Scrooge Strategy

WSJ: Sell employer-discounted stock for a quick buck

7 comments — written on July 13th, 2005

The WSJ wrote an article about employer-sponsored stock purchases (i.e., when you get an employee discount to buy shares of your own company). Here’s what they had to say:

Condo flippers are getting all the attention these days, but there’s an easier path to a tidy gain: a quick sale of shares in your employee stock-purchase plan.

I pretty couldn’t disagree more! But I’m interested to know what you think.

The WSJ says flipping your employee stocks is a good idea.

I think it’s dumb.

What do you think?

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7 comments

Leave your own

  1. 1
    July 13, 2005

    kieranyler

    Well, flipping makes perfect sense if (a) your company is going down the tubes, and you know it; (b) you’re incredibly risk-averse and the idea of a market downturn gives you ulcers; or (c) you really need the money or else somebody is going to break your kneecaps. Otherwise, I’m with you.

  2. 2
    July 14, 2005

    Nikki

    Not to mention the penalties and the taxation of the discount as regular income.

    Also, some companies prevent you from enrolling for a period after you sell stock if it was not held for a minimum length of time.

    What are these folks smoking?

  3. 3
    July 14, 2005

    chris1089

    I’ve been at 3 large companies that have ESPP programs and the best advice I can give is to max out your contribution since a great return is guaranteed.

    But giving blanket advice to hold OR sell shares after receiving them is well… dumb. You need to consider how these shares fit into the rest of your portfolio and if you need the acquired stock for a short term or long term purchase.

    You can easily get burned by holding stocks even if the company is rock solid. I have some shares in a solid tech company that I acquired in 2000 and held them and am still holding them. Even though the company is doing well they are still no where near their original value. The rationale I used to hold them is I’ll keep them at least a year so I can get a better tax rate when I sell. While that may have been smart thinking, what was dumb was ignoring how tech heavy my portfolio was and how overvalued the asset class was at the time…

  4. 4
    July 14, 2005

    Jeff

    There is something to be said for flipping the stock right away, and dismissing that option out of hand is rash. If your employer’s stock doesn’t fit into your portfolio, there is nothing wrong with selling right away and accepting the tax penalties. Sure, it may not be an automatic 15% gain, but an automatic 9 or 10% gain is still nice, especially considering that while waiting for it to become a long term capital gain the stock could sink below the price you bought it at. The proceeds from the sale can be immediately reinvested in whatever suits your goals.

  5. 5
    July 25, 2005

    Owen Johnson

    It seems that if one already holds stock in their employer’s stock plan(which is likely, and even more likely is that one holds too much), that getting stock at a discount and then selling other shares that one has held for over a year could be a wise thing to do. One would avoid short term capital gains rates, make a quick return, and continue to hold the same position in one’s company while gaining new capital to invest in others.

  6. 6
    July 28, 2005

    Jerry Kindall

    It’s also worth considering how much of your employer’s stock you really want to own. If it makes up too much of your portfolio, it can set you up for a one-two punch: if the company hits hard times, not only is your job in danger, but so is a large chunk of your nest egg. Some advisors even suggest not owning stock in any company that’s in the same business as your employer for pretty much the same reason.

  7. 7
    January 22, 2007

    Ealasaid

    I’ll throw in my two cents, even though I’m late to the party – I’m planning to flip the stock I get through my company’s ESPP because (1) I don’t want to have all my stock in one company and (2) I have a shitload of debt I’m trying to pay off while I’m also trying to start my retirement accounts and whatnot. I’d rather have less debt and start my retirement accounts than more debt, stingy accounts, and stock I am not sure I can count on. I also agree with Jerry’s point – if my company tanks, I don’t want to lose my job AND my investment.

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