ESPP - hold/sell?

Hi team,

I hope everyone is doing well. I get ESPP through my work. Luckily it is one of the blue chip companies. I can do up to 10% of my salary. I am going to use percentage values instead of actual numbers. I have already seen the a 60% increase of the share since March.

I know usually it is advised to not hold on to the companies share that you work in because of the risk of losing your job and have your net worth go down. But this company is in a lot of growth, tech, and sp500 etfs. I also know the going thought process is to just put your money in a target date fund. I am already maxing out my 401K and Roth IRA. This would be extra.

It could be a very important company in the next decade. It seems like a really good price to get in at and I really don’t think I can beat it, but it is very risky. What are people’s thoughts?

Do you get a discount on your ESPP purchases? i.e. when you contribute 10% of your salary are you buying those at market price or at a discount?

Yes I am getting them at a really good discount. It is 15% off of the lowest price the stock has been either now or 6 months ago. So for example if the stock was at 120 in February and 200 at the end of August. Then I would get it 15% off of the lower of the 2( at $120). And 15% off of 120 is $108. And now the stock is worth $200.

So after 10% of 6 months of my salary, which is basically 60% of my annual salary goes into buying the stock at 15% off the lowest possible rate.

Let me know if that made sense.

Yeah, so that 15% off the lowest price over 6 months is an awesome deal. And assuming you’re out of non-mortgage debt, I would definitely be maxing that out.

I think the “correct”/most likely path to the most wealth is to sell it all as soon as you’re allowed (or possibly after a year to get to the long term capital gains tax rate) then put all the proceeds into index funds.

The reason is that the market is “efficient”. Everything you mentioned about your company (important over the next decade, seems like a good price) is known to everyone else in the market too. All that stuff is “priced in” to the market. You can’t reliably predict this stock is going to outperform the market. If you could, everyone would go buy it (and sellers wouldn’t want to sell it) until the price raises to the point where you can no longer predict outperformance. That type of adjustment to all available information is happening instantly and constantly in the market.

So when you’re putting money into a single stock, all you’re doing is increasing future volatility (single stocks go up and down faster than entire markets) without an expectation of higher future performance. That’s not a good trade.

THAT SAID, that’s the rational/“correct” strategy. And I get that you want to take a risk. Especially if you work for a company you believe in. Personally, I made a lot of money buying stock of the company I worked for… my only regret is selling it. So if you want your “lotto ticket”… the chance at large outperformance, I think that is reasonable. But I would never put more into a single stock than you can afford to lose and still have your retirement in good shape. i.e. if you’re investing enough outside of this stock to comfortably retire at an age you’re happy with, then sure throw some of the extra in the stock… so you’ve got the sure thing and the lotto ticket! :slight_smile:

2 Likes