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Nice! On top of other recent gains, the only individual stock I owned was up two days in a row and had reached the sell price I had in mind for months. Shortly before the market closed on Friday, I logged in to E*TRADE and stepped off the rollercoaster ride once and for all.
The sale came almost 17 years to the day that I first purchased that company stock via an employee stock purchase program (ESPP).
At the time, I was already an indexer and had no plans to do anything but stay the course with those funds. But 2009 seemed like a new dawn after the market misery of 2008. I developed an itch to do something extra with a bit of “fun money” so long as it was only a small fraction of my portfolio.
Enter the ESPP. I wasn’t going to plow money into the fad stocks of the era. Staying close to home with the ESPP helped me scratch the itch. Buying shares in the company I worked for and believed in seemed like a good bet. A 15% discount sweetened the deal.
I also liked having skin in the game with my employer in case the stock went on a tear. Who wants to be left behind if your coworkers win big?
My plan was more an experiment than a big bet, though. I’d invest no more than 1% of salary each year for a few years and see what would happen. If things went south with my employer, I might lose my job and some change, but I wouldn’t be putting my retirement savings or emergency fund at risk.
Some colleagues would buy and immediately sell the stock each offering period. This enabled them to book an instant gain given the employee discount. Money out of thin air. Rinse and repeat. Folks funneled the proceeds to fund vacations, home improvements, investments in 529 plans and Roth IRAs, and other things.
I didn’t take that path. I held the stock.
A wild ride. This is where the experiment got interesting. I could never have predicted what would come next.
In the years ahead, the company quadrupled in size due to a favorable business climate. It was named to the Fortune 500, then the S&P 500. Its stock soared more than 25-fold at one point.
Then, the tide turned. Costs rose and investors were spooked as profit margins dipped, even though the company had good fundamentals and demand for its products remained. The stock price plummeted.
Still, despite the decline, the shares stayed well above my purchase prices over the years, and a sale would deliver a nice windfall.
Sale away. After holding the stock through thick and thin, why not wait for the share price to soar to new heights? Why book capital gains now and pay taxes?
Having moved on from the company, I no longer felt a special connection to the shares. No more fear of missing out, either. I’ve cut ties with the industry as well and am exploring new horizons. Maybe I’ll share more on that in a future post.
Because I’m between jobs this year, I should be in a favorable tax bracket with a lower capital gains rate. The sale also allowed me to rebalance my portfolio and pad my cash holdings without selling my core stock index funds.
Furthermore, closing the brokerage account simplifies my family’s financial footprint, making things easier for my spouse if something should happen to me.
But it was also time to recognize that the experiment with fun money had run its course. Individual stocks are just not my cup of tea. I get more thrills than I need from the broader markets. So why magnify that stress and uncertainty with a concentration in one stock? Although it was a small holding, it had an outsize psychological impact.
The lesson for me: To thine own self be true.
As we celebrate Independence Day and 250 years as a nation, I also celebrate my independence from owning individual stocks. Any similar stories of individual stocks or employee stock programs out there? How did the experience suit you?
I spent my career in the investment business and a spent good deal of time explaining to our clients why our years of experience, security selection expertise and asset allocation models would produce results that justified our fees. By the end of my career, when running a group that invested for smaller clients using only funds, it became apparent to me that the fees we charged covered a lot of the services we provided, but did not necessarily produce any better results than the fund approach we used for smaller clients.
In retirement, I no longer have access to the information services that were available when I was working. I have also become very sensitive to the effect that fees have on returns over time. As a result, I only use low cost funds and mostly limit my trading to raising cash when needed or rebalancing as necessary. As for my returns, they have averaged over 8% a year, which has prove more than adequate to fund our retirement and still grow our assets for whatever the future might hold.
Bottom line, I own no individual stocks and cannot imagine doing so in the future.
I “invested” in 3000 shares of Cray Computer after Seymour Cray died and it became penny stock. There had been talk that what was left of the company was being bought and the shares were to be reissued. I had dollar signs dancing in my head.
It never happened, the price slowly dropped down to zero. After a year or two the stock was written off my account.
A bit of mid-90s high-tech speculation gone wrong… funny how that sounds like the current AI boom. billions chasing anything with ‘AI’ on the tin. A few tech giants win, and a whole lot of people could end up holding the next generation of tech penny stocks.
Folks,
Don’t be too tough on yourself if you still have one or two “grand slam sticks” with $0 cost basis. It’s a great opportunity to fund your Donor Advised Fund (DAF) earlier in life. “Try it. I think you’ll like it.” Also, you can offset some of those IRA dollars converted to Roth IRA with a contribution to your DAF. And if you’re concerned about the taxes with your RMD from your IRA, you have too much money. Plan to “gift” some of those dollars to your church or favorite local non-profits. Remember, “You can’t take it with you.”