Comments on: Reader Question: Forgo ESPP Share Discount? http://www.consumerismcommentary.com/reader-question-forgo-espp-share-discount/ A premier personal finance blog, established 2003. Within, Flexo discusses his own experiences with money, and he and other authors comment on a wide range of personal finance topics. Tue, 29 May 2012 02:26:10 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: kitty http://www.consumerismcommentary.com/reader-question-forgo-espp-share-discount/comment-page-1/#comment-122556 kitty Sun, 11 Nov 2007 17:32:33 +0000 http://www.consumerismcommentary.com/2007/11/09/reader-question-forgo-espp-share-discount/#comment-122556 I'd participated in ESPP for many years until the company made the plan less attractive - shortly after the government changed the rules about expensing options a few years ago. Not sure how these are related. Prior to the rules change we got a 15% discount plus lookback provision - comparing the price of share at the beginning of the quarter to the one when the purchase occurs and buying for the smaller price. The shares were bought at each pay day for no more than 10% of the gross, fractional if necessary. After the rules changed 15% became 5% and the lookback provision was eliminated. I figured 5% not enough to protect against market fluctuation, especially since we had a restriction on selling shares bought within the same "offering period" (July-to-July). There is no monetary penalty, but if you sell the shares bought within the same offering period you can't buy any more shares until the end of the period. I sold a little here and there, but I still have most of the stock. It worked out OK, so far, but I do have too many eggs in one basket and it makes me a bit uncomfortable. It just that every time I had sold a little, the stock went up greatly thereafter, which made every decision to sell seem wrong in hindsight. Except for in 2000s. The stock lost almost half of its value between the top of the bubble and its lowest point after the bubble burst. It regained some of its value recently, but it is still far from the top. Interestingly though, I still have large gains. If I were to try to find shares on which I could show loss, it'd be difficult to find even 100 of them (out of 1600). 15% discount, look-back provision and mostly buying at different times and for different prices (and buying fewer shares when the price is higher) does help. Also, the fact that there were two or three splits even before the bubble, and the percentage of shares bought at high prices is very small. Actually, the worst time for the company wasn't in 2004, it was in early 90s. There was no question of company's surviving in 2003, but in early 90s, it wasn't clear. At that time, if the company went out of business, I'd lost money. At one point the stock dropped below break up value. I think the decision to sell immediately isn't always clear and depends on the company. There is always risk involved as Lucent's example showed, but in some cases rewards may be high too. I think in some cases holding for a little bit of time makes sense since you have some protection against market fluctuation. Will not help in Enron-type disaster, but does help in case of fluctuations. I’d participated in ESPP for many years until the company made the plan less attractive – shortly after the government changed the rules about expensing options a few years ago. Not sure how these are related. Prior to the rules change we got a 15% discount plus lookback provision – comparing the price of share at the beginning of the quarter to the one when the purchase occurs and buying for the smaller price. The shares were bought at each pay day for no more than 10% of the gross, fractional if necessary. After the rules changed 15% became 5% and the lookback provision was eliminated. I figured 5% not enough to protect against market fluctuation, especially since we had a restriction on selling shares bought within the same “offering period” (July-to-July). There is no monetary penalty, but if you sell the shares bought within the same offering period you can’t buy any more shares until the end of the period.

I sold a little here and there, but I still have most of the stock. It worked out OK, so far, but I do have too many eggs in one basket and it makes me a bit uncomfortable. It just that every time I had sold a little, the stock went up greatly thereafter, which made every decision to sell seem wrong in hindsight. Except for in 2000s. The stock lost almost half of its value between the top of the bubble and its lowest point after the bubble burst. It regained some of its value recently, but it is still far from the top.

Interestingly though, I still have large gains. If I were to try to find shares on which I could show loss, it’d be difficult to find even 100 of them (out of 1600). 15% discount, look-back provision and mostly buying at different times and for different prices (and buying fewer shares when the price is higher) does help. Also, the fact that there were two or three splits even before the bubble, and the percentage of shares bought at high prices is very small.

Actually, the worst time for the company wasn’t in 2004, it was in early 90s. There was no question of company’s surviving in 2003, but in early 90s, it wasn’t clear. At that time, if the company went out of business, I’d lost money. At one point the stock dropped below break up value.

I think the decision to sell immediately isn’t always clear and depends on the company. There is always risk involved as Lucent’s example showed, but in some cases rewards may be high too. I think in some cases holding for a little bit of time makes sense since you have some protection against market fluctuation. Will not help in Enron-type disaster, but does help in case of fluctuations.

]]> By: dong http://www.consumerismcommentary.com/reader-question-forgo-espp-share-discount/comment-page-1/#comment-122464 dong Sat, 10 Nov 2007 20:12:51 +0000 http://www.consumerismcommentary.com/2007/11/09/reader-question-forgo-espp-share-discount/#comment-122464 While I think you shouldn't pass up what is effectively a free 15%, I certainly don't think it's good to have too many eggs in one basket. I used to work at Lucent, and I did that, and pretty much got socked in 2002. Now that I'm older and wiser, i would still take advantage of the ESPP, but would hedge it with a set of put options in an outside brokerage account. Effectively you can fund some of the put option purchases by the 15% discount you receive. While I think you shouldn’t pass up what is effectively a free 15%, I certainly don’t think it’s good to have too many eggs in one basket. I used to work at Lucent, and I did that, and pretty much got socked in 2002. Now that I’m older and wiser, i would still take advantage of the ESPP, but would hedge it with a set of put options in an outside brokerage account. Effectively you can fund some of the put option purchases by the 15% discount you receive.

]]> By: tlange http://www.consumerismcommentary.com/reader-question-forgo-espp-share-discount/comment-page-1/#comment-122447 tlange Sat, 10 Nov 2007 16:18:54 +0000 http://www.consumerismcommentary.com/2007/11/09/reader-question-forgo-espp-share-discount/#comment-122447 I also participate in an ESPP and I treat it as a savings account. Our stock is purchased at the end of every three months. Recent purchase was 10/31. Our stock is doing well, so I like the fact that I see gains almost immediately. I could sell right now if I wanted to, but there is no pressing reason to do so. A year holding period for the 10% discount is unusual for an ESPP, but you could do well since your stock is lower right now. It can't stay low forever. I also participate in an ESPP and I treat it as a savings account. Our stock is purchased at the end of every three months. Recent purchase was 10/31. Our stock is doing well, so I like the fact that I see gains almost immediately. I could sell right now if I wanted to, but there is no pressing reason to do so.

A year holding period for the 10% discount is unusual for an ESPP, but you could do well since your stock is lower right now. It can’t stay low forever.

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