Saturday, August 20, 2016

I’m considering breaking one of my own rules

When I was a financial advisor, many of my clients worked for publicly traded companies and often had significant portions of their nest egg invested in their employers stock. Many companies have employee stock purchase plans (ESPP) that allow you to purchase stock (often at a discount) that accumulates similar to a 401k, but without diversification. A lot of large 401k plans also have company stock as an option for your 401k contributions. Combine these two methods of buying company stock with paternalistic companies with multi-generational histories and you end up with people who have 90+% of their net worth tied up in company stock.

My advice was always to sell off the company stock and diversify. Did no one learn anything from Enron? If you have too much of your world tied up in company stock and things go south, you have risk of losing your nest egg AND your job. It is riskier for you to own shares of your employer than it is for someone who doesn't also work there. Trying to convince people to sell company stock was always a difficult conversation, and I likened it to telling someone their kids were ugly. Holding the same stock for decades, people often would feel that the stock was partly responsible for their financial success, even if the stock had been a terrible performer.

My current employer is a large, publicly traded company, and I have made it a point to avoid buying any shares of stock. In addition to my concerns about diversification, because I work in finance I often have access to confidential information and so am only able to trade the stock during certain times (i.e., no transactions allowed near earning release dates or other major events).

From the time I was hired, our stock is up considerably (>3x), but so far this year hasn't really kept up with the rest of the market. I attended a leadership meeting this past week and while listening to the CEO and CFO speak, I found myself thinking "Wow, we're doing really well and our future is bright. Why don't I have any shares of our stock?" I came home and mentioned this to my wife thinking/hoping she'd tell me to snap out of it and don't do something stupid, but instead she just said "if you want to buy a few shares, just keep it small.

In the not too distant future, I could be in a position where a portion of my compensation is given in the form of company stock. At that point, what I decide to do with the stock will make a larger difference in my overall plan. My current strategy for stock received from my employer is to immediately sell at least half of any stock given, but to keep a small amount to show confidence in the work I am doing. Keeping stock that was granted to me somehow feels different than proactively going out and buying shares on my own though.

So here I stand…I'm probably only talking about a couple hundred dollars, which really isn't going to make a difference long term, it's more about the principle and not wanting to deviate from the advice I've given to so many other people.


  1. Oh how wise you are.
    I fell for all the 'it's good to invest in your company', Share Option Schemes, Buy as You Earn, take your bonus in shares, and part of my compensation also came in shares.
    By 2008, I had more than £300k in company shares. Then came the 2008/9 crash. All of a sudden I had £30k... At the time, they were rising steadily and we couldn't see them likely to fail. Big mistake. Ouch!

    At the same time, our salaries were paid into the same bank, our cash savings were there.
    If the bank had gone belly-up we wouldn't even have been able to buy food, let alone pay our bills. Fortunately, the company didn't collapse, we had other investments, but not at the same level.

    We delayed our early retirement for a while, hunkered down and saved hard. We now have two checking accounts, and our cash savings are spread around. No company has more than 5% of our investments.

    I wish I had you for my Financial Adviser then. Mine just said - you've a bit much in the one place. You need to think about that!

    Hold onto your principles, but I wouldn't get too hung up with a small proportion of your wealth in the company you work for. As your wife says - just keep it small

  2. Welcome to the site from across the pond! We visited London for the first time this summer and had a great time and especially enjoyed getting out of the city and visiting the Cotswolds. 2008/9 was definitely a scary time all around the world. I wasn't anywhere near retirement but most of my clients were either already retired or getting close to it and it was difficult to not let their fears and anxieties overtake rational thought. The company I worked for then was privately held so holding their shares wasn't a temptation. I still haven't given in and haven't bought any company stock and no longer feel the desire - maybe writing about it was all I needed to get it out of my system. We have a share purchase program but there isn't a discount so I would just buy the shares outright instead of payroll deduct, but since I'm technically an 'insider' there are all sorts of rules around when I can buy and sell so it's too much of a hassle for a small investment.

    Side note - I had a client who was a UK banker during 2008/09 and had some crazy stories to tell. One of the derivatives groups that no one outside the group really understood how they made money leading up to the crisis ended up losing in one year all the cumulative profits they had brought in since the groups inception a decade earlier.