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.
Updated January 1, 2018 and originally published August 28, 2012.