I get to buy my company's publicly traded stock at a 15% discount to market - hold it or take a quick profit?
Answers
4085 points
EthanR answered 10 months ago …
I think the answer to that question depends on several things.
1) What is the outlook for your company over the next year or two?
2) Do you need the cash right now for something else?
3) Does the stock pay any dividends?
4) Is there a holding period for buying?
1) If you are not crazy about your company's probable performance in the next year or two, then my advice is to take quick profits. However, if the stock price is low right now and you think much better times are ahead, then hold.
2) What will you do with the cash if you take the quick profit? If you need it for something right now (wedding, dental work, new roof, etc), then take the quick profit. If not, than where else will that money go and will you get a better return?
3) Does the stock pay dividends? If so, make sure that you count that in your total return. You are already getting a 15% discount. If you add in a 4% dividend to that, you get a very nice return, even if the stock stays at the exact same price of where it is today. If no dividend, then the tempatation to sell for a quick profit is greater.
4) Many companies have a holding period, and will not allow you to sell discount shares until six months or tweleve months after purchase. Check the policy to see whether you can even sell for a quick profit or not.
Another possibility is sell for a quick profit now, and if shares decline, buy more for the long term with some of the money coming from the profits you made. Good luck!
2183 points
ChaosNantuko answered 10 months ago …
The thing that absolutely must not be forgotten is the idea of diversification. The vast majority of people already make most of their income from their job. If you think of that as another part of your overall "wealth" portfolio, it has many characteristics very similar to bonds. Relatively safe, with a very predictable income. Your income may be worth as much as $500000-750000 of bonds in that company would be. With an "effective positive" so large, it doesn't really make sense to increasing exposure to your company's performance by increasing your stock position as well because while you might see similar returns by investing in different companies, investing in different companies creates a higher amount of diversification, and is less risky.
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457 points
SallyG answered 10 months ago …
ChaosNantuko has a good point; many employees who hold company stock find that they're out of work at the same time their stock shares are down. That said, your 15% discount does give you a cushion, so check with your tax advisor as to any relative consequences of selling immediately or after a holding period (e.g., capital gains treatment?) In this environment, I put a stop-loss order in on almost all investments that have gone up; in your case, I'd put one in at the actual price you paid..
Ethan R also brings up some good questions to consider, although I take issue with using investment money for a wedding; the party is ephemeral, the investment (hopefully) lasts, as does the marriage.
