Thoughts on Company Stock as % of Portfolio

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investingdad
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Thoughts on Company Stock as % of Portfolio

Post by investingdad » Wed Jul 24, 2013 7:21 am

I'm curious what others here think about what we're carrying in company stock.

First, me. My company is a Fortune 500 with a *very* long history of paying ever increasing yearly dividends. As of this morning about 2.5% of my portfolio is in my employer's stock.

Next, my wife. Her company is traded on the NYSE but is not a Fortune 500. Her position gives her a solid look at the health of the company. She's not bound by trading restrictions, but she's got a lot of access to inside information. She's comfortable holding company stock. As of this morning, about 9% of our portfolio is tied to her employer. But half of that is tied to restricted stock that isn't yet vested so I couldn't divest that even if I wanted to.

So, about 11.5% of our portfolio is tied to two companies in the form of stock.

I should point out that very early in the year, I slashed my company stock holdings by 50%. So I have aimed to cut back.

Would other Bogleheads be comfortable with this?

Does your answer depend on the size of your portfolio...different if it's $100K versus $1 million versus $10 million?

ieee488
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Re: Thoughts on Company Stock as % of Portfolio

Post by ieee488 » Wed Jul 24, 2013 7:31 am

investingdad wrote:Does your answer depend on the size of your portfolio...different if it's $100K versus $1 million versus $10 million?
No.
The answer is I don't have any appreciable company stock in my portfolio except for the 6months that 10% of my salary is tied up in the ESPP.
I sell immediately.
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Bounca
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Re: Thoughts on Company Stock as % of Portfolio

Post by Bounca » Wed Jul 24, 2013 7:48 am

I would limit it to %5 of portfolio, if that, just for 'play money.

I personally do not have any company stock, I did at one point however and sold it simply because you don't know if the CEO turns out to be decade long pedophile and the stock tanks and never recovers. Fortune 500 doesn't buy you anything. You have zero control. Too risky in my opinion.

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Cosmo
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Re: Thoughts on Company Stock as % of Portfolio

Post by Cosmo » Wed Jul 24, 2013 7:53 am

0%. You're already long your company. Why put anything more than your career at risk? Limit any investments in your company to your index funds.

Cosmo (former Enron employee)

Wagnerjb
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Re: Thoughts on Company Stock as % of Portfolio

Post by Wagnerjb » Wed Jul 24, 2013 8:08 am

For you, I would not buy any company stock, period.

For your wife, she gets Restricted Shares as part of her compensation....so you have no choice there. Accept that this compensation will slightly alter your diversification, and sell the RSU's as soon as they vest. (I assume she understands the insider trading rules and will only sell during an appropriate and acceptable trading window).

I work for a very big Fortune 500 company, and I hold no company stock other than the Restricted Shares that have not vested yet.

Best wishes.
Andy

Investing is boring
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Re: Thoughts on Company Stock as % of Portfolio

Post by Investing is boring » Wed Jul 24, 2013 8:09 am

I have restricted stock and ESPP. I sell everything the instant I am able. I see no reason to take on uncompensated risk.

Buysider
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Re: Thoughts on Company Stock as % of Portfolio

Post by Buysider » Wed Jul 24, 2013 8:21 am

One firm I worked at had a "stock ownership guideline" which was a specified % of your base salary in stock, RSU or options. The 401k match was in stock and counted towards that.

If you mentally don't consider the deferred compensation/RSU/options as cash, investments, or even part of your net worth, it helps. I viewed it as an accounting number until I had control and could decide to convert it into an asset of my choosing...

vital15
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Re: Thoughts on Company Stock as % of Portfolio

Post by vital15 » Wed Jul 24, 2013 8:24 am

I wouldn't consider your wife's unvested restricted shares part of your portfolio.

YttriumNitrate
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Re: Thoughts on Company Stock as % of Portfolio

Post by YttriumNitrate » Wed Jul 24, 2013 8:45 am

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danwhite77
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Re: Thoughts on Company Stock as % of Portfolio

Post by danwhite77 » Wed Jul 24, 2013 9:01 am

Obviously, everyone will have their own opinion on whether they would be comfortable with this allocation. Additional facts that might help commenters are: (1) what is your overall cash/bond/stock mix and (2) within the stock mix do you hold index funds or other individual shares, etc.?

For me, personally, if you feel positive about the long term prospects for both companies,I would be comfortable with that amount allocated to an individual stock. I probably would not go above 15% but I would be comfortable around 10%.

Disclosure: I have some "experience bias" where I've seen others (not me) become rich (as in dynastic rich) after buying and holding their companies' stock for a long period of time. So that knowledge probably sways me some. Of course, I've also seen my dad get cleaned out when his company went bankrupt, so that might balance things out a bit.
"While some mutual fund founders chose to make billions, he chose to make a difference." - Dedication to Jack Bogle in 'The Bogleheads' Guide to Investing'.

MnD
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Re: Thoughts on Company Stock as % of Portfolio

Post by MnD » Wed Jul 24, 2013 9:16 am

It wouldn't bother me at those levels, although I would want to get some sort benefit for the uncompensated risk - ie. discounted share price purchase plan, employer matching grants, special tax benefits such as being able to get to the IRS max on regular 401-K holdings plus and sock away more in company stock in a seperate ESOP.

We have a few percentage of portfolio in employer stock at great benefit to us (it's all tax-qualified restricted stock grants).
Beats a poke with a sharp stick and I just don't worry about it. :happy

Luke Duke
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Re: Thoughts on Company Stock as % of Portfolio

Post by Luke Duke » Wed Jul 24, 2013 9:31 am

investingdad wrote:I'm curious what others here think about what we're carrying in company stock.

First, me. My company is a Fortune 500 with a *very* long history of paying ever increasing yearly dividends. As of this morning about 2.5% of my portfolio is in my employer's stock.

Next, my wife. Her company is traded on the NYSE but is not a Fortune 500. Her position gives her a solid look at the health of the company. She's not bound by trading restrictions, but she's got a lot of access to inside information. She's comfortable holding company stock. As of this morning, about 9% of our portfolio is tied to her employer. But half of that is tied to restricted stock that isn't yet vested so I couldn't divest that even if I wanted to.

So, about 11.5% of our portfolio is tied to two companies in the form of stock.
2.5% of your 401k + 9% of her 401k does not equal 11.5% of total portfolio

investingdad
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Re: Thoughts on Company Stock as % of Portfolio

Post by investingdad » Wed Jul 24, 2013 9:38 am

Luke Duke wrote:
investingdad wrote:I'm curious what others here think about what we're carrying in company stock.

First, me. My company is a Fortune 500 with a *very* long history of paying ever increasing yearly dividends. As of this morning about 2.5% of my portfolio is in my employer's stock.

Next, my wife. Her company is traded on the NYSE but is not a Fortune 500. Her position gives her a solid look at the health of the company. She's not bound by trading restrictions, but she's got a lot of access to inside information. She's comfortable holding company stock. As of this morning, about 9% of our portfolio is tied to her employer. But half of that is tied to restricted stock that isn't yet vested so I couldn't divest that even if I wanted to.

So, about 11.5% of our portfolio is tied to two companies in the form of stock.
2.5% of your 401k + 9% of her 401k does not equal 11.5% of total portfolio
It's not 2.5% of my 401K, it's 2.5% of our total investment portfolio. Company stock is about 14% of my 401K at the moment.

Same with my wife. Her company's stock represents about 9.5% of our total portfolio, not 9.5% of her 401K.

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