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.