What should I do about employer / industry risk in tech?

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spae
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What should I do about employer / industry risk in tech?

Post by spae » Tue Oct 08, 2019 10:29 pm

The boring part of my portfolio is basically 90/10 VTWAX (Vanguard Total World) / VTBLX (Vanguard Total Bond) and then I have a small part of my portfolio in the excellent adventure. This isn't completely accurate because of what my 401k allows me to hold and I have legacy holdings of VTSAX plus VTIAX in taxable that I don't want to sell, but what I'm holding is equivalent.

I'm mid 30s, have about 1.4m in investments (total, including tax advantaged accounts), my income is mid six figures, and my annual expenses are mid five figures. I have no debt and no other significant assets. My savings is low for my age, income, and expenses because I only realized how much big tech companies pay a couple of years ago and was doing essentially the same job but working for peanuts earlier in my career.

If this trend continues, I'll be very comfortable in a decade. My concern is that an event that wipes out or reduces my income stream, such as a tech crash, is likely to also severely impact my investments.

Other than shorting tech stocks or buying puts on tech stocks, are there things I can do to mitigate the risk of a tech crash? I'm considering the idea of buying puts on tech stocks as a hedge against a tech crash but I'd like to know if there's something simpler I should consider before I start buying options.

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Tyler Aspect
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Re: What should I do about employer / industry risk in tech?

Post by Tyler Aspect » Tue Oct 08, 2019 11:20 pm

Using 3x leveraged ETFs is not a part of the Bogleheads investment program. Stock options are not necessary. It is better just to accept a potential loss, since risk itself is a driver of returns.

I have previously mentioned the idea of doubling the amount of emergency cash from 6 months to 1 year in order to prepare for a possible economic down-turn.

Some other ways of risk reduction would be to sell off 3x leveraged ETFs, and to increase your bond holding from 10% to 20%. These would be the conventional adjustments.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

HEDGEFUNDIE
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Re: What should I do about employer / industry risk in tech?

Post by HEDGEFUNDIE » Tue Oct 08, 2019 11:26 pm

Welcome. Sounds like you and I are in the same boat. I was thinking along similar lines as you a few months ago (viewtopic.php?t=275899)

Serious question: how much would it cost to buy puts to hedge against your exposure to tech?

For the rest of your portfolio, here is what I would hold, crafted to withstand a tech crash:

40% VMNVX (Global min vol), or if you prefer passive 20% USMV + 20% EFAV
20% Utilities
20% Emerging markets
20% EDV

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Watty
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Re: What should I do about employer / industry risk in tech?

Post by Watty » Tue Oct 08, 2019 11:36 pm

spae wrote:
Tue Oct 08, 2019 10:29 pm
The boring part of my portfolio is basically 90/10 VTWAX (Vanguard Total World) / VTBLX (Vanguard Total Bond) ....

I'll be very comfortable in a decade.
Having your retirement money in 90% stocks might normally be reasonable for someone your age but you are in a very atypical situation. If you might retire in 10 years then you might want to have your retirement money invested more like an older person who will retire in 2030. The Vanguard 2030 target date fund is about 75% stocks and 25% bonds so you might want to use that asset allocation for your retirement money.

https://investor.vanguard.com/mutual-fu ... file/VTHRX

I would also question if all your money is actually retirement money if you do not already have a paid off house. This is reading WAY in between the lines but I would assume that you moved from an area with a reasonable cost of living to an area like the Bay Area which has a very high cost of living.

If that is correct then after a tech crash, or if you retire in ten years, I would assume that your fallback plan is to move somewhere less expensive and eventually buy a house there. Or you might also eventually buy a house for cash in an expensive area.

If something like that is true then part of your $1.4 million is not retirement money since it might be needed for eventually buying a house.

There are a lot of "IFs and assumptions" that you might clarify but if something like that is true then you should consider that future house money to be seperate virtual portfolio and invest it with an asset allocation which is appropriate for when you might need that money. You can look at the lifestrategy funds to get an ideal of what asset allocation you should use for that.

https://investor.vanguard.com/mutual-fu ... estrategy/#/
spae wrote:
Tue Oct 08, 2019 10:29 pm
I'm considering the idea of buying puts on tech stocks as a hedge against a tech crash but I'd like to know if there's something simpler I should consider before I start buying options.
I am not really up to speed on it but that might be something to look at for RSUs or company stock options that you cannot sell yet, if that is allowed.

If you are talking about a more general protection of your portfolio then what you are suggesting is called "portfolio insurance" and you can research that. My impression is that it is mostly a fad that comes back with new variations every few years. The big problem is that is costs money to buy the options and in theory at least whoever is selling you the options is pricing them high enough(or more likely higher) so that the cost covers the risk that you are trying to protect against. Be very skeptical about any portfolio insurance strategies that you read about. People have tried this for years so be sure to research the history of portfolio insurance so your can learn from other people's mistakes.

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spae
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Re: What should I do about employer / industry risk in tech?

Post by spae » Wed Oct 09, 2019 12:02 am

Tyler, I appreciate your suggestion but, including refresh grants that aren't contingent on performance, I hold about $1m in unvested stock in my employer that will vest over the next four years. Bonuses that are contingent on my employer's continued profitably over the same time period are probably another $250k. If I continue to get raises at my current rate and you include salary, my earnings minus tax and spending over the next four years should be larger than my entire current savings if there's no tech downturn or crash. Increasing my bond allocation by $140k cannot come close to hedging against my income stream getting wiped out. Perhaps I should do that in addition to whatever else I do, but that won't solve my problem.

HF, I hadn't seen that thread. Thanks for the pointer. Are you holding that or is this something you're considering doing? I doubt I'll move to something that far from what I currently hold, but it does give me something to think about.

I haven't considered buying puts seriously enough to figure out how much it would cost to hedge against my income stream disappearing. My plan was to post this thread and then figure this out if no one had a suggestion that sounded better.

Watty, thanks, those search terms have given me a lot of reading to do.

I happen to be in the bay area but my team is remote and I could easily move anywhere in the U.S. and take no pay cut in the short term, a small hit in the longer term since it would make getting the equivalent raises difficult, but the delta in would probably be less than the difference in cost of living. My partner also has a portable job in tech.

We've mulled over the idea of moving somewhere cheap and buying a house, the last time we looked there was a house in a perfect location in a city we love for $150k. We'd almost certainly make a move like that if we retired. We haven't made the move yet because, while our current jobs are portable, they're not stable, and we'd have a hard time finding lucrative work from a smaller city if either of us lost our job. I work at a mid-sized public tech company that competes with FAANG companies in compensation, but that has a precarious business model. If our business falls apart and we have layoffs, I should be able to find a similarly remunerative job as long as I'm in a major tech hub and the job market continues to be stellar, but I doubt I'd be able to find something similar if we moved to a city where we can get a house in a great location for $150k. My partner's situation is similarly precarious with respect to her employer and similarly low risk conditioned on us not moving and job market conditions not changing.

By the way, the numbers above are for my finances only, my partner and I keep our finances separate.
Last edited by spae on Wed Oct 09, 2019 12:25 am, edited 1 time in total.

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Re: What should I do about employer / industry risk in tech?

Post by HEDGEFUNDIE » Wed Oct 09, 2019 12:19 am

spae wrote:
Wed Oct 09, 2019 12:02 am

HF, I hadn't seen that thread. Thanks for the pointer. Are you holding that or is this something you're considering doing? I doubt I'll move to something that far from what I currently hold, but it does give me something to think about.
I am holding most of what I recommended. The only pieces I don’t have are the min vol funds. When I get to 7 figures investable assets I will definitely be adding them.

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Re: What should I do about employer / industry risk in tech?

Post by KyleAAA » Wed Oct 09, 2019 12:23 am

Just hold more bonds. Your savings rate is going to swamp your portfolio returns anyway.

BillyK
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Re: What should I do about employer / industry risk in tech?

Post by BillyK » Wed Oct 09, 2019 12:57 am

The tech sector is broad with many financially strong companies. If tech takes a downturn, they are not all going to behave the same. IBM has weathered more than a few storms since its inception in the 1880s. Tech companies such as Microsoft, Apple and other have large amounts of cash and will weather a market crash better than most companies. There are many strong and resilient companies within tech. Likely if tech crashes, it will also be a broad global crash across many sectors at once such as in 2008.

If you are worried about taking specific precautions and actions for a tech market crash, as other posters have mentioned it may be time to increase the fixed income percentage of your portfolio. You can't get much simpler than that.

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Watty
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Re: What should I do about employer / industry risk in tech?

Post by Watty » Wed Oct 09, 2019 7:13 am

spae wrote:
Wed Oct 09, 2019 12:02 am
I happen to be in the bay area but my team is remote and I could easily move anywhere in the U.S. and take no pay cut in the short term, a small hit in the longer term since it would make getting the equivalent raises difficult, but the delta in would probably be less than the difference in cost of living. My partner also has a portable job in tech.

We've mulled over the idea of moving somewhere cheap and buying a house, the last time we looked there was a house in a perfect location in a city we love for $150k. We'd almost certainly make a move like that if we retired. We haven't made the move yet because, while our current jobs are portable, they're not stable, and we'd have a hard time finding lucrative work from a smaller city if either of us lost our job.
You also have to be concerned about jobs getting harder to get as you get older.

I retired out of corporate IT in my late 50s so it can be done but I also saw a lot of people run into career troubles in their 40s and 50s when they could not find a new IT job when they needed one. This can really be a big problem for older worker in a recession when few companies are hiring. Some of this is plain age discrimination but a larger part is that even though an older worker can learn new skills someone with the same new skills that is just a few years out of college will be a lot cheaper to hire than someone with 25 years experience when only the last five years are relevant.

One other way to look at your situation is that you have a lot of risk in your job and career. It might be good to offset that some by having a more conservative portfolio.
spae wrote:
Wed Oct 09, 2019 12:02 am
....if we moved to a city where we can get a house in a great location for $150k.
I'm familiar with several low to medium cost of living areas and while you can still buy a house for $150K in some places that may not be a realistic home that you would actually want to retire in.

The problem is that even though it is in a low cost of living area the costs of things like furnaces, lumber, etc cost about the same anywhere so it would be hard build a nice home for $150k.

If I was in your situation I would plan on spending something like $300K for a nice home if you eventually move and I would keep that money is a seperate house fund investing account.

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spae
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Re: What should I do about employer / industry risk in tech?

Post by spae » Wed Oct 09, 2019 9:57 am

BillyK wrote:
Wed Oct 09, 2019 12:57 am
The tech sector is broad with many financially strong companies. If tech takes a downturn, they are not all going to behave the same. IBM has weathered more than a few storms since its inception in the 1880s. Tech companies such as Microsoft, Apple and other have large amounts of cash . . .
None of the companies you've named are really relevant to this discussion. IBM wouldn't pay me what I'm making now unless I was a VP. They wouldn't hire me, an individual contributor with no management experience, as a VP nor do I have any desire to manage a team let alone a division.

Apple will match competitive offers from companies that pay competitively but they won't give you a good offer off the bat, or at least they haven't done so for anyone I know. If the companies they'll match stop paying competitively, they're not going to step up.

Microsoft pays people who aren't very senior poorly and wouldn't pay me what I'm making unless I was a partner and it's exceedingly unlikely that I could get hired in at the partner level. I do know a person at L67 who's close to my compensation, but that's unusual and I wouldn't count on that now, let alone after crash that removes Microsoft's need to pay competitively. To get hired in at partner from my current employer, I'd probably have to get to a band where I'd make high six figures. I'm on a trajectory where that may happen but I certainly wouldn't bet on it.

Excluding finance companies, there are perhaps twenty to thirty tech companies that are competitive with FAANG in compensation. These companies employ enough people that I estimate 10% of programmers in the United States are paid competitively. 10% is a lot given that most programmers are like my former self and have no idea that they can quadruple their pay by moving to a company that pays better, but there's not a lot of diversity and only a few companies are really paying top of market, most are paying the absolute minimum they can to get by, like Apple, and would drop compensation in a heartbeat if the companies driving up compensation had layoffs and stopped handing people outsized offers.

I am presently sitting in the main room of an enterprise tech conference in the middle of the country where company names are mandatorily displayed on badges. Other than two speakers from Netflix and one from Azul, I haven't seen anyone from a company that pays competitively. I'd be surprised if more than 1% of attendees are paid at rates that would be competitive in the bay area. In the event of a crash, I might be able to move back to the middle of the country and get a job at one of these companies where the highest ranking individual contributor makes less than we pay good candidates two years out of school. That's one kind of backup plan. I'd do it if that was the only option. I'd prefer to have another option.
KyleAAA wrote:
Wed Oct 09, 2019 12:23 am
Just hold more bonds. Your savings rate is going to swamp your portfolio returns anyway.
This is simple and makes a lot of sense. Thanks. I'll consider this as well as HF's less conventional AA.
Watty wrote:
Wed Oct 09, 2019 7:13 am
You also have to be concerned about jobs getting harder to get as you get older.

I retired out of corporate IT in my late 50s so it can be done but I also saw a lot of people run into career troubles in their 40s and 50s when they could not find a new IT job when they needed one.

...

One other way to look at your situation is that you have a lot of risk in your job and career.
100%. I'm just old enough that I don't have the confidence that my younger colleagues have, that the job market cannot possibly suffer a downturn. When I was a child, the defense industry collapsed and I saw an entire industry, one where people do work that's essentially what I do, send most of its employees into involuntary retirement. When I was in college, the dot com bust happened. This didn't affect me, but many people who graduated only a few years before me failed to get a job in industry and are still underemployed today.
Watty wrote:
Wed Oct 09, 2019 7:13 am
I'm familiar with several low to medium cost of living areas and while you can still buy a house for $150K in some places that may not be a realistic home that you would actually want to retire in.
Both of us grew up poor and have no problem living in a house that's not very nice. Adjusted for inflation, my childhood home is under $150k and that home was larger than I need. Redfin's estimate is that my childhood home is now $240k.

If lifestyle inflation catches up with us and we change our minds, it appears that we can have a new house built on a lot for perhaps $200k to $300k plus the price of the lot. This cost may be off since we haven't seriously considered doing this and haven't researched this further than a single web search. If I were to retire today, this is more than I'd like to spend on a house. If there's no crash for a year or two, I might change my mind about this.

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Re: What should I do about employer / industry risk in tech?

Post by Jack FFR1846 » Wed Oct 09, 2019 10:15 am

Your savings are above average for your age. I didn't have that kind of money until my mid 50's and didn't "really" start saving until then. I'm at about 2.5 now.

Continue with the "total" funds you're in. They mitigate issues in a company, an industry, a dip. Stay the course.

Some tech is in trouble right now. Hardware that touches China is in trouble. I could go on for pages on what is being done, but don't want to go down a rabbit hole. Staying out of tech stocks and in the "totals" is the way to avoid risk. Stick with it.
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Re: What should I do about employer / industry risk in tech?

Post by Dottie57 » Wed Oct 09, 2019 10:21 am

Just a note. Apple and Microsoft pay competitive wages to programmers since they are able to hire people they want.

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Re: What should I do about employer / industry risk in tech?

Post by StandingRock » Wed Oct 09, 2019 10:29 am

If you're worried about losing your job just spend some time networking and improving your skills. If you're any good you'll be able to find another job. If you're way overpaid, just ride the wave and keep stashing. There's no magic bullet that will guarantee a straight line path through life for you.

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spae
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Re: What should I do about employer / industry risk in tech?

Post by spae » Wed Oct 09, 2019 10:47 am

Dottie57 wrote:
Wed Oct 09, 2019 10:21 am
Just a note. Apple and Microsoft pay competitive wages to programmers since they are able to hire people they want.
This is simply not true. At L63 senior, Microsoft median is about $225k/yr. This is a very good new grad offer at FB or Google or poor compensation for a new grad one or two years in. Someone who's "HiPo" at Microsoft, top 2% at L63 is looking at $350k/yr. The analogous out-of-band stock grants at FB for the top 2%, with stock price increases, would put someone at $1m/yr after a few years. Without historical stock price increases, that number would be well under $1m but still double what you'd see at Microsoft.

Microsoft has been hemorrhaging people for years since they're not competitive until you make partner or at least L67 and it's a good approximation to say that no one makes partner. If you look at hot new hires, like deep learning PhDs, they land approximately zero percent of hires that have offers at competitive companies.

Apple is better but still not in the same league as the companies I'm talking about for most people.

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Re: What should I do about employer / industry risk in tech?

Post by milktoast » Wed Oct 09, 2019 11:11 am

I've been around for a few tech crashes. This is my advice:
- don't hold stock in your own employer. Don't do it. Don't. Don't hold stock in your own employer.
- save rather than grow your lifestyle
- be polite and helpful to everyone you work with. For people you meet in the top 10% of their area (eng, product mgmt, sales, management, etc.) connect on linkin and actually connect in person. If one of you move on, try to have coffee at least once every 18 months.

You'll be fine.

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Re: What should I do about employer / industry risk in tech?

Post by Dottie57 » Wed Oct 09, 2019 12:45 pm

spae wrote:
Wed Oct 09, 2019 10:47 am
Dottie57 wrote:
Wed Oct 09, 2019 10:21 am
Just a note. Apple and Microsoft pay competitive wages to programmers since they are able to hire people they want.
This is simply not true. At L63 senior, Microsoft median is about $225k/yr. This is a very good new grad offer at FB or Google or poor compensation for a new grad one or two years in. Someone who's "HiPo" at Microsoft, top 2% at L63 is looking at $350k/yr. The analogous out-of-band stock grants at FB for the top 2%, with stock price increases, would put someone at $1m/yr after a few years. Without historical stock price increases, that number would be well under $1m but still double what you'd see at Microsoft.

Microsoft has been hemorrhaging people for years since they're not competitive until you make partner or at least L67 and it's a good approximation to say that no one makes partner. If you look at hot new hires, like deep learning PhDs, they land approximately zero percent of hires that have offers at competitive companies.

Apple is better but still not in the same league as the companies I'm talking about for most people.
The results of Apple and MS say different.

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Re: What should I do about employer / industry risk in tech?

Post by HEDGEFUNDIE » Wed Oct 09, 2019 12:49 pm

OP, what you're actually asking is about is the correlation of various asset classes to tech. Here you go:


Image


Depending on which tech company you are at, you're either in the Technology or Communications Services sector.

Total Stock Market is the most correlated to tech. You can either bury your head in the sand about that, as many of the three-funders here are apt to do, or you can actually do something about it. I applaud you for considering the second path.

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spae
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Re: What should I do about employer / industry risk in tech?

Post by spae » Wed Oct 09, 2019 2:03 pm

Dottie57 wrote:
Wed Oct 09, 2019 12:45 pm
The results of Apple and MS say different.
Have you somehow confused this thread about employee compensation in tech with another thread about the financial results of tech companies? I don't understand how this response could make sense otherwise.

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spae
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Re: What should I do about employer / industry risk in tech?

Post by spae » Wed Oct 09, 2019 2:20 pm

HEDGEFUNDIE wrote:
Wed Oct 09, 2019 12:49 pm
Total Stock Market is the most correlated to tech.
Thanks for pulling up these numbers. I suspected the correlation would be high simply from looking at what total stock market holds, but I didn't realize it's that high. The top N holdings are a list of major tech employers. Many mid-sized tech companies, like my current employer, populate the lower entries of the list. Every single tech company I know of that pays competitive liquid compensation is in the total stock market index, which is exactly the opposite of what I want in my portfolio.

Kyle's comments plus yours have convinced me that I should probably switch the assets that I'm holding in tax advantaged accounts to a bond allocation while I mull over what to do in my taxable accounts, where making changes will have tax consequences.

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Re: What should I do about employer / industry risk in tech?

Post by Dottie57 » Wed Oct 09, 2019 2:49 pm

spae wrote:
Wed Oct 09, 2019 2:03 pm
Dottie57 wrote:
Wed Oct 09, 2019 12:45 pm
The results of Apple and MS say different.
Have you somehow confused this thread about employee compensation in tech with another thread about the financial results of tech companies? I don't understand how this response could make sense otherwise.
Well if they don’t have excellent employees who are content with their compensation, They wouldn’t be doing so well. Employees leave. If they leave someone else takes their place - hence competitive.

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spae
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Re: What should I do about employer / industry risk in tech?

Post by spae » Wed Oct 09, 2019 3:03 pm

Dottie57 wrote:
Wed Oct 09, 2019 2:49 pm
Well if they don’t have excellent employees who are content with their compensation, They wouldn’t be doing so well. Employees leave. If they leave someone else takes their place - hence competitive.
Some friends of mine are so wealthy that their kids probably won't have to work because they spent a year at Heptio. Heptio literally failed to create a product. This created so much wealth that individual contributors who worked there in the first year are wealthy beyond their wildest dreams. They could have replaced their engineers with people off the street who can't program with no difference in outcome.

Microsoft isn't in the same situation, but they're legendary for exploiting network effects, the exact opposite of being in an industry where individual employee excellence matters. From a technical standpoint, Azure is clearly in last among the three major clouds from a technical standpoint but they're solidly in 2nd as a business simply because they were the 2nd serious attempt at public cloud and they were able to leverage network effects to close sales.

The big success they're leveraging fundamentally comes from Windows, another successful business that's technically poor. The other major line of business they're leveraging for cloud is office, another business success that was technically unimpressive compared to the competition. If you want to argue that this shows that they don't need to pay competitively, that may be true, but also completely irrelevant to this discussion.

There's a lot of magical thinking in this thread. Upthread, someone claims that anyone who's good won't have a hard time finding a job, as if companies can identify who is good. I've worked for some of the most prestigious companies with the best reputations for having great engineers. I assure you, we cannot tell who is good and the engineers are no better than you'd see at some mom and pop shop back home, although they are better at whiteboard algorithms coding. And then there's this comment that a company being successful must mean it has excellent engineers, as if business success cannot be had without engineering excellence. I would be delighted to live in a world where engineering at big tech companies was that important. I actually used to work in an industry where engineering was that important. It didn't pay well.
Last edited by spae on Wed Oct 09, 2019 9:52 pm, edited 4 times in total.

vrr106
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Re: What should I do about employer / industry risk in tech?

Post by vrr106 » Wed Oct 09, 2019 3:16 pm

spae wrote:
Wed Oct 09, 2019 2:20 pm
HEDGEFUNDIE wrote:
Wed Oct 09, 2019 12:49 pm
Total Stock Market is the most correlated to tech.
Thanks for pulling up these numbers. I suspected the correlation would be high simply from looking at what total stock market holds, but I didn't realize it's that high. The top N holdings are a list of major tech employers. Many mid-sized tech companies, like my current employer, populate the lower entries of the list. Every single tech company I know of that pays competitive liquid compensation is in the total stock market index, which is exactly the opposite of what I want in my portfolio.

Kyle's comments plus yours have convinced me that I should probably switch the assets that I'm holding in tax advantaged accounts to a bond allocation while I mull over what to do in my taxable accounts, where making changes will have tax consequences.
I understand the need to try and hedge since your current employers are in tech/healthcare but unless you are over exposed to your own company's stock, why would you even factor in where you are employed in your investment decision? If TSM is over weight in tech sector and tech starts to underperform, wouldn't the TSM sector mix change naturally over time to account for that?

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spae
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Re: What should I do about employer / industry risk in tech?

Post by spae » Wed Oct 09, 2019 3:44 pm

vrr106 wrote:
Wed Oct 09, 2019 3:16 pm
I understand the need to try and hedge since your current employers are in tech/healthcare but unless you are over exposed to your own company's stock, why would you even factor in where you are employed in your investment decision? If TSM is over weight in tech sector and tech starts to underperform, wouldn't the TSM sector mix change naturally over time to account for that?
Yes, but it will change after wiping out a significant fraction of my savings at the same time I'm on longer able to find lucrative employment.

I'm not concerned about my specific employer conditional on the job market continuing to be solid since it's currently easy to move, but I will be overexposed to some company's unvested stock at any given time unless I join Netflix or a finance company. Joining Netflix wouldn't really change the equation since they'll lay people off just like everyone else in a downturn. In that sense, future salary is not much different from unvested stock, although it's less likely to decline for people who survive layoffs. However, a significant fraction of my cash compensation is in "expected bonus", which will likely go to zero in a severe downturn, so even cash compensation can't be expected to be reliable for people who don't get laid off.

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Re: What should I do about employer / industry risk in tech?

Post by HawkeyePierce » Wed Oct 09, 2019 4:35 pm

I'm in a similar boat (high comp tech) and I've been strongly considering something along the lines of HF's portfolio.

30% NTSX (90/60 S&P500/Treasury ladder)
10% US small cap value
10% utilities
10% ex-US small cap (or possibly ISCF, ex-US small cap multifactor)
10% Emerging markets stock
10% Emerging markets govt bond
10% gold
10% EDV

I have not moved to this though. Still thinking it through.

vrr106
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Re: What should I do about employer / industry risk in tech?

Post by vrr106 » Wed Oct 09, 2019 5:15 pm

spae wrote:
Wed Oct 09, 2019 3:44 pm

Yes, but it will change after wiping out a significant fraction of my savings at the same time I'm on longer able to find lucrative employment.
I am in a similar situation - tech company, compensation well above average for a similar role in a non tech company etc. However, I don't view this as a complete outlier that needs a hedge - at least not anything as risky as shorting tech stocks or options. I'm in my 40s so I went through the dotcom bust very early in my career with a company whose stock went from $10 to $500 and then to $0.50, then had a period of consolidation with a lower paying although stable job and now back with a higher paying company. But I was fortunate to keep funding my 401ks and later my taxable accounts with index funds. I personally don't see the need to aggressively hedge against unvested RSUs and a high salary by looking for investments that are on the opposite spectrum, I'd rather treat the variation as the cost of doing business in tech. When RSUs vest and bonuses get paid out, I put them in indexes.

Topic Author
spae
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Re: What should I do about employer / industry risk in tech?

Post by spae » Thu Oct 10, 2019 1:03 am

vrr106 wrote:
Wed Oct 09, 2019 5:15 pm
I'm in my 40s so I went through the dotcom bust very early in my career with a company whose stock went from $10 to $500 and then to $0.50, then had a period of consolidation with a lower paying although stable job and now back with a higher paying company. But I was fortunate to keep funding my 401ks and later my taxable accounts with index funds. I personally don't see the need to aggressively hedge against unvested RSUs and a high salary by looking for investments that are on the opposite spectrum, I'd rather treat the variation as the cost of doing business in tech. When RSUs vest and bonuses get paid out, I put them in indexes.
The market came back for software generalists, but it didn't for VLSI, most people in embedded, optics, and many other areas. I don't see why I should expect the market for my skills to come back. It might, but it might not. People tell me that the software market can't go sour because software is so important and getting more important, but you could've said the same about a number of fields whose compensation has never recovered. Optics is more important than ever, there's more fiber bandwidth used than ever and the increase continues to be exponential. The optics PhDs I know still make less than new grads at my employer even though optics PhDs were among the hottest commodities around before the dot com bust.

In the good historical case you're presenting, compensation was down for most of a decade before rebounding to new record highs. Even if that happens in the future for my areas of expertise, I may want to retire before the rebound. I don't want to bet my retirement on a rebound happening at all let alone a fast one.
vrr106 wrote:
Wed Oct 09, 2019 5:15 pm
I am in a similar situation - tech company, compensation well above average for a similar role in a non tech company etc. However, I don't view this as a complete outlier that needs a hedge - at least not anything as risky as shorting tech stocks or options.
Why should hedging be considered more risky and not less risky? If someone inherited $3m and asked about creating a portfolio that's 50% tech stocks, 45% Vanguard Total Stock Market, 5% bonds, this would be considered a bad idea by most people because of the extreme sector tilt.

Over the next four years of vesting, I'm essentially forced to hold 50% tech stocks. How can finding a way to mitigate the risk of that sector tilt be less risky than ignoring the sector tilt and buying 45% Total Stock Market, which includes something like 1/4 tech, putting me in the ballpark of 60% tech stocks total? If I continue to hold Total World, it won't be quite that much, but it's the same idea.

I have no objection to someone saying the cost buying insurance via puts is higher than they're willing to pay or perhaps higher than it would make sense for anyone to pay, but I don't see why the idea should be considered high risk and not insurance.

Wannaretireearly
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Re: What should I do about employer / industry risk in tech?

Post by Wannaretireearly » Thu Oct 10, 2019 1:49 am

Maybe pick up some skills in related areas. Product Management, presentations, etc.
When push comes to shove, employers need 'all rounders' not just tech/gear heads.
As you mention very well, average eng groups with stellar biz models succeed. I.e. think/develop skills on the biz/product mgmt side, while your making the big coding bucks.

My 2 cents. Would you mind sharing the 20 to 30 companies outside FAANG who pay top dollar? I can guess a few, but would be good to know others.

I'm in an IT leadership role, so this info would be more useful for my Engineer wife. ( I'm always telling her she has much better prospects than me - proven by the recruiters chasing her ;)
Buy Low, Sell High

anoop
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Re: What should I do about employer / industry risk in tech?

Post by anoop » Thu Oct 10, 2019 3:06 am

@spae, you are spot on in your analysis with respect to jobs/compensation recovering after a bubble. Thanks also for a lot of compensation data. I kind of had an idea of what it was like, but you have put actual numbers to everything.

AlohaJoe
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Re: What should I do about employer / industry risk in tech?

Post by AlohaJoe » Thu Oct 10, 2019 4:05 am

spae wrote:
Tue Oct 08, 2019 10:29 pm
my income is mid six figures, and my annual expenses are mid five figures.
You are making $500,000 a year but spending $50,000 a year. You already have $1.4 million and no debt. Why will it take you a decade to get comfortable? In 12 months you'll have enough money to retire forever. The year after that you'll have enough money to retire forever and buy a brand new $300,000 house before you retire. The year after that....

Valuethinker
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Re: What should I do about employer / industry risk in tech?

Post by Valuethinker » Thu Oct 10, 2019 4:09 am

BillyK wrote:
Wed Oct 09, 2019 12:57 am
The tech sector is broad with many financially strong companies. If tech takes a downturn, they are not all going to behave the same. IBM has weathered more than a few storms since its inception in the 1880s. Tech companies such as Microsoft, Apple and other have large amounts of cash and will weather a market crash better than most companies. There are many strong and resilient companies within tech. Likely if tech crashes, it will also be a broad global crash across many sectors at once such as in 2008.

If you are worried about taking specific precautions and actions for a tech market crash, as other posters have mentioned it may be time to increase the fixed income percentage of your portfolio. You can't get much simpler than that.
Tech sector downturns are brutal.

The companies may survive but a lot of the employees don't.

IBM appears to have a deliberate policy to manage out over 50 year olds via Performsnce Management HR systems. I have several friends who were caught out by this. In the USA there have been lawsuits (generally settled out of court with paper sealed). Mother Jones had an expose. All these employees were rated as above a average employees.

Tech is like Financial Services. Over 50 is rare except in top management.

international001
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Re: What should I do about employer / industry risk in tech?

Post by international001 » Thu Oct 10, 2019 5:04 am

Is shorting on a tech ETF (like QQQ) an option? Perhaps 5 years time frame?

ARoseByAnyOtherName
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Re: What should I do about employer / industry risk in tech?

Post by ARoseByAnyOtherName » Thu Oct 10, 2019 5:37 am

spae wrote:
Wed Oct 09, 2019 3:03 pm
The big success they're leveraging fundamentally comes from Windows, another successful business that's technically poor. The other major line of business they're leveraging for cloud is office, another business success that was technically unimpressive compared to the competition. If you want to argue that this shows that they don't need to pay competitively, that may be true, but also completely irrelevant to this discussion.

There's a lot of magical thinking in this thread.
The only magical thinking in this thread is you thinking that Windows and O365 is technically “poor”, either compared to the competition or in and of itself. Can you educate us on why you believe this?

vrr106
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Re: What should I do about employer / industry risk in tech?

Post by vrr106 » Thu Oct 10, 2019 6:37 am

spae wrote:
Thu Oct 10, 2019 1:03 am
I don't see why I should expect the market for my skills to come back. It might, but it might not.
This may be totally unsolicited advice not germane to the investment discussion, but in hindsight what worked for me was to grow my career on a management track as opposed to a technical track. Regardless of market performance, one needs to stay relevant and that's what worked for me and that was my hedge.

aristotelian
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Re: What should I do about employer / industry risk in tech?

Post by aristotelian » Thu Oct 10, 2019 6:59 am

I would overweight Low Volatility and Value. I am partial to Low Vol but possibly as a result of recency bias.

Topic Author
spae
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Re: What should I do about employer / industry risk in tech?

Post by spae » Thu Oct 10, 2019 10:37 am

ARoseByAnyOtherName wrote:
Thu Oct 10, 2019 5:37 am
The only magical thinking in this thread is you thinking that Windows and O365 is technically “poor”, either compared to the competition or in and of itself. Can you educate us on why you believe this?
This post on the deficits of Windows is accurate: http://blog.zorinaq.com/i-contribute-to ... ther-oper/. See also https://github.com/Microsoft/WSL/issues/873, or comments from any programmers who want good filesystem performance on Windows. The reasons are wrong, but if we're talking about technical excellence, Windows isn't it. I'm not a Linux fanboy, Linux is technically poor when compared to some BSDs or Solaris, but technical excellence simply doesn't matter in the market.

Windows networking hamstrung Azure. If you look at cloud networking latencies, Microsoft was in third place by a large margin for years once Google fixed VM-to-VM communications essentially having to go outside and back because they couldn't handle security properly otherwise. Azure wanted this fixed but Windows, as an org, didn't care and would put critical fixes that were costing customers on the roadmap for two years in the future. This comic is a joke, but not incorrect: http://bonkersworld.net/organizational-charts. To fix this, networking was moved into Azure, but the technical output was still poor, worse than you'd get by using DPDK. But in the Ballmer era, people were strongly discouraged from looking at open source code, so no one realized that Intel was giving away something with lower latency and better throughput. It wasn't until a year after Satya came in that people realized that their architecture was inferior to a free open source thing and that they needed a re-write to change the architecture if they wanted to keep up with free open source usermode networking let alone Amazon or Google's proprietary code. This comment is about one specific thing, but you can find something similar in just about every aspect of Windows. Are you a systems programmer? It's impossible to do cross platform systems level benchmarking and not see this. You don't even need to benchmark, you can just use VC++. It was the last to get something resembling C++11 support and couldn't get very basic template semantics correct. The reason for this is because they used macro substitution and not an AST to handle templates. If you tell this to a programmer they'll literally laugh out loud because this is so obviously wrong and unworkable that it would be absurd to attempt. They have since switched to using ASTs to handle templates, but only after over a decade of failed bandaids on top of the wrong approach and they're still behind as a result of the very late switch. Until recently, you didn't even to compile, you could just install. The Visual Studio binary installer was much slower than compiling LLVM and clang or gcc from scratch. If you trace the installer or look at syscalls, you would've seen that it was spending most of its time sleeping, not even on large I/Os. Classic programmer workaround concurrency issues: add sleeps. It works if you make the sleeps so large there's little risk of the concurrency bug killing you and it's the fastest way to fix it, but that's not what I'd call technically excellent. https://twitter.com/ID_AA_Carmack/statu ... 0020682752.

There are places where Windows made a better decision than Linux, like IOCP, but even there, the implementation is so poor compared to Linux that you get better performance with epoll and friends. You see the same thing with ETW, which is arguably as good as dtrace despite the inability to insert trace points at runtime, which is a better design than anything Linux has (yes, I know about dtrace on Linux, in practice it's what you want). Despite that, if you want tracing, your options are much better on Linux, both at the RPC level as well as the system level.

I could give similar examples in Office, but I'll just do a quick one because this is far afield from the actual topic. People make fun of the backend of Google's office suit because they used OTs and not CRDTs, but O365 didn't even use OTs and used locking. For Word, this was originally document level and got more relaxed, but was still fundamentally broken for many years since there's no way to handle multiple edits properly with locking.
vrr106 wrote:
Thu Oct 10, 2019 6:37 am
This may be totally unsolicited advice not germane to the investment discussion, but in hindsight what worked for me was to grow my career on a management track as opposed to a technical track. Regardless of market performance, one needs to stay relevant and that's what worked for me and that was my hedge.
I agree that this would be a good strategy. Simply looking at the number of people at each level, a larger fraction of people on the management track get promoted to the next level. I've scraped the employee directory at every coastal tech company I've worked for and this has been true everywhere. This would be easy for me to do since my manager is always joking but also not jokingly suggest that I start taking on reports but I think I wouldn't enjoy management.

I appear to be on track for a promotion to an IC level that we consider equivalent to director. If that works out, I won't have a good way to make the change without a significant pay cut since I wouldn't be able to switch directly over to being a director, nor would I want do because every director that I've seen has a level of stress in their job that I do not want. We do have senior ICs who manage without changing tracks, but unlike our larger peers, we haven't worked out how promo should work for these people. This makes it nearly impossible to get promoted if manage as an IC unless you work two jobs and do enough IC work to get promoted on your IC work alone while managing. This problem appears common among tech companies outside of some of the giants, where it's unremarkable for senior staff ICs and above to have more reports than most line managers.
AlohaJoe wrote:
Thu Oct 10, 2019 4:05 am
Why will it take you a decade to get comfortable? In 12 months you'll have enough money to retire forever. The year after that you'll have enough money to retire forever and buy a brand new $300,000 house before you retire. The year after that....
Mainly risk aversion and fear of the unknown.
Wannaretireearly wrote:
Thu Oct 10, 2019 1:49 am
Maybe pick up some skills in related areas. Product Management, presentations, etc.
I do some PM work because my org is light on PMs and someone has to do it for successful projects that cut across multiple teams. I hate presenting but I give outside talks at least once a year to force myself to practice presentation skills. There are some areas where I know I should put in more time, mulling over this thread may be enough to make myself do that.
Wannaretireearly wrote:
Thu Oct 10, 2019 1:49 am
Would you mind sharing the 20 to 30 companies outside FAANG who pay top dollar? I can guess a few, but would be good to know others.
I haven't looked for work for a while so I don't know this off the top of my head. Off the top of my head, here are a few.

Currently paying top dollar, above market rates if you're willing to deal with the working conditions, other companies generally won't match offers from here:
Snap, Pinterest, Alibaba (if you're Chinese and work on cloud, they don't consider Taiwanese to be Chinese).

Top of market:
Facebook.

Top of market for some specializations, willing to match top of market offers:
Google. Netflix (hard to classify, unlike most companies, they don't lowball people who don't negotiate, but it's harder to get an exceptional offer from them, I don't know anyone who has although I suspect that some people, like Brendan Gregg, have exceptional comp packages).

Generally willing to come close to matching good offers, sometimes dependent on org or hiring manager:
Amazon (actually top of market or close if you're staff or what they call principal), most previously hot companies that have IPO'd, including Dropbox, Lyft, Twitter, Slack, and Uber. There's probably ten or fifteen of these. Also Linkedin and Github.

Selectively willing to match good offers, highly dependent on org or hiring manager:
Apple (actually top of market in some areas), Microsoft, Oracle (cloud only), Cruise, Tesla, many smaller companies that pay most people poorly, too many to list.

This is all stochastic. Many individuals get offers from companies lower on the list that are higher than the offers from companies higher on the list. It also changes over time and I don't make an effort to keep up because I'm not looking for work.

Topic Author
spae
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Re: What should I do about employer / industry risk in tech?

Post by spae » Thu Oct 10, 2019 5:48 pm

HEDGEFUNDIE wrote:
Wed Oct 09, 2019 12:49 pm
OP, what you're actually asking is about is the correlation of various asset classes to tech. Here you go:
I think should be more concerned about annual correlations than daily correlations for my use case, what do you think? This is from Jan 1997 to Dec 2018.

https://imgur.com/1vnlJtV

Relative to the daily, bonds are more strongly negatively correlated, especially treasuries. TSM no longer has the highest correlation, although it is high. Real estate and consumer staples have lower correlations, 0.09 for both.

HEDGEFUNDIE
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Re: What should I do about employer / industry risk in tech?

Post by HEDGEFUNDIE » Thu Oct 10, 2019 6:59 pm

spae wrote:
Thu Oct 10, 2019 5:48 pm
HEDGEFUNDIE wrote:
Wed Oct 09, 2019 12:49 pm
OP, what you're actually asking is about is the correlation of various asset classes to tech. Here you go:
I think should be more concerned about annual correlations than daily correlations for my use case, what do you think? This is from Jan 1997 to Dec 2018.

https://imgur.com/1vnlJtV

Relative to the daily, bonds are more strongly negatively correlated, especially treasuries. TSM no longer has the highest correlation, although it is high. Real estate and consumer staples have lower correlations, 0.09 for both.
I prefer daily correlations because:

1. There are more data points
2. Psychologically we experience the market in day-to-day increments. So we also react on a daily basis.

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