Awarded stock; sell and diversify?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Hastelloy
Posts: 5
Joined: Fri Jul 28, 2017 10:58 am

Awarded stock; sell and diversify?

Post by Hastelloy » Fri Jul 28, 2017 11:17 am

I was recently hired by a major Bay Area tech company and was awarded about $130,000 worth of stock as part of my compensation that will vest over a period of 5 years or so. The stock has very performed very well historically and the company is very forward thinking and on the cusp of many new and exciting things- I scoffed when a co-worker mentioned he was selling his off as soon as he was able to. However, the more I thought about it, I reasoned that I would never actually purchase $130,000 of any single stock so why should I hang on to it? It would seem more Bogleian to sell once vested and instead buy into a diversified index fund like VTI. Is this too conservative? I'm 30 with a net worth of $150,000 and very low living expenses.

Elbowman
Posts: 475
Joined: Tue Apr 03, 2012 2:25 pm

Re: Awarded stock; sell and diversify?

Post by Elbowman » Fri Jul 28, 2017 11:37 am

I sell my tech employer's stock ASAP. In my reading I've found that most experts implore you not to hold stock in your employer. Too much of your finances are already tied their success.

Jack FFR1846
Posts: 7007
Joined: Tue Dec 31, 2013 7:05 am

Re: Awarded stock; sell and diversify?

Post by Jack FFR1846 » Fri Jul 28, 2017 11:50 am

Sell @ vest. My eTrade account allows me to designate this option a year in advance.
Bogle: Smart Beta is stupid

User avatar
njboater74
Posts: 632
Joined: Mon Apr 25, 2016 8:21 pm

Re: Awarded stock; sell and diversify?

Post by njboater74 » Fri Jul 28, 2017 11:57 am

Yes, I would sell. You already have a lot invested in your company's success in the form of your earnings.
When the mob and the press and the whole world tell you to move, your job is to plant yourself like a tree beside the river of truth and tell the whole world - 'No, YOU move'--Captain America, Boglehead

JBTX
Posts: 3195
Joined: Wed Jul 26, 2017 12:46 pm

Re: Awarded stock; sell and diversify?

Post by JBTX » Fri Jul 28, 2017 12:30 pm

In 1998 I inverviewed at dell computer. Got an offer but didn't accept. HR lady said most employees put all of their 401k in dell stock because it was doubling every two years and that is what her buddies in finance told her to do. That would have worked for another two years but turned out very badly after that.

Thesaints
Posts: 1390
Joined: Tue Jun 20, 2017 12:25 am

Re: Awarded stock; sell and diversify?

Post by Thesaints » Fri Jul 28, 2017 12:35 pm

You may also consider selling to buy stocks of a competing company, or of the sector which likely is negatively correlated.
In a way you would be including your job in to your asset allocation and try to minimize risk.

TheAncientOne
Posts: 130
Joined: Wed Jul 19, 2017 8:53 pm

Re: Awarded stock; sell and diversify?

Post by TheAncientOne » Fri Jul 28, 2017 12:39 pm

Is this stock grant in the form of a Restricted Stock Unit? If so, a taxable event occurs when a given portion of your grant vests and not when you sell the stock. Under those circumstances, it would be folly to not sell the stock immediately. If you are feeling lucky, as one well known Silicon Valley company used to say, just buy shares of your employer on the open market.

not4me
Posts: 339
Joined: Thu May 25, 2017 3:08 pm

Re: Awarded stock; sell and diversify?

Post by not4me » Fri Jul 28, 2017 12:45 pm

You can also do a partial liquidation -- sell some/keep some. That may play into your 'emotional' side of this...For example, how would you take to being scoffed at if you sold & it stock did great? You kept & it tanked? How does this fit with your other investments -- concentration of allocation as well as risk profile? What will a sale do to your taxes?

I've know some who felt more like "owners" when they kept skin in the game....helped them accept company decisions that were more shareholder friendly than employee friendly. It has an interesting twist when a company is bought, stock does great, but employees lose jobs.

But personally, I'd set an upper limit of how much of my overall portfolio was in one stock...and that wouldn't be 100%

Thesaints
Posts: 1390
Joined: Tue Jun 20, 2017 12:25 am

Re: Awarded stock; sell and diversify?

Post by Thesaints » Fri Jul 28, 2017 12:45 pm

I suspect this thread will turn out to be interesting material for behavioral economists...

3spots
Posts: 84
Joined: Mon Apr 03, 2017 3:54 pm

Re: Awarded stock; sell and diversify?

Post by 3spots » Fri Jul 28, 2017 12:54 pm

I am an example of not doing that (out of ignorance) and having it work out very well.

I thought keeping company stock was a good idea in both RSU and in 401K -- after all, I was aware of what was going on in the company and had a feel for the future stability.

Fortunately for me, I only worked at Fortune 500 companies that continued to do well, and I did well with them.

If your position allows you to see something of your new company financials, R&D pipeline, supply chain, it might be a calculated risk to keep it.

3spots

favoriteagency
Posts: 7
Joined: Thu Jul 27, 2017 7:27 pm

Re: Awarded stock; sell and diversify?

Post by favoriteagency » Fri Jul 28, 2017 1:11 pm

I'd like to echo 3spots comment, and elaborate a bit. Is the company transparent and open with its employees or is it opaque and secretive? Both types are represented among the major Bay Area tech companies.

I've only worked at one of the transparent and open companies. The transparency and openness made me comfortable holding on to the majority of my stock and it has worked out very well for me. As 3spots put it, it has been a calculated risk.

If I was at one of the more secretive companies, I'd most likely sell it immediately.

Random Poster
Posts: 1622
Joined: Wed Feb 03, 2010 10:17 am

Re: Awarded stock; sell and diversify?

Post by Random Poster » Fri Jul 28, 2017 1:15 pm

The only time that I don't sell vested stock immediately is if the stock is trading at a price lower than the vesting price and I'm due to receive more stock within 30 days. But once the 30-day period runs, or the price is higher than the vest price, I sell.

new2bogle
Posts: 1233
Joined: Fri Sep 11, 2009 2:05 pm

Re: Awarded stock; sell and diversify?

Post by new2bogle » Fri Jul 28, 2017 1:28 pm

Sell when it vests, that's what I do.

Thesaints
Posts: 1390
Joined: Tue Jun 20, 2017 12:25 am

Re: Awarded stock; sell and diversify?

Post by Thesaints » Fri Jul 28, 2017 1:28 pm

favoriteagency wrote:I'd like to echo 3spots comment, and elaborate a bit. Is the company transparent and open with its employees or is it opaque and secretive? Both types are represented among the major Bay Area tech companies.

I've only worked at one of the transparent and open companies. The transparency and openness made me comfortable holding on to the majority of my stock and it has worked out very well for me. As 3spots put it, it has been a calculated risk.

If I was at one of the more secretive companies, I'd most likely sell it immediately.
Unless it is a company of two (or one is very high up on the rank ladder), what you know "everybody" also knows.
Last edited by Thesaints on Fri Jul 28, 2017 1:38 pm, edited 1 time in total.

User avatar
CaliJim
Posts: 2806
Joined: Sun Feb 28, 2010 8:47 pm
Location: California, near the beach

Re: Awarded stock; sell and diversify?

Post by CaliJim » Fri Jul 28, 2017 1:36 pm

You should have no more than 5% or 10% of your retirement investments exposed to non-systemic risk.
-calijim- | | For more info, click this Wiki

GuyFromGeorgia
Posts: 82
Joined: Sat Dec 29, 2012 12:16 pm

Re: Awarded stock; sell and diversify?

Post by GuyFromGeorgia » Fri Jul 28, 2017 1:39 pm

For me, I do keep a small amount of vested RSUs. I like waiting for them to transition to long-term. It is all about how much am I keeping relative to my net worth. You're on pace to get about $25k next year. How much is that relative to everything else? If you have a NW of $50k, that's a big deal. If you're worth $1M, not so much. For me, I don't allow more than 5-10% of my NW to be in company stock.

favoriteagency
Posts: 7
Joined: Thu Jul 27, 2017 7:27 pm

Re: Awarded stock; sell and diversify?

Post by favoriteagency » Fri Jul 28, 2017 1:48 pm

Thesaints wrote:
favoriteagency wrote:I'd like to echo 3spots comment, and elaborate a bit. Is the company transparent and open with its employees or is it opaque and secretive? Both types are represented among the major Bay Area tech companies.

I've only worked at one of the transparent and open companies. The transparency and openness made me comfortable holding on to the majority of my stock and it has worked out very well for me. As 3spots put it, it has been a calculated risk.

If I was at one of the more secretive companies, I'd most likely sell it immediately.
Unless it is a company of two (or one is very high on the rank ladder), what you know "everybody" also knows.
When I say *major* Bay Area tech companies, there are 6 that I'm thinking of. Of those, I'd consider 3 of them to be 'transparent and open' meaning that rank and file employees know things that the public doesn't know (and for at least one of those companies, every employee, regardless of rank, is subject to the company's insider trading policy). I'd consider the other 3 'opaque and secretive.'

But you said 'a company or two' and I'm saying 'three,' so maybe we're in agreement with the exception of one of the companies.

newinvestor84
Posts: 86
Joined: Tue Apr 19, 2011 7:09 pm

Re: Awarded stock; sell and diversify?

Post by newinvestor84 » Fri Jul 28, 2017 1:52 pm

GuyFromGeorgia wrote:For me, I do keep a small amount of vested RSUs. I like waiting for them to transition to long-term. It is all about how much am I keeping relative to my net worth. You're on pace to get about $25k next year. How much is that relative to everything else? If you have a NW of $50k, that's a big deal. If you're worth $1M, not so much. For me, I don't allow more than 5-10% of my NW to be in company stock.
What do you mean by "transition to long term"? RSUs count as ordinary income when they vest. There is no tax advantage to holding them longer. A lot of people get confused that the stock grant is long term capital gains if they hold it a year, so I hope that's not what you mean.

GuyFromGeorgia
Posts: 82
Joined: Sat Dec 29, 2012 12:16 pm

Re: Awarded stock; sell and diversify?

Post by GuyFromGeorgia » Fri Jul 28, 2017 2:13 pm

newinvestor84 wrote:
GuyFromGeorgia wrote:For me, I do keep a small amount of vested RSUs. I like waiting for them to transition to long-term. It is all about how much am I keeping relative to my net worth. You're on pace to get about $25k next year. How much is that relative to everything else? If you have a NW of $50k, that's a big deal. If you're worth $1M, not so much. For me, I don't allow more than 5-10% of my NW to be in company stock.
What do you mean by "transition to long term"? RSUs count as ordinary income when they vest. There is no tax advantage to holding them longer. A lot of people get confused that the stock grant is long term capital gains if they hold it a year, so I hope that's not what you mean.
You are correct that RSUs are ordinary income when they vest. I either sell when they vest or I'll wait 1 year or more. My point of holding long term should be clarified that it is only the gains that would have a tax advantage if you hold for a year or longer.

Bungo
Posts: 878
Joined: Wed Sep 28, 2011 11:28 am

Re: Awarded stock; sell and diversify?

Post by Bungo » Fri Jul 28, 2017 2:16 pm

Elbowman wrote:I sell my tech employer's stock ASAP. In my reading I've found that most experts implore you not to hold stock in your employer. Too much of your finances are already tied their success.
Agree 100%. I always sell my RSUs upon vesting, for exactly this reason. I wouldn't buy my employer's stock if someone handed me a pile of cash, and holding my employer's stock when someone gives it to me would be no different.

Same holds for ESPP.

ThrustVectoring
Posts: 398
Joined: Wed Jul 12, 2017 2:51 pm

Re: Awarded stock; sell and diversify?

Post by ThrustVectoring » Fri Jul 28, 2017 2:24 pm

Always sell your employer's stock as soon as you are allowed to. You're already long your employer's financial stability through your regular paycheck.

My parents got severely burned by owning stock and working at the same company and getting hit by a one-two punch of falling equity prices and layoffs.

nyclon
Posts: 237
Joined: Fri Oct 02, 2015 5:30 pm

Re: Awarded stock; sell and diversify?

Post by nyclon » Fri Jul 28, 2017 2:32 pm

Hastelloy wrote:I was recently hired by a major Bay Area tech company and was awarded about $130,000 worth of stock as part of my compensation that will vest over a period of 5 years or so. The stock has very performed very well historically and the company is very forward thinking and on the cusp of many new and exciting things- I scoffed when a co-worker mentioned he was selling his off as soon as he was able to. However, the more I thought about it, I reasoned that I would never actually purchase $130,000 of any single stock so why should I hang on to it? It would seem more Bogleian to sell once vested and instead buy into a diversified index fund like VTI. Is this too conservative? I'm 30 with a net worth of $150,000 and very low living expenses.
Your rationale makes sense. If you really want to make a bet on the stock, you can buy a long-dated out of the money call option for a fraction of the risk.

Afty
Posts: 729
Joined: Sun Sep 07, 2014 5:31 pm

Re: Awarded stock; sell and diversify?

Post by Afty » Fri Jul 28, 2017 2:48 pm

I work for one of the "open and transparent" tech giants, and I do sell my stock immediately upon vesting. I've come out behind doing this (i.e. our stock has outperformed the market during the time I've worked there), but I don't want to take the risk of something going terribly wrong and losing both my job and my stock. I also feel I already have a lot of exposure to our stock price through my unvested stock, which continues to accumulate via new grants.

MotoTrojan
Posts: 1604
Joined: Wed Feb 01, 2017 8:39 pm

Re: Awarded stock; sell and diversify?

Post by MotoTrojan » Fri Jul 28, 2017 4:54 pm

I'm no longer with my old company, but sitting on a bit under $100k in awarded shares, which just went up 20% in the last month (private company). Even though this company has a consistent CAGR of ~80%, I'm starting to think I'll cash out during the next buyback. I'm young at 25, and this is the vast majority of my net worth, but if I had a $100k inheritance I wouldn't put it all in this, or any single stock, so I'm thinking it's time to diversify. Of course the moment I sell, it'll probably go up 5x.... or I'll dump it in VTI only to enter a crash.

User avatar
rmelvey
Posts: 757
Joined: Sat Sep 18, 2010 5:17 pm
Contact:

Re: Awarded stock; sell and diversify?

Post by rmelvey » Fri Jul 28, 2017 4:57 pm

I always sell all when my RSUs vest and put it into VTI. My RSUs have done way better than the stock market, but hindsight is 20/20. Besides, companies usually keep issuing more RSUs so you always have some exposure to the stock through the unvested portion. My unvested RSUs are about 30% of the value of my actual portfolio, so that is plenty enough single stock risk for me...

Helo80
Posts: 701
Joined: Sat Apr 29, 2017 8:47 pm

Re: Awarded stock; sell and diversify?

Post by Helo80 » Fri Jul 28, 2017 5:53 pm

I recently sold all of my former employer's stock. The company is doing well and has showed continued upward growth. I have no reason to believe that said growth will not continue. But, after thinking about it, I decided that the industry is competitive enough that something big could happen that hits the company and I'd feel better if the money went into a Total Stock index.

I have been sleeping better with the stock all sold (even though it's gone up a little since the sale)

Helo80
Posts: 701
Joined: Sat Apr 29, 2017 8:47 pm

Re: Awarded stock; sell and diversify?

Post by Helo80 » Fri Jul 28, 2017 5:56 pm

Hastelloy wrote: However, the more I thought about it, I reasoned that I would never actually purchase $130,000 of any single stock so why should I hang on to it? It would seem more Bogleian to sell once vested and instead buy into a diversified index fund like VTI. Is this too conservative? I'm 30 with a net worth of $150,000 and very low living expenses.

Very good point, you would never actually purchase said stock in that quantity. You can always sell 25, 50 or 75% of the shares you have and place them in an index fund. I highly doubt it's an "all or nothing" affair. How does that sound? That may be a happy medium.

Thesaints
Posts: 1390
Joined: Tue Jun 20, 2017 12:25 am

Re: Awarded stock; sell and diversify?

Post by Thesaints » Fri Jul 28, 2017 6:23 pm

favoriteagency wrote:When I say *major* Bay Area tech companies, there are 6 that I'm thinking of. Of those, I'd consider 3 of them to be 'transparent and open' meaning that rank and file employees know things that the public doesn't know (and for at least one of those companies, every employee, regardless of rank, is subject to the company's insider trading policy). I'd consider the other 3 'opaque and secretive.'

But you said 'a company or two' and I'm saying 'three,' so maybe we're in agreement with the exception of one of the companies.
Apologies for the confusion. I wrote 'a company of two" in the sense of "a company with two employees".
Any large company can give some of its employees the illusion of knowing "more than the market". Except that it is not your next door neighbor you are competing with, but professional market participants who may be intimate with your CEO and such.
A good starting point, unless the company is very small, or you are indeed very high-up, is assuming that what you know is already known by the market, or it is largely irrelevant.
btw, I found quite amusing that "transparent and open" means that the public doesn't know. Reminded me of George Orwell :)

As the general issue is concerned, there are two factors to take into account. The first is if one has to hold individual stocks at all, instead of just index funds.
If one tries to reason in terms of identifying a superior company, or being very knowledgeable (i.e. more knowledgeable than the market) about a company, we are on the wrong path.
The correct reasoning is that expected return from company XYZ and from the total stock market are largely the same. What changes is the volatility and there are cases when a higher volatility with same expected return is not only desirable, but necessary.

The second factor concerns the decision of holding stocks in the company one works for. The answer here is a resounding no. Doing so increases the overall risk, but mostly on the downside. Unless the job is something one engages in just for pleasure and leaving it wouldn't materially affect the financial situation, it is something to be avoided. Always.

As I wrote earlier, one can even entertain the idea of getting rid of his employer's shares to acquire competing companies' shares, or negatively correlated sub-indexes of the market, which could decrease the overall risk of one's financial position more than just buying into the total market.

Post Reply