Immediately sell discounted employer shares after block period?

Investing / Portfolios
1

Hi everyone,

Every year at my company, employees are given the opportunity to purchase company shares at a 30% discount which we may then sell after a 3-year block period. I assume many of you have the same opportunity at your company and so my question is this: do you immediately sell your shares after the block period and re-invest into your diversified ETF portfolio, or do you hold for the long-term?

For all intents and purposes, investors have access to the same material information about my company as I do, so I don’t pretend to know which direction I think the share price will move in the future. For this reason I lean more toward selling and re-investing immediately, otherwise over the course of several years this becomes a relatively sizable portion of my portfolio which can be considered quite high-risk from a (lack of) diversification perspective.

Thoughts?

Mustachioed

2

yes, the mustachian thought is to take that 30% discount and sell asap. it’s risk-clustering otherwise, the opposite of diversification, to hold the stocks of the company you work for (apart from its share in VT :wink: )

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If you still work at the company by the time you can sell, there is an additional risk if you decide to hold. If the company’s situation deteriorates the share price is likely to go down around the same time that you have an increased risk of loosing your job (which is presumably your main/only source of income).

I personally lean towards diversifying away from the company / sector that provides my main source of income even though it has historically been quite profitable.

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What percentage of your net worth are these shares worth (“sizable” can mean different numbers to different people)?

Then afterward, these shares are assets, and they should be studied as such. Try to find out if you can answer the following questions. If you have no idea about how to answer them, then you should probably not be picking stocks, even your company stock.

  • How much money your company is making? How does this compare to the capital needed to run the business? (i.e what is the ROIC?)
  • What are the growth opportunities of your company? Does your company possess any competitive advantage? (scale advantage, low-cost provider, high switching costs, pricing power, network effect,…)
  • Does the management has a good track record of capital allocation? What are the incentive of management? (compensation structure?)
  • What is a price at which you’d be happy to own this business? How does this compare with the current price? With above answers, what could be the price in 5 years?
  • What is your margin of safety if you are wrong? How much can you lose? How much can the stock appreciate?
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