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Life After Salary: I Am Selling 18 Months of Company Stock Today

This article was written by in Investing. 20 comments.


My former employer has a generous company stock purchase plan for employees. Each quarter, the company offers the opportunity to buy stock at a discount of 15 percent off the share price at the close of the first day of the quarter or the last day of the quarter, which ever is lower. When I first enrolled in the employee stock purchase plan, I designated ten percent of every paycheck for the program, and sold the shares soon after they were purchased. With the 15 percent discount and a stock price that continued to rise, I was cashing in a decent profit.

Then the recession began. My former company is a financial firm, but thankfully was not involved in any of the worst of the debacle. Nevertheless, the financial sector fell apart in the market, and the share price took a nosedive. At one point, shares were trading down 90% from their peak. My last stock sale before the decline was very close to the peak, and I was able to buy more shares through the stock purchase plan at the low. From a financial standpoint, I was still doing well.

After the crash, however, I was stuck with shares purchased at a much higher price than the market price, even after the 15 percent discount on the quarterly purchases. I could have continued to sell on a quarterly basis, keeping the risk associated with overexposure to one stock low, but I decided, perhaps from an emotional standpoint, to hold on. I’d prefer not to cash in at a loss. For the most part, I’ve been holding onto the company stock I continued to buy until my tenure ended in December 2010. I haven’t sold company shares in this plan since November 2007, when the stock was close to its highest value.

That is changing today. Rather than continue waiting for the stock price to rise back to its lifetime maximum, which could take years and is not guaranteed, I put in an order to sell the company stock I purchased between December 2007 and June 2009. Although the price I’ll receive today will be lower than the cost of some of the quarterly lots, overall, I locked in a profit.

One benefit to waiting to sell these shares rather than selling on a quarterly basis, either immediately as they become available to share or after waiting two years for more favorable taxes, is the ability to avoid repetitive transaction fees. E*TRADE operates the employee stock plan, and there’s no way to avoid the $19.95 transaction fee. Rather than paying this every quarter, I’ve saved money on fees by waiting and selling several lots together. Given the nature of the volatility of the stock price, however, $19.95 on a $17,000 transaction is a small issue. I could have waited one more day to sell the stock, and the price could have been higher or lower by much more than the cost of the transaction.

Between selling these shares and rolling over my 401(k) to Vanguard, I have greatly reduced my portfolio’s exposure to one stock. I may miss out on some fantastic gains in the future, but reducing this risk could save me from trouble if the financial industry takes another serious hit or if the company were to have problems in the future.

Published or updated July 1, 2011. 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 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 Luke Landes and follow him on Twitter. View all articles by .

{ 20 comments… read them below or add one }

avatar kaidez

It’s the right thing to do…no ifs, ands or buts about it.

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avatar cashflowmantra

Definitely smart to get out of so much exposure to a single stock. Also, very smart to keep investing and lower the basis of your total shares so you can get out at a profit.

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avatar Tom Dziubek

Hah! When I quickly read that headline I thought you talking about Consumerism Commentary stock.

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avatar Kevin @ Thousandaire.com

If you don’t believe it is going to go up, then definitely sell. If you think it will rebound and you can make a nice profit, then hold. Looks like you are making the right decision based on how you feel about the company.

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avatar Luke Landes ♦127,550 (Platinum)

It’s hard to say what the stock price will do. I’m not involved in the company any more and they don’t show up a lot in the news (which could be a good thing).

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avatar Evolution Of Wealth

Kevin:
No offense but that is pretty scary advice. You should make financial decisions on what you believe? Human nature says that people will be hopelessly optimistic in regards to money. People tend to always believe stock prices will go up. Isn’t that what everyone is telling us? All the companies and investment ‘gurus’ tell us that over time stocks rise. Why not just wait until it rises? Then you factor in the fact that its company stock. People are more comfortable with what they think they know and will vastly overweight the knowledge they have of something they are comfortable with such as a company they work for. It’s a huge mistake people make. They work for a company and feel they have inside information on the success of that company but what they don’t realize is it’s the company’s job to make them feel the success of the company regardless of how things are going. It’s called a good work environment and an emotional attachment that people can’t separate from their personal financial decisions regarding company stock.

In short…good move Flexo. My question is what are you going to do with this new cash?

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avatar Kevin @ Thousandaire.com

There is a difference between scary advice and risky advice. Is it a mistake to have your entire portfolio invested in your company if they go up 20% every year? You could berate that person for making a textbook “bad decision”, and they would just laugh as you as they look at their bank account. Is it riskier to invest in one company than investing in the general market? Yes. That doesn’t make it a bad idea.

You are assuming that risk = bad. Risk means a high potential for losses, but also a high potential for returns. It sounds like you aren’t comfortable with the risk of placing a lot of money in one investment. That’s fine for you, but don’t judge other people for being less risk averse.

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avatar Sarah @ Making Me Better ♦42 (Newbie)

Good move. I once spent years waiting for a stock to go up before I finally realized I was wasting my time. To this day that stock hasn’t gone up.

I’m also curious about what your plans will be for the cash you’ve freed up. Put it in an index ETF, perhaps?

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avatar Krantcents

I remember some advice I heard that no individual stock should represent more than 5% of your portfolio. I think it is sound advice.

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avatar qixx ♦1,895 (Half-Dollar)

Good move. I feel no matter how you are doing in the stock market that you should sell employee purchased stock within a short period of time from leaving that company. One of those – no need to hold onto the past – issues.

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avatar Paula @ AffordAnything.org

I think you’re making the best decision. It’s wise not to be over-exposed to one single stock, especially if you’re also employed by that same company (if the company fails, you’ll be hit both in your paycheck AND in your portfolio).

It’s fantastic that you’ve made an overall profit — as I recently wrote, life is full of wins and losses and you’ll experience both; the goal is not to avoid losses, but rather to win more often (and larger sums) than you lose.

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avatar Spokane Al

As a former financial planner, I often delt with people over selling their individual holdings in order to diversify. Inevitably they would want to hold on just until they got back to even and this emotional anchoring was difficult to overcome.

I would always ask if they were willing to buy that same stock at its current price, and the usual answer would be a resounding no. That would then open the door to the idea of selling just a crack.

It was always a tough discussion.

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avatar SteveDH

I kept one lot (100 shares) of my former employer’s stock (BA) for what one might call emotional reasons. Since I’m well diversified it doesn’t really impact the portfolio allocations. The advice about relying too heavily on one a single stock is generally true, as is the advice about risk working both ways. I don’t give advice on buying and selling but BE ADVISED: The IRS might be reading your site too ;-)

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avatar Ken M

Just remember that everything you bought for the past 2 years, the discount of 15% is counted as income. Then you take the loss in the stock sale. This can affect different calculations on your taxes.

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avatar Jason

Well, it looks like I may be the only one questioning all this “diversify! diversify!” talk. Yes, generally it’s a good idea, but it’s hard to ignore the 15% discount. That seems to me to reduce a lot of the risk.

If the company’s financial soundness is decent, maybe stick with what you have or just give it a little trim? Everyone tanked during the recession and then looked like geniuses during the rally.

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avatar Luke Landes ♦127,550 (Platinum)

The 15% is only a benefit on the buy side… Once someone leaves the company, there’s no more 15% discount to be had, so the only question is when to let go and sell.

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avatar Cejay ♦1,521 (Half-Dollar)

Go job with the profit

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avatar skylog ♦368 (Nickel)

i think it is a good move for a lot of reasons, most of which you have covered. lastly, it just a good move to not have to worry about it anymore. you can move on from that part of your life.

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avatar Mike

Sounds like a winning strategy right there! Buy high sell low.

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avatar Ceecee ♦53 (Newbie)

An overall profit these days is a good thing. Now the problem is how to invest the money elsewhere and get a return…….good luck!

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