Tell me I did the right thing

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
TimesAWastin
Posts: 142
Joined: Fri Mar 15, 2013 10:45 am
Location: Costa Mesa, CA

Tell me I did the right thing

Post by TimesAWastin » Mon Feb 03, 2014 12:48 pm

:oops:

About a year ago I discovered I had stock options in the company I work for which had been fully vested. I had no idea before then that they even existed, which was clearly for my benefit. 7 years they sat there. I'd occasionally get emails from the various companies that held the options, but I just assumed it was sent to everyone on a "everyone has an account and in case you have options" basis, and probably didn't apply to me.

The company's stock price was about as low as it had been in the previous 12 months (it ranged $10-$16 and was at $11) and I didn't want to cash them in right then because of that. My exercise price was in the area of $7.15. They were due to expire 18 months from then (6 months from now). I knew we were due to release the 4th quarter earnings report and the company had issued many press statements that sales had been good during Q4. I told myself if, after the call, the price hit $12 I'd cash in and use the money to fund my Roth IRA. Why did I pick that number? No reason. It just felt like the right price and would leave me with enough cash to do the things I wanted to do with it, after taxes.

Well, the earnings call happened and the market responded by bidding up the price. I cashed in at $12/share and then watched it go up to $13, $14, $15 within a month. Then $16 and $17 through Q3. By the end of the year, $18. Instead of $4.85/share, I could have received $10.85/share if I had waited. Every dollar gain was amplified by the fact that my exercise cost was $7.15, so it dramatically affected how much would come to me. But at the time I decided it was the right thing to do as I didn't like having so much of my invested assets (basically 2/3rds) in the company I work for. I had no expectation of a bad year, and I feel my job is secure enough. I also had no expectation that the stock should rise so much.. the company was full of surprises this year. I ended up moving the moneys into broad market index funds and am otherwise satisfied with the ~20% or so from the market.. still, compared to what might have been 130%.

Investors remorse is a heck of a thing. I think I made the rational decision. I see it as a lesson that I don't have the temperament for actual trading, while I do have confidence in the theory behind buying and holding broad-market index funds. Still.. grrr.

Anyway, I'm just looking for support. Would you have done the same thing? One day you're learning about saving and investing and decide to log in to this thing that you keep getting emailed about. You discover half your annual salary's worth of stock sitting in an account waiting to be exercised. It felt like a windfall.
Stock goes up, stock goes down. Stock goes up, stock goes down. -- Homer J. Simpson (paraphrased)

kerplunk
Posts: 784
Joined: Sun Apr 17, 2011 9:58 pm

Re: Tell me I did the right thing

Post by kerplunk » Mon Feb 03, 2014 12:57 pm

Hindsight is 20/20.

Having your money in well-diversified index funds is basically a long-term guarantee of a healthy return.

Having your money in one company is a huge risk that could have went the other way just as easily.

Which one allows you to sleep soundly at night? :wink:

Tom_T
Posts: 1467
Joined: Wed Aug 29, 2007 2:33 pm

Re: Tell me I did the right thing

Post by Tom_T » Mon Feb 03, 2014 12:58 pm

Agreed. Don't beat yourself up. You discovered all this "found money", and you took it. You made 20% in the market, and you lightened your exposure to one company's fortunes. What if the earnings reports was bad, and the stock tanked? There are always surprises, both good and bad, when it comes to earnings announcements.

FinancialDave
Posts: 1598
Joined: Thu May 26, 2011 9:36 pm

Re: Tell me I did the right thing

Post by FinancialDave » Mon Feb 03, 2014 1:00 pm

I'ts not so much that you haven't got the temperament for it. This is what happens to 80% of the active management world.

Much wiser and very well paid money managers can't do any better when it comes to beating the indexes.

You did do the right thing and I would keep on doing it with any future options you have.

fd
Last edited by FinancialDave on Mon Feb 03, 2014 7:55 pm, edited 1 time in total.
I love simulated data. It turns the impossible into the possible!

retiredjg
Posts: 34386
Joined: Thu Jan 10, 2008 12:56 pm

Re: Tell me I did the right thing

Post by retiredjg » Mon Feb 03, 2014 1:00 pm

I think the answer is right here.
But at the time I decided it was the right thing to do as I didn't like having so much of my invested assets (basically 2/3rds) in the company I work for.
Sure, if you could have seen into the future, you could have made more money. But if you could have seen into the future, holding so much of your assets in the company you work for would not have made you uncomfortable.

Be grateful for your windfall instead of wishing it had been bigger.

jackholloway
Posts: 965
Joined: Mon Jul 08, 2013 3:45 pm

Re: Tell me I did the right thing

Post by jackholloway » Mon Feb 03, 2014 1:19 pm

I know a gent that had multiple millions in stock and options at one of the big internet companies that essentially ceased to exist. As he put it, cashing those out when they were first issued would have been worth less than a tenth of the peak, and a thousand times what it was worth the day he quit. Even holding for half the option period and cashing out as stock was issued would have been worth over a million bucks, instead of the 3k he actually got.

Learning from that lesson, I cashed out my own options over time, averaging roughly half what I could have made had I held to peak, and my stock at about three quarters. I am not sad - if the company continues to do well and I do as well, I will be more than fairly compensated. If things go WorldCom, then I have at least put a sufficient pile of cash into US stocks, intl stocks, and bonds to pay off my house and send my daughter to college.

You did the right thing.

TSR
Posts: 725
Joined: Thu Apr 19, 2012 9:08 am

Re: Tell me I did the right thing

Post by TSR » Mon Feb 03, 2014 1:33 pm

My father worked for a prominent technology company for much of his life. When the dot-com bubble was expanding and he was watching a bunch of stock options sitting there, a lot of his friends were waiting to get rich. He got some very good financial advice basically asking him if he was the kind of person who would go to vegas and put that amount of money on a roulette wheel. The answer being "no," he decided to sell. He used the proceeds to pay off his house. Several years later, the dot-com bubble had burst, his company no longer existed, his friends had no "options," and my father had a paid-off house.

Take a look at the full story above and just know that your story was essentially the same except for the last sentence. Even if my dad had lost out on the chance for a million-dollar payday, it would have STILL been good advice, just because you can't know the outcome in advance -- he was just assessing his own risk tolerance and his needs. You STILL did the right thing, despite your lack of a crystal ball. No need for regret there.

Jacksonhole
Posts: 15
Joined: Fri Dec 20, 2013 2:19 pm

Re: Tell me I did the right thing

Post by Jacksonhole » Mon Feb 03, 2014 1:37 pm

Pigs get fat. Hogs get slaughtered.......

Be happy with your gains. It could just as easily dropped back below $12 and you would have been talking about how lucky/smart you were.

User avatar
greg24
Posts: 3304
Joined: Tue Feb 20, 2007 10:34 am

Re: Tell me I did the right thing

Post by greg24 » Mon Feb 03, 2014 1:43 pm

You did the right thing.

'The enemy of a good plan is the dream of a perfect plan.'

origami
Posts: 43
Joined: Fri Nov 30, 2012 12:49 pm

Re: Tell me I did the right thing

Post by origami » Mon Feb 03, 2014 1:47 pm

I would sell before Q4 report.

Longtimelurker
Posts: 471
Joined: Fri Dec 13, 2013 8:23 am

Re: Tell me I did the right thing

Post by Longtimelurker » Mon Feb 03, 2014 1:50 pm

I get ESPP (15% off), RSU's, and Stock Options from my job. I do NOT view them as an investment and do not include them as part of my AA. I consider them deferred compensation. When they vest, I sell immediately. I sell as soon as I am allowed. No regrets! Especially since my company stock price has gone from $80 to $41 in the last 18 months. A lot of co-workers didn't make out so well in that time period.

Let me add that having a 3 year waiting period on RSU's and 4 year waiting period on options (25% each year for 4 years) gives them plenty of time to "soak." I take the 15% from ESPP same month as soon as it posts.
Stay the course. If you can't resist greed, and fear is proven to be 2x as strong, you are doomed as an investor.

Spirit Rider
Posts: 9168
Joined: Fri Mar 02, 2007 2:39 pm

Re: Tell me I did the right thing

Post by Spirit Rider » Mon Feb 03, 2014 2:26 pm

I have many friends and acquaintances who have worked in technology companies over the years and received generous stock options. We can put then into three groups.

1. Those that waited "until they were really worth a lot".
2. Those that exercised them and waited for one year. Upon recommendation of their advisors to get long term capital gains treatment on additional gains (let the tax dog wag the investment decision).
3. Those that exercised and sold on the very first day they were vested.

Option 3 were the most successful. They might not have gotten the greatest return, but they got decent returns.

Option 2 was particularly disastrous for several people. With non-qualified stock options, the difference between option price and exercise price is taxed as ordinary income. However, when the stock tanked afterwards, they were left with massive tax bills and very little assets to pay. Tax rules are tax rules and the IRS didn't care.

Option 1 was very painful to watch. I saw people who rode up into the stratosphere of multi-million paper portfolios and watched as they crashed back to earth frozen with inaction in the fall.

So you absolutely did the right thing.

Bacchus01
Posts: 2070
Joined: Mon Dec 24, 2012 9:35 pm

Re: Tell me I did the right thing

Post by Bacchus01 » Mon Feb 03, 2014 2:51 pm

True story:

Company A - I decided to hold onto options that were only a few years old. Stock was at an all-time high of $72 and my average option price was around $20. I had nearly 10K options. This was fall of 2008. Within a few months it dropped to $3.50 and then recovered to around $10. By the time I left the company, my options were worth about $2K. You do the math on that decision.

Company B - I bought shares of my company at IPO (as well as held options). After they had become LTCGs, and I left the company, I liquidated them. The options were priced around $8 and the IPO shares at $18. I had more than 10K of each. The stock was at $21.50 and I sold. That was in September of last year. It has since hit a high of $30 and rests around $27 right now. You do the math on that decision.

Company C - I held about 4K shares of a prior company in my 401K. I said I would sell when it hit $32, so I did. This was the first week of January. Since then it ran up to $40 and has settled around $36. You do the math on that decision.


My point is that timing sucks. I've waited to long and lost literally hundreds of thousands. Conversely, I sold too soon and lost tens of thousands.

Make a decision and move on. Don't look back.

User avatar
TimesAWastin
Posts: 142
Joined: Fri Mar 15, 2013 10:45 am
Location: Costa Mesa, CA

Re: Tell me I did the right thing

Post by TimesAWastin » Mon Feb 03, 2014 5:39 pm

Wow, what a response .Thanks everyone. Yeah, that's definitely the way. Make the decision then never look back. I just need to stop looking up the company's stock price and thinking about 'what if'.
Stock goes up, stock goes down. Stock goes up, stock goes down. -- Homer J. Simpson (paraphrased)

retiredjg
Posts: 34386
Joined: Thu Jan 10, 2008 12:56 pm

Re: Tell me I did the right thing

Post by retiredjg » Mon Feb 03, 2014 5:59 pm

Find a different company that did the opposite and force yourself to look that one up too, every time you look up yours. :happy

User avatar
Gambler
Posts: 412
Joined: Sat Sep 21, 2013 2:20 pm

Re: Tell me I did the right thing

Post by Gambler » Mon Feb 03, 2014 7:00 pm

TimesAWastin wrote::oops:

About a year ago I discovered I had stock options in the company I work for which had been fully vested. I had no idea before then that they even existed, which was clearly for my benefit. 7 years they sat there. I'd occasionally get emails from the various companies that held the options, but I just assumed it was sent to everyone on a "everyone has an account and in case you have options" basis, and probably didn't apply to me.

The company's stock price was about as low as it had been in the previous 12 months (it ranged $10-$16 and was at $11) and I didn't want to cash them in right then because of that. My exercise price was in the area of $7.15. They were due to expire 18 months from then (6 months from now). I knew we were due to release the 4th quarter earnings report and the company had issued many press statements that sales had been good during Q4. I told myself if, after the call, the price hit $12 I'd cash in and use the money to fund my Roth IRA. Why did I pick that number? No reason. It just felt like the right price and would leave me with enough cash to do the things I wanted to do with it, after taxes.

Well, the earnings call happened and the market responded by bidding up the price. I cashed in at $12/share and then watched it go up to $13, $14, $15 within a month. Then $16 and $17 through Q3. By the end of the year, $18. Instead of $4.85/share, I could have received $10.85/share if I had waited. Every dollar gain was amplified by the fact that my exercise cost was $7.15, so it dramatically affected how much would come to me. But at the time I decided it was the right thing to do as I didn't like having so much of my invested assets (basically 2/3rds) in the company I work for. I had no expectation of a bad year, and I feel my job is secure enough. I also had no expectation that the stock should rise so much.. the company was full of surprises this year. I ended up moving the moneys into broad market index funds and am otherwise satisfied with the ~20% or so from the market.. still, compared to what might have been 130%.

Investors remorse is a heck of a thing. I think I made the rational decision. I see it as a lesson that I don't have the temperament for actual trading, while I do have confidence in the theory behind buying and holding broad-market index funds. Still.. grrr.

Anyway, I'm just looking for support. Would you have done the same thing? One day you're learning about saving and investing and decide to log in to this thing that you keep getting emailed about. You discover half your annual salary's worth of stock sitting in an account waiting to be exercised. It felt like a windfall.
I did something similar this decade.
speculated on a $2 stock. 10months later I got stopped out at $2.75. if I held to the '1yr and 1day' mark, it was at $3.75.
not only would have $25k more, but it would have been at the lower long term capital gains rate. :oops:

but I set the stop to lock in my profits. and would have done it every time.

you made a sell decision that felt right.
don't know if you can but for your future vested options set a stop. if it falls down to that level, you've just locked in profits. if it keeps going up, then more :moneybag to you :greedy
"Always be thankful for what you have no matter how much or how little" -EternalOptimist

Hypersion
Posts: 214
Joined: Mon Feb 18, 2013 3:20 am

Re: Tell me I did the right thing

Post by Hypersion » Mon Feb 03, 2014 7:29 pm

How did the stock compare to an S&P500 index during the same time period?

givewell
Posts: 147
Joined: Sat Jun 11, 2011 5:39 pm

Re: Tell me I did the right thing

Post by givewell » Mon Feb 03, 2014 7:38 pm

You did the right thing.

Peter

User avatar
Gambler
Posts: 412
Joined: Sat Sep 21, 2013 2:20 pm

Re: Tell me I did the right thing

Post by Gambler » Mon Feb 03, 2014 7:40 pm

Hypersion wrote:How did the stock compare to an S&P500 index during the same time period?
mine? it got to a high of about $5 a few weeks after it reached 3.75.
for my mental health, I quit following it. :?
"Always be thankful for what you have no matter how much or how little" -EternalOptimist

sambb
Posts: 2196
Joined: Sun Mar 10, 2013 3:31 pm

Re: Tell me I did the right thing

Post by sambb » Mon Feb 03, 2014 8:21 pm

you guessed wrong, and luck wasnt on your side. You could've made more money.
This happens in life. Safe isnt always better financially. More risk= chance for more reward.
You gave up the risk, and you gave up the potential reward. BUt you gained a safer position.
This is the way it goes.
Some people hit the lotto, and others invest for slow and steady diversified gains. It is hard to always make the best financial decision, but risk tolerance is important to judge when considering investment returns.

aquifer
Posts: 320
Joined: Sat Oct 20, 2012 9:01 am

Re: Tell me I did the right thing

Post by aquifer » Mon Feb 03, 2014 9:45 pm

I like to say just because a decision turns out to be wrong doesn't mean it was a bad decision. Go with what you know at the time and don't second guess yourself later. Makes living easier!

User avatar
Boglenaut
Posts: 3090
Joined: Mon Mar 23, 2009 7:41 pm

Re: Tell me I did the right thing

Post by Boglenaut » Mon Feb 03, 2014 10:40 pm

TimesAWastin wrote: I ended up moving the moneys into broad market index funds and am otherwise satisfied with the ~20% or so from the market..
Of course you did the right thing!

Say I gave you ten $10 bills (see how generous I am with hypothetical money!?). Also, say I gave you a 12 sided die. 7 of those sides say "You Won Double Your Bet!" and 5 of those sides say "You Lost Your Bet!".

This is a pretty good deal, and as long as you can afford to do it it makes sense to do this bet. The odds are in your favor.

Now, say I said you could either bet it all on one roll, or you could do it 10 times for $10 each. Which way would you do it?

If you do it all at once, you really increased your chances of hitting it big compared to making 10 bets. But you also increased your chances of going bust. You have the same long term expected return, but with much greater risk by making a single bet. With the 10 bets, you actually have a much greater chance of making money than with the single bet option.

Now in my example, say you decided to throw the die 10 times. If you throw that first die and you won, you'd say "shucks, I should have bet it all on that!". Easy enough to do it after you know the result. But you did not know the result when you made your decision. That does not mean you made a bad decision... you made the correct decision. :sharebeer

(The stock market doesn't exactly follow my example, but I think you get the analogy).

User avatar
GerryL
Posts: 1953
Joined: Fri Sep 20, 2013 11:40 pm

Re: Tell me I did the right thing

Post by GerryL » Tue Feb 04, 2014 12:41 am

Just curious: How can you not know you have stock options?

My company bombarded us with information about the options we used to get. It was a part of our annual review. We have since moved to RSUs. Even more communication. Is my company unusual in that way?

Professor Emeritus
Posts: 2628
Joined: Mon Aug 13, 2012 6:43 am

Re: Tell me I did the right thing

Post by Professor Emeritus » Tue Feb 04, 2014 1:30 am

If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breathe a word about your loss;
If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: 'Hold on!'


etc.

Post Reply