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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.”
Congratulations. I’d at least like to be able to count my individual stocks on one hand; currently I can’t count them on two.
Michael, I share your goal of counting my individual stocks on one hand. Steady as you go, you’ll get there.
I keep a short “sell next” list of the stocks that I want to sell and update it at the beginning of each year. Some carry over from one year to next but invariably I seem to sell at least two every year. This year I have sold two already (and invested the proceeds promptly in various index funds).
One approach that can add a little “juice” on the way out is to sell covered calls on the stocks you are looking to sell.Sometimes you can do this numerous times before the stock finally gets “called away”.
Whether the stock gets called or not, you have a nice little cash infusion from selling the covered calls for investing in….you guessed it….. index funds.
I was investing a small percentage of my income in company stock as part of my 401(k) investment every month for a few years.
I signed up for a six-month free trial with Voya to manage my account, just to see what changes they might make.
The only change they made was to sell the company stock and move the money into an index fund I already had, which I thought was pretty funny.
The company stock has gone from around $40 when I got rid of it to $144 today, so it would have been a decent investment, but being such a small allocation it wouldn’t have made any real difference to my net worth.
Interesting story, D.J., nicely written. When I took a job with a multi-state healthcare organization a number of years ago, I was encouraged by my co-workers to participate in the stock-purchase program. The stock was making steady gains and was exciting to hold during that time. I was just beginning to get my feet settled on the indexing path, and decided to take a pass. I held the job for the next fifteen years.
Later, that year, a couple of hospitals in another state got caught committing Medicare fraud. When the news broke, the stock price quickly fell from around $65 dollars per share to $15 . The eventual penalty amounted to nearly a billion dollars, one of the largest up to that time.
A couple of days after the price drop, I was sitting in a dental chair listening to my widowed hygienist cheerfully tell about owning my company’s stock through an advisor-managed account. As I waited for a chance to speak, I debated whether to deliver the sad news. I knew she was counting on her investments to fund a retirement that she hoped was just a few years away.
I did tell her. I could tell she was stunned, but managed to put the loss in perspective by commenting that the stock represented just a part of her portfolio.
I don’t know how the advisor handled the loss, but I just checked the historical price of the stock. It took 20 years to climb back to its former high price, but closed at $187 yesterday.
Thanks, Ed. I hope the rest of your hygienist’s portfolio at least moderated her loss on that one stock. She was fortunate to have you break that news. Having read your writing on here for years, I’ve always appreciated your thoughtful, evenhanded way of stating things.
I also have shares in IBM but from an ESPP. I remember buying lots of shares after the 1987 crash. Also used dividend reinvestment to get more. From time to time I sold off most of my shares, providing a good seed for our taxable brokerage account (invested in index funds) which we’re using today to fund my wife’s mega backdoor Roth and pay taxes on Roth conversions. Our only individual stock holdings today are IBM and its spinoff, Kyndryl, and my wife’s company stock obtained through RSUs.
IBM stock languished for quite a while, but I continued to hold some shares since the dividend was good. I’m kind of afraid to sell since my number for cost basis differs from Vanguard’s. Maybe I will hold onto IBM & KD and let my heirs get the step-up in basis.
Hi Randy. Dividend reinvestment is quite a theme here in the comments. IBM, too. It sounds like that stock has been good to you.
I started buying my employer stock via a ESSP over 60 years ago, then when we put in a 401k the match was in shares until the Enron fiasco. In the last five years I worked half of my compensation was stock options and restricted stock shares.
i gave shares to each of our children, but when they needed money for a down payment, I bought them back.
I kept it all and reinvested all dividends and only stopped nine months ago because that stock equaled 40% of our none retirement investments. Those dividends are equal to my net SS monthly benefit, but I just build up cash with them.
When I first purchased the shares they were about $35.00, they split twice and are now $83.00 a share. A long and boring journey, but our children will each inherit a few thousand shares.
Those reinvested dividends do make for an interesting dynamic, Dick. On another note, your mention of the Enron fiasco is worth highlighting. And they weren’t the only reason to be wary of employee stock in the early 2000s. Scandals at WorldCom, Tyco, Global Crossing and others that led to the Sarbanes-Oxley Act.
Today $6,000 from dividends showed up in my money market account. That makes me happy, especially when it happens every three months.
I have a similar IBM story. Back in the late ’70’s my step-father-in-law gifted three shares of IBM stock to my (then) wife, me, and us. Three shares, each in a different name. I set all for dividend reinvestment, through the years we made a few small cash contributions to the joint held shares, and there were several splits. We just left all of them alone to grow. We separated in the mid 2000’s, and financial division took a while, but by the time all was said and done, those initial three shares were worth approximately $10K.
Jeff, like Mark Crothers, below, you opted for dividend reinvestment. The stock I owned was pure growth. No dividend. I wonder how that might have affected my perspective on individual stocks. Would it make me more likely to keep the shares, or would I have never bought them to begin with in a taxable account?
I have a rather unusual shareholding. Back in 2006, I had three separate policies with a mutual insurer that demutualised and listed on the stock market. Because it was owned by its policyholders, I received an allocation of shares for each policy — from memory, around 300 shares per policy.
I opted for the dividend reinvestment option, and through that, plus a few share splits along the way, I’ve been slowly and passively building up my holding over the past twenty years. During that time the company went through a multitude of mergers, and my shareholding now sits within a large business called Aberdeen Asset Management.
Because I received the shares for free, my base cost for CGT purposes is zero — which is unfortunately one of the main reasons I haven’t sold them. Though when you think about it, that’s completely irrational — I’m letting the tax tail wag the free investment dog!
Neat story, Mark. It’s fun to savor those gains on paper, isn’t it? That zero cost basis is pretty hard to beat but the tax reality is something to consider.
Mark, that happened to me, too. I had a life insurance policy that turned into stock due to demutualization. I know I redeemed/sold the shares at some point. It was not a big deal.
Jeff, I should have done the same as you and sold the damned things! The original shares have a zero cost base, but once you layer in twenty years of twice-yearly DRIP purchases — each with their own cost basis — plus all the corporate actions along the way, it gets complicated fast. I’ve reached the point where I simply can’t be bothered untangling it all. My heirs will have an easier job sorting it out than I will! 😄
Your heirs should get a stepped up basis on such stock to the fair market value on the date of your death and thus a quick post DOD sale will likely result in neither a taxable gain or loss or only a small immaterial gain/loss. While the gain/loss should be small or zero your heirs may prefer a transfer on death direct to them rather than the headache of the shares passing through probate.
William, resetting the cost basis is something we have in common; unfortunately, the TOD mechanism is a handy tool not available in the UK. The best we can achieve is dealing with the shares through a will.
I feel a similar disappointment in my state laws in that real property deeds in my state cannot provide for transfer at death where some US states do. A work around to avoid probate and still get step up in basis is transferring the property to a revocable living trust (RLT).
I do not know if a RLT gambit is available in the UK for your stock but if I had stock from a demutualization that I wanted to be split among numerous heirs in the US I would consider a RLT to accomplish my intent as an alternative to the TOD.
I wonder how difficult the probate is perceived in the UK.
Thanks, William. The UK tax system makes trusts a minefield for standard portfolios—setting one up here triggers an immediate capital gains charge with our tax authorities, so I’m stuck with the traditional probate funnel. It’s a slow administrative chore, but a clean Will keeps it manageable.
You might be surprised to hear, though, that while our probate is clunky, the UK is incredibly generous to a surviving spouse.
For instance, if I pass away before age 75, my wife inherits my retirement accounts (our equivalent of an IRA or 401k) completely income-tax-free. Plus, she gets a unique ‘allowance mirror’ that grants her a massive, bonus tax-free wrapper matching the exact value of our existing tax-sheltered savings.
So while we don’t have your handy ‘Transfer on Death’ options, the taxman is surprisingly gentle on the surviving partner.
Years ago my dad gave me some shares of IBM. Owning an individual stock took up way too much headspace: I couldn’t relax until the price finally reached my target and I could sell. So it’s only index funds for me.
It sounds like we are very much of the same mind in this regard. The headspace factor is real.
Your statement – “Furthermore, closing the brokerage account simplifies my family’s financial footprint, making things easier for my spouse if something should happen to me.” is a major financial decision filter for me except it is likely to be “when” rather than “if”.
Happy 4th D.J.
Great point. “When” rather than “if.” Memento mori. You have a happy 4th, too, William.
DJ, I had so many tax clients that did the same as your co-workers; selling the shares immediately after buying them. But I had a few clients that thought long term. One fella worked for an engineering company who, years ago, gave their employees the choice of either $10K in cash, or $10K in stock. Nearly everyone took the cash, my guy took the stock and held it until he retired. He sold it for nearly a million bucks.
Have a great 4th!
Thanks, Dan. It’s stories like your client’s stock windfall that dreams are made of. It recalls those newly minted SpaceX employee millionaires.