possible.

The key problem with such employee stock purchase deals is getting too heavily invested in your own company. Its best to diversify into other assets. Cashing in that 15% discount is a great deal though. Just be careful if your program requires you to hold the stock for a specified period, that can make it risky.

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avatar andrea1983 ♦226 (Cent)

I will hang onto my stock for at least two years from now!!

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avatar andrea1983 ♦226 (Cent)

there has been some economic recovery in the employment sector following the recession,I think it is a good time to buy stocks

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avatar andrea1983 ♦226 (Cent)

Completely agree, I think now is the best time to buy stocks, after two years of will rise~~money money!! Holding Old Company Stock, Still Waiting for Recovery!

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avatar andrea1983 ♦226 (Cent)

It’s not a good way.time is money
I’ve seen the stock price at double what it is today, and that seems to imply a return is possible. Of course, this is a somewhat irrational thought.
It’s a high-quality company with a long history. It probably isn’t going away any time soon — but then again, the same might have been said about Bear Stearns just prior to its collapse.
The company is in an industry of which I am not a fan. I’ve complained about insurance companies loudly, but I can’t deny their profit potential.
I invested 10 percent of my salary in company stock, but what’s remaining is a very small percentage of my overall net worth. Today, at least, I can afford to keep $9,000 — or twice that amount, if the stock price recovers fully — in one company.

Reply to this comment

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