Strategy on unloading company stock
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Strategy on unloading company stock
I own a bit of company stock that IPO'd early in the year. It's not a life changing amount, but not insignificant. Current market value puts it at about 4-5% of my total net worth.
It actually crashed quite a bit during my lockup period, so I guess there's this hope that it goes back up a bit but who knows.
I'm wondering how I should unload this stock. Should I just sell it all and never look back? Spread it out a little over a year for dollar cost averaging (is that even the right term if you are selling?)
It actually crashed quite a bit during my lockup period, so I guess there's this hope that it goes back up a bit but who knows.
I'm wondering how I should unload this stock. Should I just sell it all and never look back? Spread it out a little over a year for dollar cost averaging (is that even the right term if you are selling?)
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Re: Strategy on unloading company stock
The IPO price was, in effect, money you never had. So don't anchor on it.Lynx310650 wrote: ↑Tue Dec 07, 2021 11:46 am I own a bit of company stock that IPO'd early in the year. It's not a life changing amount, but not insignificant. Current market value puts it at about 4-5% of my total net worth.
It actually crashed quite a bit during my lockup period, so I guess there's this hope that it goes back up a bit but who knows.
I'm wondering how I should unload this stock. Should I just sell it all and never look back? Spread it out a little over a year for dollar cost averaging (is that even the right term if you are selling?)
Would you, at the current share price, buy this stock? As a new investment? If not, then that means you should sell it.
In your shoes I would probably sell down to 2% of net worth. Maybe split over 2 tax years. On the general principle that half a loaf is better than no loaf (ie in the latter, being 100% right or 100% wrong). If you are due to be awarded more stock, I would factor that into the calculation (ie it might make you sell all now).
BTW the empirical evidence is that IPO stocks are "right skew". That is: the majority of them underperform (post the first day "pop" which the underwriter stage manages). However there are a small number (Apple, Microsoft, Google, Facebook, Amazon) that go on outperforming (but none of those did that well out of their IPO, as I recall).
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Re: Strategy on unloading company stock
Usually post IPO lock-up you want to sell enough to be comfortable holding the rest, but keep in mind that tax will come into play as well. Given that we're in december already, depending on your tax situation, you may want to split up the sale. Also, are these RSUs or ISOs? That could significantly affect your tax decision as well.
Re: Strategy on unloading company stock
I don't understand your cost basis. Is the sale for a gain or loss? I assume short term, but if not, please clarify.Lynx310650 wrote: ↑Tue Dec 07, 2021 11:46 am I own a bit of company stock that IPO'd early in the year. It's not a life changing amount, but not insignificant. Current market value puts it at about 4-5% of my total net worth.
What is your tax rate? Do you have any other stocks to sell to offset the gain or loss, and is that a good thing for you this year or next?
The way I see it is if it's not that significant, I wouldn't treat it any different than any other single stock risk. Will you be receiving (unvested) or accumulating more (ESPP)?
May not be a bad idea, but that's not the usual term. You're realizing or deferring defer capital gains for tax considerations.Spread it out a little over a year for dollar cost averaging (is that even the right term if you are selling?)
Re: Strategy on unloading company stock
I just sell all at once and then invest the proceeds into index funds. I've been in your current situation with company stock. I had a substantial amount that vested and I didn't sell immediately and it went up and then dropped. I held on to it hoping/waiting for it to go back up. Instead, it dropped more. I continued to wait and when it eventually came back up to where it was when it vested, I sold and invested in total stock index fund. My lesson is that I am much more comfortable, less anxious and more successful being a Boglehead investing in index funds. I have other things to do with my life and time other than track individual stock prices and second guess myself to death about when to sell. My story and yours may vary. All the best to you.Lynx310650 wrote: ↑Tue Dec 07, 2021 11:46 am I own a bit of company stock that IPO'd early in the year. It's not a life changing amount, but not insignificant. Current market value puts it at about 4-5% of my total net worth.
It actually crashed quite a bit during my lockup period, so I guess there's this hope that it goes back up a bit but who knows.
I'm wondering how I should unload this stock. Should I just sell it all and never look back? Spread it out a little over a year for dollar cost averaging (is that even the right term if you are selling?)
Re: Strategy on unloading company stock
sell monthly covered calls and generate 0.5-1% every month till it is assigned and sold .Lynx310650 wrote: ↑Tue Dec 07, 2021 11:46 am I own a bit of company stock that IPO'd early in the year. It's not a life changing amount, but not insignificant. Current market value puts it at about 4-5% of my total net worth.
It actually crashed quite a bit during my lockup period, so I guess there's this hope that it goes back up a bit but who knows.
I'm wondering how I should unload this stock. Should I just sell it all and never look back? Spread it out a little over a year for dollar cost averaging (is that even the right term if you are selling?)
Thanks!
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Re: Strategy on unloading company stock
These are ISO granted and exercised years ago from a former employer. So it's mostly all pure gain considering the low low exercise price. I have no other individual stocks, all index funds in retirement accounts.inbox788 wrote: ↑Tue Dec 07, 2021 12:34 pmI don't understand your cost basis. Is the sale for a gain or loss? I assume short term, but if not, please clarify.Lynx310650 wrote: ↑Tue Dec 07, 2021 11:46 am I own a bit of company stock that IPO'd early in the year. It's not a life changing amount, but not insignificant. Current market value puts it at about 4-5% of my total net worth.
What is your tax rate? Do you have any other stocks to sell to offset the gain or loss, and is that a good thing for you this year or next?
The way I see it is if it's not that significant, I wouldn't treat it any different than any other single stock risk. Will you be receiving (unvested) or accumulating more (ESPP)?
May not be a bad idea, but that's not the usual term. You're realizing or deferring defer capital gains for tax considerations.Spread it out a little over a year for dollar cost averaging (is that even the right term if you are selling?)
Re: Strategy on unloading company stock
Well, that summarizes the situation nicely. It seems you hold single stock risk of 5% of your portfolio with 100% tax liability at LTCG rate (15% or 20%; NIIT?). [If it were 0% tax, I'd assume it would be a no brainer] Diversification and investment into TSM or AA is the goal, so why wouldn't you sell now? If there is a tax benefit selling some in January, then hold some of it a month. Anyway, your problem is a little tax today or more taxes later in the same situation to get rid of your concentrated risk. Chances of any IPO being the next Amazon are slim to none, but you're afraid of regretting not going for a ride, so keeping a small fraction (IMO up to the 5%) isn't totally wreckless. You can speculate on your company tax-deferred or use remaining after tax funds to speculate on TSLA or any other stock you want instead that might have better prospects. The market so far isn't giving your choice a vote of confidence. And it's likely you'll have opportunities to acquire additional shares if you keep working there, so being more diversified makes it easier to optimize those opportunities.Lynx310650 wrote: ↑Tue Dec 07, 2021 6:43 pmThese are ISO granted and exercised years ago from a former employer. So it's mostly all pure gain considering the low low exercise price. I have no other individual stocks, all index funds in retirement accounts.
Re: Strategy on unloading company stock
I sell company stock as vested immediately, and move to index funds each year. Hard to ignore prices post selling but I don’t let it bother me if I miss upside nor celebrate avoidance of loss. Just following a plan to diversify.
Anything can happen in either direction, stick to your plan.
Anything can happen in either direction, stick to your plan.
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Re: Strategy on unloading company stock
Given there is no tax advantage to holding on any longer, that says sell?Lynx310650 wrote: ↑Tue Dec 07, 2021 6:43 pmThese are ISO granted and exercised years ago from a former employer. So it's mostly all pure gain considering the low low exercise price. I have no other individual stocks, all index funds in retirement accounts.inbox788 wrote: ↑Tue Dec 07, 2021 12:34 pmI don't understand your cost basis. Is the sale for a gain or loss? I assume short term, but if not, please clarify.Lynx310650 wrote: ↑Tue Dec 07, 2021 11:46 am I own a bit of company stock that IPO'd early in the year. It's not a life changing amount, but not insignificant. Current market value puts it at about 4-5% of my total net worth.
What is your tax rate? Do you have any other stocks to sell to offset the gain or loss, and is that a good thing for you this year or next?
The way I see it is if it's not that significant, I wouldn't treat it any different than any other single stock risk. Will you be receiving (unvested) or accumulating more (ESPP)?
May not be a bad idea, but that's not the usual term. You're realizing or deferring defer capital gains for tax considerations.Spread it out a little over a year for dollar cost averaging (is that even the right term if you are selling?)
If you have a worry that this is the next Microsoft or Amazon, then keep 1-2% of your total portfolio.
Remember: if you would not buy it now at this price (or don't have a strong opinion), then you shouldn't be holding it still.
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Re: Strategy on unloading company stock
So the only issue I have (and I don't know how major of an issue this is) is that if I sell all the stock then it would take us out of income eligibility for ROTH IRA contributions. Unfortunately I already made our 2021 contributions way back in January before I found out the company would IPO. Otherwise our incomes would have been under the ROTH threshold (we already max out every deduction we can to get our AGI as low as possible).
Seems like reversing those contributions are a serious PITA, so that's why I'm dithering on whether to sell it all ASAP.
Seems like reversing those contributions are a serious PITA, so that's why I'm dithering on whether to sell it all ASAP.
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Re: Strategy on unloading company stock
You could sell it all in January, realize all the gain in 2022, and either do backdoor Roth contributions for 2022 or just skip Roth contributions for 1 year.
Edit/add: if selling it all bumps you up to 20% LTCG rate, you may want to spread it over multiple years. But based on your numbers, I’m assuming that isn’t the case.
Edit/add: if selling it all bumps you up to 20% LTCG rate, you may want to spread it over multiple years. But based on your numbers, I’m assuming that isn’t the case.
Re: Strategy on unloading company stock
You can get around this by recharacterizing your Roth IRA contributions as traditional IRA contributions. Those will be non-deductible, but you can then convert the non-deductible traditional IRA to a Roth IRA. You will still have to pay tax on the gains between the amount contributed and the current balance. (The "backdoor Roth IRA" strategy avoids this extra tax by contributing and then converting immediately.)Lynx310650 wrote: ↑Thu Dec 09, 2021 1:18 pm So the only issue I have (and I don't know how major of an issue this is) is that if I sell all the stock then it would take us out of income eligibility for ROTH IRA contributions. Unfortunately I already made our 2021 contributions way back in January before I found out the company would IPO. Otherwise our incomes would have been under the ROTH threshold (we already max out every deduction we can to get our AGI as low as possible).
Seems like reversing those contributions are a serious PITA, so that's why I'm dithering on whether to sell it all ASAP.
Re: Strategy on unloading company stock
At least consider using them to fund a donor-advised fund (or give them to charity). In this case, you get to take the deduction of the value given, and you avoid realizing the gains. We used company stock to fund a DAF much more generously than we would have using cash, even though the amounts involved aren't objectively that generous. Now, years later, I feel that was a great decision. Admittedly, these days with the SALT limitations, you probably can't deduct the entire amount gifted, but at least run the numbers.Lynx310650 wrote: ↑Tue Dec 07, 2021 6:43 pm These are ISO granted and exercised years ago from a former employer. So it's mostly all pure gain considering the low low exercise price. I have no other individual stocks, all index funds in retirement accounts.
We also sometimes used grants to our DAF to neutralize a separate sale of shares. So we'd sell, say, $100k in gains, while also gifting $100k in value to the DAF to generate a deduction.
I was going to give you my thinking on the morale issues of holding employer shares, but ... you mention "former employer". So I'd say sell it, perhaps while paying attention to disruptive tax consequences. It's late in the year, so splitting things in half is pretty low risk, or if you've already made decisions which are hard to square with the added income, waiting is reasonable. Beyond that, since it's a former employer, I'll recommend an approach which helped me: Pick a random boring company and say "Would I keep it if it were X?" Basically, if your uncle died and left you the same amount in, oh, General Mills, would you keep that stock, or just shrug and flip it into whatever your regular AA is? At least in my case, the answer is almost certainly "flip it and move on".
[ObDisclosure: I still have a solid slug of former-employer stock. I initially kept it because I parted from them on good terms, I still like them, and I literally don't consider that portion of our portfolio in my calculations. These days, my sentimental feelings have mostly passed, so now it's mostly about managing the tax hit. So I treat them like magic beans I keep in a bucket in the shed, give some into the DAF sometimes, periodically sell some when the tax hit isn't too horrible, but mostly hope that they keep their value until my heirs can inherit them with a basis step up.]
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Re: Strategy on unloading company stock
Thanks guys. I decided to sell the majority of the stock ASAP (probably on Monday when market opens). My main hangup about having too much income for ROTH IRA is not a hangup anymore because I had done my calculations wrong. I was comfortably under the ROTH IRA income limits the last couple of years that I had taken it for granted but totally forgot some bonuses and stock sales that happened this year, so it appears that ship already sailed and I'm going to have to recharacterize no matter what.
I do want to hang onto about 1/3 of my total shares just to see where the company goes and so I won't have too much regret if the stock blows up down the line.
Only q I think I have remaining is this. Would it make any sense at all to just sell ALL the stock and immediately rebuy the number of shares I want to hold onto in my IRA account? The $$$ amount required would be a relative small chunk of my current IRA funds and the gains going forward would be tax-free.
I do want to hang onto about 1/3 of my total shares just to see where the company goes and so I won't have too much regret if the stock blows up down the line.
Only q I think I have remaining is this. Would it make any sense at all to just sell ALL the stock and immediately rebuy the number of shares I want to hold onto in my IRA account? The $$$ amount required would be a relative small chunk of my current IRA funds and the gains going forward would be tax-free.
Re: Strategy on unloading company stock
4-5% of net worth was not such a huge risk.
The equivalent of cost averaging when selling is selling equal number of shares.
A freshly listed company might be a risky choice for a retirement account. However, if your IRA is not the primary funding source for your retirement, a volatile stock, with lots of potential upside would not be a bad choice. If you are still working for that company, though, it would not be recommended, since that kind of concentration risk comes with no added expected return.
The equivalent of cost averaging when selling is selling equal number of shares.
A freshly listed company might be a risky choice for a retirement account. However, if your IRA is not the primary funding source for your retirement, a volatile stock, with lots of potential upside would not be a bad choice. If you are still working for that company, though, it would not be recommended, since that kind of concentration risk comes with no added expected return.
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Re: Strategy on unloading company stock
Nope, haven't worked at that company for years!Thesaints wrote: ↑Sat Dec 11, 2021 6:22 pm 4-5% of net worth was not such a huge risk.
The equivalent of cost averaging when selling is selling equal number of shares.
A freshly listed company might be a risky choice for a retirement account. However, if your IRA is not the primary funding source for your retirement, a volatile stock, with lots of potential upside would not be a bad choice. If you are still working for that company, though, it would not be recommended, since that kind of concentration risk comes with no added expected return.