Company stock diversification after huge losses

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newinvestor84
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Company stock diversification after huge losses

Post by newinvestor84 »

Could I request a gut-check on portfolio diversification approach after the recent tech downturn? I work for a pre-revenue technology company that went public last year. Unfortunately, between the public offering and the end of our lock-up period last week, the stock has cratered -70%, but still represents a significant portion of our portfolio. The company will need to raise money by early 2024 based on current burn rates. We live in a VHCOL area, with annual income about $500k, not counting stock compensation.

My + spouse’s portfolio is
~$800k in retirement accounts, invested in a 3 index fund portfolio (10% bonds, 70% US, 20% international)
~$100k in taxable in a mix of individual technology stocks (all with long term capital losses)
~$500k in taxable of my company stock (with about -$500k LTCL and $100k STCL in different lots)
~ISO Options to get ~$800k more company stock after exercise price.
- $1.3M mortgage, with a current estimated home value of $2.7M (let’s see if that drops too).

Our thought is to exercise the remaining ISOs and sell, despite losing the preferred tax treatment, selling future restricted stock units as they vest, but holding all the shares with capital losses for the time being. We’d diversify into a mix of VTI and cash, perhaps DCA’d to help cool some anxieties about the markets.

I’m planning to work with a tax advisor on this, but having Bogleheads opinion would be a good sanity check.
jack.bauer
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Re: Company stock diversification after huge losses

Post by jack.bauer »

I would all vested company stock. Why hold on to 500k of company stock? That’s still a pretty concentrated holding for a company that’s not default alive (needing to raise again or make cuts).

If this company’s success itself is correlated with the stock market, I would doubly confirm my belief.

Yes, it may recover, but that’s a gamble. Boglehands are not that.
nyclon
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Re: Company stock diversification after huge losses

Post by nyclon »

Although a generalization, many VC backed companies have stocks which have recently performed poorly post IPO. Several articles have been written on this recently.

VCs who invested late stage pre IPO have enjoyed 60% returns, while public investors have fared worse at close to zero. Also, private market valuations have cratered 40-80% depending on industry.

You’re holding post IPO stock of a pre-revenue company that needs to raise $ - and may raise at a lower valuation than its IPO.
Topic Author
newinvestor84
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Re: Company stock diversification after huge losses

Post by newinvestor84 »

nyclon wrote: Wed May 25, 2022 8:32 am Although a generalization, many VC backed companies have stocks which have recently performed poorly post IPO. Several articles have been written on this recently.

VCs who invested late stage pre IPO have enjoyed 60% returns, while public investors have fared worse at close to zero. Also, private market valuations have cratered 40-80% depending on industry.

You’re holding post IPO stock of a pre-revenue company that needs to raise $ - and may raise at a lower valuation than its IPO.
That sounds accurate. (At least for my particular case, share values are the same as the preferred share price 3.5 years ago, and they have multi year lockups, so no late stage returns for those folks either.)
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Watty
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Re: Company stock diversification after huge losses

Post by Watty »

newinvestor84 wrote: Wed May 25, 2022 8:05 am I’m planning to work with a tax advisor on this....
It would be good to do that ASAP. It was a mistake to not to have done that before the end of the lockup period so you could have had a plan in place then.
newinvestor84 wrote: Wed May 25, 2022 8:05 am Our thought is to exercise the remaining ISOs and sell, despite losing the preferred tax treatment, selling future restricted stock units as they vest, but holding all the shares with capital losses for the time being.
I don't know the details but as I recall ISOs and RSUs are taxed very differently so you might also clarify that and give more details of the impact of the "preferred tax treatment".

I don't see how holding on to the shares with the capital losses would make any sense because you could carry any unneeded capital losses forward into future years.

Your $100K in other individual tech stocks has capital losses too. No offense but you shot yourself in the foot on that too. If you look at the details of index funds they are already very tech heavy so you really do not need more exposure to tech stocks.

I would really suggest just biting the bullet and selling off all your company stock and the $100k in other tech stocks too and investing it in index funds.

Even if there is some tax impact it is most likely just a matter of time before you pay the taxes since you will likely still pay them even if you hold the stocks for another 5 or 10 years. Delaying paying the taxes is not the same as avoiding paying them.

The only possible exception would be is you have any short term capital gains that you could convert to long term gains by holding it a few more months or if that "preferred tax treatment" actually has a big impact even after a 70% decline.

One other thing to consider is that after a 70% stock decline there will be a lot of pressure to reduce costs so your job could be at risk if there are layoffs and the company could be unrecognizable a year from now if it is even still in business.

A 70% stock decline and needing to raise more money in 2024 could qualify as "The handwriting is on the wall." If it is not able to raise more money in 2024 then it going out of business is a very real possibility. If your job is not secure then you may want to consider if looking for another job now while the job markets are still strong would be a good idea. Trying to find a job in the middle of a recession can be real hard.
CletusCaddy
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Re: Company stock diversification after huge losses

Post by CletusCaddy »

Is that $800k in ISOs fully vested? If not how much will vest over the next 12 months? And is the $800k net of exercise cost?
Topic Author
newinvestor84
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Re: Company stock diversification after huge losses

Post by newinvestor84 »

Watty wrote: Wed May 25, 2022 8:47 am I don't see how holding on to the shares with the capital losses would make any sense because you could carry any unneeded capital losses forward into future years.
I’m not following that. At $3k per year, it would take 100 years to use up these carried forward losses. Did you have something different in mind? The thought would be to hold onto these until I have other capital gains to offset them, and sell in the same years.
Watty wrote: Wed May 25, 2022 8:47 am Your $100K in other individual tech stocks has capital losses too. No offense but you shot yourself in the foot on that too.
This was a “spouse has a different investing philosophy” problem. Limiting to 10% of portfolio was compromise. There’s some element of “I told you so” at this point in time.
Watty wrote: Wed May 25, 2022 8:47 am "preferred tax treatment" actually has a big impact even after a 70% decline.


Regarding tax treatment, the ISO shares get AMT taxed, which is still lower rate assuming I hold them for a year so they’re a qualified.
Watty wrote: Wed May 25, 2022 8:47 am One other thing to consider is that after a 70% stock decline there will be a lot of pressure to reduce costs so your job could be at risk if there are layoffs and the company could be unrecognizable a year from now if it is even still in business. If it is not able to raise more money in 2024 then it going out of business is a very real possibility.
CEO is fairly conservative, so they already slowed down hiring over a year ago. Luckily we raised at a good valuation. Yes, worried about job risk. They’ll probably raise money, but I’m guessing at a much lower valuation.
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newinvestor84
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Re: Company stock diversification after huge losses

Post by newinvestor84 »

CletusCaddy wrote: Wed May 25, 2022 9:02 am Is that $800k in ISOs fully vested? If not how much will vest over the next 12 months? And is the $800k net of exercise cost?
It will be fully vested as of June 1, in about a week. $800k is net of exercise cost, gross of taxes.

No more options, but We’ll have $100k of RSUs vesting in 2022, and $350k in 2023.
mega317
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Re: Company stock diversification after huge losses

Post by mega317 »

Watty wrote: Wed May 25, 2022 8:47 am I would really suggest just biting the bullet and selling off all your company stock and the $100k in other tech stocks too and investing it in index funds.
+1. No need to compound the mistake.
newinvestor84 wrote: Wed May 25, 2022 9:04 am
Watty wrote: Wed May 25, 2022 8:47 am I don't see how holding on to the shares with the capital losses would make any sense because you could carry any unneeded capital losses forward into future years.
I’m not following that. At $3k per year, it would take 100 years to use up these carried forward losses. Did you have something different in mind? The thought would be to hold onto these until I have other capital gains to offset them, and sell in the same years.
3k is limit to use again income. You can use as much as you need against capital gains in any year.


(Playing I told you so with your spouse is likely to be more expensive than all this other stuff, if you catch my drift.)
HomeStretch
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Re: Company stock diversification after huge losses

Post by HomeStretch »

Take some chips off the table by doing same-day sales of vested ISOs/RSUs and sell some company stock holdings now. Be aware of company black-out periods around public SEC filing deadlines. Reinvest in diversified equity funds. Agree/compromise on the plan together to avoid recriminations.

The good news is your development-stage company raised funds before the market decline. But as it needs to raise additional funds by early 2024 via public or private placements of debt or equity, keep in mind that the market may still be down or investors may not have a big appetite for subscribing especially if your company is still far from generating sufficient revenues to cover expenses. Now that your company is public, it faces additional scrutiny/pressure from outside investors, must disclose a lot of information in regulatory filings and will possibly face a qualified opinion from auditors as available cash approaches 12 months or less of expenses. This will inevitably lead to spending cuts (you are seeing step 1 - slow down of new hires), possibly staff layoffs, etc. in order to cut the burn rate.

All of this is a long way of saying that no matter how good the company’s team or potential product/service are, there is a lot that is outside of the company’s control that can impact the company, your job and/or your portfolio. Until your/spouse’s companies become self-sustaining cash/profit-wise, keep your job skills up-to-date and your professional network active. Consider whether one of you should jump to a more stable established company. Try to increase savings and diversify your portfolio now.
Valuethinker
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Re: Company stock diversification after huge losses

Post by Valuethinker »

newinvestor84 wrote: Wed May 25, 2022 8:05 am Could I request a gut-check on portfolio diversification approach after the recent tech downturn? I work for a pre-revenue technology company that went public last year. Unfortunately, between the public offering and the end of our lock-up period last week, the stock has cratered -70%, but still represents a significant portion of our portfolio. The company will need to raise money by early 2024 based on current burn rates. We live in a VHCOL area, with annual income about $500k, not counting stock compensation.

My + spouse’s portfolio is
~$800k in retirement accounts, invested in a 3 index fund portfolio (10% bonds, 70% US, 20% international)
~$100k in taxable in a mix of individual technology stocks (all with long term capital losses)
~$500k in taxable of my company stock (with about -$500k LTCL and $100k STCL in different lots)
~ISO Options to get ~$800k more company stock after exercise price.
- $1.3M mortgage, with a current estimated home value of $2.7M (let’s see if that drops too).

Our thought is to exercise the remaining ISOs and sell, despite losing the preferred tax treatment, selling future restricted stock units as they vest, but holding all the shares with capital losses for the time being. We’d diversify into a mix of VTI and cash, perhaps DCA’d to help cool some anxieties about the markets.

I’m planning to work with a tax advisor on this, but having Bogleheads opinion would be a good sanity check.
I don't know US taxes. I have experienced the very great pain of a tech stock employer whose value crashed (90% or so) before I sold. That was my first £1m, gone pretty quickly ;-).

Make a plan that assumes no recovery:

- sell what you can
- use capital losses against future gains (this is a tax system point)

Given we are probably at the beginning of a significant VC downturn (but hopefully not as bad as 2000+) I would bet on a much lower valuation for future funding rounds. VCs turn from cuddly bears into hungry wolves (piranhas are more like it) when these downcycles hit - it is existential life-or-death for these firms if they cannot make the double digit fund IRRs that investors are used to (you might be forgiven for going from 60% IRR to 20%, but much less so from 20% to 0%).

Don't irrationally cling on hoping for value recovery. Because it may well not come. What I see in "tech" is the strong getting stronger: MSFT, Apple, AWS, Salesforce etc. If you are not bought by them, they are quite likely to crush you instead. That's very much an outsider view, now but I think is consistent with the industry dynamics. These companies have the money, and the moxie, to buy their future competitors, or destroy them.

Any gain on future stock units is employment-related compensation.
CletusCaddy
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Re: Company stock diversification after huge losses

Post by CletusCaddy »

newinvestor84 wrote: Wed May 25, 2022 9:07 am
CletusCaddy wrote: Wed May 25, 2022 9:02 am Is that $800k in ISOs fully vested? If not how much will vest over the next 12 months? And is the $800k net of exercise cost?
It will be fully vested as of June 1, in about a week. $800k is net of exercise cost, gross of taxes.

No more options, but We’ll have $100k of RSUs vesting in 2022, and $350k in 2023.
And are you planning to hold the $800k in exercised shares until they become qualified?

The stock may drop another 50% by then. I would sell now and pay the extra 20% tax
Mike Scott
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Re: Company stock diversification after huge losses

Post by Mike Scott »

~$100k in taxable in a mix of individual technology stocks (all with long term capital losses)
~$500k in taxable of my company stock (with about -$500k LTCL and $100k STCL in different lots)
~ISO Options to get ~$800k more company stock after exercise price.

If you can sell all (or as much as possible of this) with no taxes and move it immediately into VTI or similar you have increased diversification, stay fully in the market, reduce your risk of employer performance and have another 1.4 million better aligned with your retirement accounts. Move some money in the 401k if you need to rebalance.
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gobel
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Re: Company stock diversification after huge losses

Post by gobel »

newinvestor84 wrote: Wed May 25, 2022 8:05 am ~$500k in taxable of my company stock (with about -$500k LTCL and $100k STCL in different lots)
Were these from NSO's? If from ISO's then I think you'd have an AMT loss, but not a regular loss. And if they were RSU's, I thought those get taxed and the basis set on the day the lockup expires (so not likely a 50% loss yet?)
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newinvestor84
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Re: Company stock diversification after huge losses

Post by newinvestor84 »

gobel wrote: Wed May 25, 2022 10:40 am
newinvestor84 wrote: Wed May 25, 2022 8:05 am ~$500k in taxable of my company stock (with about -$500k LTCL and $100k STCL in different lots)
Were these from NSO's? If from ISO's then I think you'd have an AMT loss, but not a regular loss. And if they were RSU's, I thought those get taxed and the basis set on the day the lockup expires (so not likely a 50% loss yet?)
They were mostly from ISOs. As you suggest, all have AMT losses but not ordinary loss.

About 1/4 are from RSUs which have an ordinary loss. They were taxed on vest (2021 tax year) rather than lock-up expiration. They did sell-to-cover tax withholding at the time. I think companies get to choose between the two options of at vest versus lockup end?
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newinvestor84
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Re: Company stock diversification after huge losses

Post by newinvestor84 »

gobel wrote: Wed May 25, 2022 10:40 am
newinvestor84 wrote: Wed May 25, 2022 8:05 am ~$500k in taxable of my company stock (with about -$500k LTCL and $100k STCL in different lots)
Were these from NSO's? If from ISO's then I think you'd have an AMT loss, but not a regular loss. And if they were RSU's, I thought those get taxed and the basis set on the day the lockup expires (so not likely a 50% loss yet?)
They were mostly from ISOs. As you suggest, all have AMT losses but not ordinary loss.

About 1/4 are from RSUs which have an ordinary loss. They were taxed on vest (2021 tax year) rather than lock-up expiration. They did sell-to-cover tax withholding at the time. I think companies get to choose between the two options of at vest versus lockup end?
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Watty
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Re: Company stock diversification after huge losses

Post by Watty »

newinvestor84 wrote: Wed May 25, 2022 9:04 am I’m not following that. At $3k per year, it would take 100 years to use up these carried forward losses. Did you have something different in mind? The thought would be to hold onto these until I have other capital gains to offset them, and sell in the same years.
In a couple of years you will hopefully have lots of capital gains in your other investments that you can use the capital loss to offset.

This could be stocks or if you decide to sell your house at some point and you exceed the homeowners $500K capital gains exclusion then you could use that loss then to offset the additional capital gains on your house. For example if you want to move to a lower cost of living area at some point and retire or semi retire then having the the capital loss could make your numbers work better.
newinvestor84 wrote: Wed May 25, 2022 9:04 am This was a “spouse has a different investing philosophy” problem. Limiting to 10% of portfolio was compromise. There’s some element of “I told you so” at this point in time.
The important thing is that it was a learning experience, don't get into the “I told you so” mindset. Even if it was a compromise, you agreed to it. Most of the "old timers" that are here(including myself) have had similar learning experiences before they converted to using index funds and often they lost a lot more than you likely have. Don't feel too bad about that, but be sure that you learn from it.
vp89
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Re: Company stock diversification after huge losses

Post by vp89 »

I get that auto selling RSUs makes sense, but the situation after a 70% drawdown is quite a bit different.

Is selling undiversified high beta position after riding it all the way to the bottom and buying TSM (beta 1) really the most optimal move here?

Wouldn't it make more sense to keep those $ in a higher beta position until the market recovers (or until the mistake is smaller than 70%) and just diversify the idiosyncratic risk away? Perhaps by buying a leveraged S&P ETF?
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Watty
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Re: Company stock diversification after huge losses

Post by Watty »

vp89 wrote: Wed May 25, 2022 2:19 pm I get that auto selling RSUs makes sense, but the situation after a 70% drawdown is quite a bit different.

Is selling undiversified high beta position after riding it all the way to the bottom and buying TSM (beta 1) really the most optimal move here?

Wouldn't it make more sense to keep those $ in a higher beta position until the market recovers (or until the mistake is smaller than 70%) and just diversify the idiosyncratic risk away? Perhaps by buying a leveraged S&P ETF?
Other than for capital losses and gains calculations what the stock was priced at in the past makes no difference in determining what it might do in the future.

A big question to look at is if the original poster had just inherited a large amount of money then should they buy the stock today? If not then the only reason to keep it is if there is some compelling tax reason to keep it for a limited time so they could then sell it and pay a lot less in taxes.
vp89
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Re: Company stock diversification after huge losses

Post by vp89 »

Watty wrote: Wed May 25, 2022 2:37 pm
vp89 wrote: Wed May 25, 2022 2:19 pm I get that auto selling RSUs makes sense, but the situation after a 70% drawdown is quite a bit different.

Is selling undiversified high beta position after riding it all the way to the bottom and buying TSM (beta 1) really the most optimal move here?

Wouldn't it make more sense to keep those $ in a higher beta position until the market recovers (or until the mistake is smaller than 70%) and just diversify the idiosyncratic risk away? Perhaps by buying a leveraged S&P ETF?
Other than for capital losses and gains calculations what the stock was priced at in the past makes no difference in determining what it might do in the future.

A big question to look at is if the original poster had just inherited a large amount of money then should they buy the stock today? If not then the only reason to keep it is if there is some compelling tax reason to keep it for a limited time so they could then sell it and pay a lot less in taxes.
The OP vested and held and by doing so implicitly committed to a high beta strategy. Selling high beta stock(s) and moving to TSM right after you've eaten all the s*** seems pretty similar to me to selling all your stocks at the market bottom and buying bonds.
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gobel
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Re: Company stock diversification after huge losses

Post by gobel »

vp89 wrote: Wed May 25, 2022 2:43 pm
Watty wrote: Wed May 25, 2022 2:37 pm
vp89 wrote: Wed May 25, 2022 2:19 pm I get that auto selling RSUs makes sense, but the situation after a 70% drawdown is quite a bit different.

Is selling undiversified high beta position after riding it all the way to the bottom and buying TSM (beta 1) really the most optimal move here?

Wouldn't it make more sense to keep those $ in a higher beta position until the market recovers (or until the mistake is smaller than 70%) and just diversify the idiosyncratic risk away? Perhaps by buying a leveraged S&P ETF?
Other than for capital losses and gains calculations what the stock was priced at in the past makes no difference in determining what it might do in the future.

A big question to look at is if the original poster had just inherited a large amount of money then should they buy the stock today? If not then the only reason to keep it is if there is some compelling tax reason to keep it for a limited time so they could then sell it and pay a lot less in taxes.
The OP vested and held and by doing so implicitly committed to a high beta strategy. Selling high beta stock(s) and moving to TSM right after you've eaten all the s*** seems pretty similar to me to selling all your stocks at the market bottom and buying bonds.
OP's lockup just expired a week ago. It doesn't sound like he had a choice on the vest-and-hold. HIs exercise-and-hold seems to be a tax play given that he timed it to be LTCG right when the lockup expired, but unfortunately the stock tanked.

OP could play with TT to see what combination of sells would clawback his AMT credit (200k or so) as quickly as possible.
mega317
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Re: Company stock diversification after huge losses

Post by mega317 »

vp89 wrote: Wed May 25, 2022 2:43 pmSelling high beta stock(s) and moving to TSM right after you've eaten all the s*** seems pretty similar to me to selling all your stocks at the market bottom and buying bonds.
I disagree. The difference is that the long-term expected return of TSM is very different from an individual stock.
CletusCaddy
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Re: Company stock diversification after huge losses

Post by CletusCaddy »

mega317 wrote: Wed May 25, 2022 2:57 pm
vp89 wrote: Wed May 25, 2022 2:43 pmSelling high beta stock(s) and moving to TSM right after you've eaten all the s*** seems pretty similar to me to selling all your stocks at the market bottom and buying bonds.
I disagree. The difference is that the long-term expected return of TSM is very different from an individual stock.
Also you can’t assume that there is not more s*** left on the horizon.
HomeStretch
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Re: Company stock diversification after huge losses

Post by HomeStretch »

newinvestor84 wrote: Wed May 25, 2022 10:56 am About 1/4 are from RSUs which have an ordinary loss. They were taxed on vest (2021 tax year) rather than lock-up expiration. They did sell-to-cover tax withholding at the time. I think companies get to choose between the two options of at vest versus lockup end?
No, companies do not get to choose. RSUs are generally taxed at vesting date.
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newinvestor84
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Re: Company stock diversification after huge losses

Post by newinvestor84 »

HomeStretch wrote: Wed May 25, 2022 3:00 pm
newinvestor84 wrote: Wed May 25, 2022 10:56 am About 1/4 are from RSUs which have an ordinary loss. They were taxed on vest (2021 tax year) rather than lock-up expiration. They did sell-to-cover tax withholding at the time. I think companies get to choose between the two options of at vest versus lockup end?
No, companies do not get to choose. RSUs are generally taxed at vesting date.
I looked this up: I was referring to the fact that some companies have a double vesting condition. (Eg Facebook RSUs didn’t vest until 6 months after their IPO). Also technically the tax is at Release rather than Vest. In some cases, there’s a delay before the shares go to the employee. (I ran into this in a previous company where there was a few week delay once).
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newinvestor84
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Re: Company stock diversification after huge losses

Post by newinvestor84 »

gobel wrote: Wed May 25, 2022 2:53 pm
vp89 wrote: Wed May 25, 2022 2:43 pm
Watty wrote: Wed May 25, 2022 2:37 pm
vp89 wrote: Wed May 25, 2022 2:19 pm I get that auto selling RSUs makes sense, but the situation after a 70% drawdown is quite a bit different.

Is selling undiversified high beta position after riding it all the way to the bottom and buying TSM (beta 1) really the most optimal move here?

Wouldn't it make more sense to keep those $ in a higher beta position until the market recovers (or until the mistake is smaller than 70%) and just diversify the idiosyncratic risk away? Perhaps by buying a leveraged S&P ETF?
Other than for capital losses and gains calculations what the stock was priced at in the past makes no difference in determining what it might do in the future.

A big question to look at is if the original poster had just inherited a large amount of money then should they buy the stock today? If not then the only reason to keep it is if there is some compelling tax reason to keep it for a limited time so they could then sell it and pay a lot less in taxes.
The OP vested and held and by doing so implicitly committed to a high beta strategy. Selling high beta stock(s) and moving to TSM right after you've eaten all the s*** seems pretty similar to me to selling all your stocks at the market bottom and buying bonds.
OP's lockup just expired a week ago. It doesn't sound like he had a choice on the vest-and-hold. HIs exercise-and-hold seems to be a tax play given that he timed it to be LTCG right when the lockup expired, but unfortunately the stock tanked.

OP could play with TT to see what combination of sells would clawback his AMT credit (200k or so) as quickly as possible.
Thanks for the suggestion on focusing on using using up the AMT credit.

Yes, this was a tax play, both on LTCH and also the fair market value for common share was still at a nice discount to IPO price.
HomeStretch
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Re: Company stock diversification after huge losses

Post by HomeStretch »

newinvestor84 wrote: Wed May 25, 2022 6:37 pm
HomeStretch wrote: Wed May 25, 2022 3:00 pm
newinvestor84 wrote: Wed May 25, 2022 10:56 am About 1/4 are from RSUs which have an ordinary loss. They were taxed on vest (2021 tax year) rather than lock-up expiration. They did sell-to-cover tax withholding at the time. I think companies get to choose between the two options of at vest versus lockup end?
No, companies do not get to choose. RSUs are generally taxed at vesting date.
I looked this up: I was referring to the fact that some companies have a double vesting condition. (Eg Facebook RSUs didn’t vest until 6 months after their IPO). Also technically the tax is at Release rather than Vest. In some cases, there’s a delay before the shares go to the employee. (I ran into this in a previous company where there was a few week delay once).
Yes, companies set the vesting terms and there can be multiple goals/dates that determine vesting. No, tax is determined based on the market value as of the vesting date. Your tax professional can help you calculate all this correctly.

The main point is to strongly consider diversifying when you are able to transact your shares!
vp89
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Re: Company stock diversification after huge losses

Post by vp89 »

mega317 wrote: Wed May 25, 2022 2:57 pm
vp89 wrote: Wed May 25, 2022 2:43 pmSelling high beta stock(s) and moving to TSM right after you've eaten all the s*** seems pretty similar to me to selling all your stocks at the market bottom and buying bonds.
I disagree. The difference is that the long-term expected return of TSM is very different from an individual stock.
I did not suggest holding the individual stock. I suggested moving from a (presumably) high beta individual stock to a similarly high beta leveraged S&P fund.
pseudoiterative
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Re: Company stock diversification after huge losses

Post by pseudoiterative »

newinvestor84 wrote: Wed May 25, 2022 8:05 am Our thought is to exercise the remaining ISOs and sell, despite losing the preferred tax treatment, selling future restricted stock units as they vest, but holding all the shares with capital losses for the time being. We’d diversify into a mix of VTI and cash, perhaps DCA’d to help cool some anxieties about the markets.
my gut reaction is "looks good to me", but that's not on the basis of any analysis or nuanced understanding of your situation, and that's partly based on my individual preference for risk, which might not be the same for you or your spouse.

some unusual minority of humans relish in exposure to financial risk, this decision to diversify away from a highly concentrated volatile stock position might be a poor decision for them. your & your spouse's call if it makes sense for you.
newinvestor84 wrote: Wed May 25, 2022 8:05 am I work for a pre-revenue technology company that went public last year.
when i first read this my brain skipped over it and translated this as "pre profit". but "pre-revenue" is a whole other beast. highly volatile investment. in some eras of history i reckon a pre-revenue venture might not even have been able to list on the public markets, but 2019-2021 was not such an era.

it's even hard to anticipate how the market price would react if the venture begins to derisk the business model and generate sustainable revenues or even operating profits. on the one hand you might expect the share price to go up, as shares in the company are more plausibly associated with a stream of future profits. but if the venture's valuation is still anchored on assumptions of hypothetical revenue and profit growth that are never realised, then it is possible that as the venture de-risks and begins to resemble an operating business, the share price drops, as the reality doesn't live up to investor's expectations.

blah blah - a plan to rotate out of pre-revenue stock into a diversified portfolio of stock in largely profitable businesses might be a winner.
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burritoLover
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Re: Company stock diversification after huge losses

Post by burritoLover »

The crux of the issue is if the company and individual tech stocks kept reaching all-time-highs, it is doubtful you would be capitulating and considering selling. If you were bullish on tech stocks long-term before - nothing should change here. If you are suddenly bearish because of recent losses, then you need to re-examine your strategy as you'll just end up making the same mistakes again that will kill your portfolio return (such as piling back into tech stocks once tech recovers and hits ATHs).
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Watty
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Re: Company stock diversification after huge losses

Post by Watty »

newinvestor84 wrote: Wed May 25, 2022 8:05 am ..... the stock has cratered -70%, but still represents a significant portion of our portfolio.
One thing to keep in mind is that the stock would need to go up 233% to recover.

While possible that is exceedingly optimistic.
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newinvestor84
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Re: Company stock diversification after huge losses

Post by newinvestor84 »

burritoLover wrote: Thu May 26, 2022 5:40 am The crux of the issue is if the company and individual tech stocks kept reaching all-time-highs, it is doubtful you would be capitulating and considering selling. If you were bullish on tech stocks long-term before - nothing should change here. If you are suddenly bearish because of recent losses, then you need to re-examine your strategy as you'll just end up making the same mistakes again that will kill your portfolio return (such as piling back into tech stocks once tech recovers and hits ATHs).
For the company stock portion, this is purely an issue for me due to lock up timing. Historically for previous jobs our family has converted company stock immediately on vest to cash (and has been extremely lucky to have mega-backdoor Roth available to us through 401k plans to divert this into)

Our plan originally was assuming we’d exercise in stages to reduce the amount of holding and tax risk (that’s why only half is exercised), and sell in stages after the 1 year qualified holding period. With the recent volatility in the macro environment, I’m questioning whether risking the 1 year holding makes sense.

I wouldn’t describe the 10% overweight on tech stocks “piling into”, but yes my spouse is bullish on tech generally. The advice above to liquidate that portion wasn’t something we were asking about. It sounds like there are mixed opinions here anyways
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burritoLover
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Re: Company stock diversification after huge losses

Post by burritoLover »

newinvestor84 wrote: Fri May 27, 2022 10:06 am
burritoLover wrote: Thu May 26, 2022 5:40 am The crux of the issue is if the company and individual tech stocks kept reaching all-time-highs, it is doubtful you would be capitulating and considering selling. If you were bullish on tech stocks long-term before - nothing should change here. If you are suddenly bearish because of recent losses, then you need to re-examine your strategy as you'll just end up making the same mistakes again that will kill your portfolio return (such as piling back into tech stocks once tech recovers and hits ATHs).
For the company stock portion, this is purely an issue for me due to lock up timing. Historically for previous jobs our family has converted company stock immediately on vest to cash (and has been extremely lucky to have mega-backdoor Roth available to us through 401k plans to divert this into)

Our plan originally was assuming we’d exercise in stages to reduce the amount of holding and tax risk (that’s why only half is exercised), and sell in stages after the 1 year qualified holding period. With the recent volatility in the macro environment, I’m questioning whether risking the 1 year holding makes sense.

I wouldn’t describe the 10% overweight on tech stocks “piling into”, but yes my spouse is bullish on tech generally. The advice above to liquidate that portion wasn’t something we were asking about. It sounds like there are mixed opinions here anyways
The short-term volatility doesn't inform you as to whether or not the 1 year holding decision makes sense. That goes back to the all-time highs I mentioned - it if there was volatility but it was primarily moving upwards (in the same magnitude it is dropping now), would you still be questioning your 1 year holding pattern - I'm going to guess probably not.

10% tech is not a big tilt but you also work in the tech industry - a better idea would be diversify into industries that do well when your industry does poorly. Otherwise it is a double whammy - job loss and portfolio loss at the same time.
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newinvestor84
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Re: Company stock diversification after huge losses

Post by newinvestor84 »

burritoLover wrote: Fri May 27, 2022 10:20 am The short-term volatility doesn't inform you as to whether or not the 1 year holding decision makes sense. That goes back to the all-time highs I mentioned - it if there was volatility but it was primarily moving upwards (in the same magnitude it is dropping now), would you still be questioning your 1 year holding pattern - I'm going to guess probably not.
A company with 2 year runway, where fundraising is cheap, 1 year doesn’t seem that long. When fundraising is getting expensive due to the belt tightening, that sounds like an existential risk. Does it not make sense to take that into account?
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burritoLover
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Re: Company stock diversification after huge losses

Post by burritoLover »

newinvestor84 wrote: Fri May 27, 2022 10:53 am
burritoLover wrote: Fri May 27, 2022 10:20 am The short-term volatility doesn't inform you as to whether or not the 1 year holding decision makes sense. That goes back to the all-time highs I mentioned - it if there was volatility but it was primarily moving upwards (in the same magnitude it is dropping now), would you still be questioning your 1 year holding pattern - I'm going to guess probably not.
A company with 2 year runway, where fundraising is cheap, 1 year doesn’t seem that long. When fundraising is getting expensive due to the belt tightening, that sounds like an existential risk. Does it not make sense to take that into account?
Is this insider information that would not be known to the market?
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newinvestor84
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Re: Company stock diversification after huge losses

Post by newinvestor84 »

burritoLover wrote: Fri May 27, 2022 11:35 am
newinvestor84 wrote: Fri May 27, 2022 10:53 am
burritoLover wrote: Fri May 27, 2022 10:20 am The short-term volatility doesn't inform you as to whether or not the 1 year holding decision makes sense. That goes back to the all-time highs I mentioned - it if there was volatility but it was primarily moving upwards (in the same magnitude it is dropping now), would you still be questioning your 1 year holding pattern - I'm going to guess probably not.
A company with 2 year runway, where fundraising is cheap, 1 year doesn’t seem that long. When fundraising is getting expensive due to the belt tightening, that sounds like an existential risk. Does it not make sense to take that into account?
Is this insider information that would not be known to the market?
No, this is just from the quarterly SEC report - cash divided by negative quarterly cash flow. As mentioned above, this is a pre revenue company, so calculation is pretty simple. I don’t have access to any non-public business information.
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burritoLover
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Re: Company stock diversification after huge losses

Post by burritoLover »

newinvestor84 wrote: Fri May 27, 2022 1:10 pm
burritoLover wrote: Fri May 27, 2022 11:35 am
newinvestor84 wrote: Fri May 27, 2022 10:53 am
burritoLover wrote: Fri May 27, 2022 10:20 am The short-term volatility doesn't inform you as to whether or not the 1 year holding decision makes sense. That goes back to the all-time highs I mentioned - it if there was volatility but it was primarily moving upwards (in the same magnitude it is dropping now), would you still be questioning your 1 year holding pattern - I'm going to guess probably not.
A company with 2 year runway, where fundraising is cheap, 1 year doesn’t seem that long. When fundraising is getting expensive due to the belt tightening, that sounds like an existential risk. Does it not make sense to take that into account?
Is this insider information that would not be known to the market?
No, this is just from the quarterly SEC report - cash divided by negative quarterly cash flow. As mentioned above, this is a pre revenue company, so calculation is pretty simple. I don’t have access to any non-public business information.
There are a lot of red flags here that you are reacting to the markets in this decision:
...after the recent tech downturn?
...the stock has cratered -70%
...perhaps DCA’d to help cool some anxieties about the markets
...With the recent volatility in the macro environment
If you have no inside information (ex. you are a janitor), then you are merely speculating about the future stock price of this company you work for and you have no more insight than any other investor with public info - which means the ability to predict what is going 1 year into the future is probably non-existent. This was a highly risky proposition when you decided to let the tax tail wag the investment dog - you must have felt more optimistic at that point - why? Can't simply be the fundraising issue derailing everything - If all else equal and the stock was up 80% now, would you still wait the year? If the answer is yes, then you are not taking an objective look at this.
1moreyr
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Re: Company stock diversification after huge losses

Post by 1moreyr »

I worked for a megacorp in 2000 during the dot.com boom. This was/is a quality fortune 500 company with a long history.

My stock/stock options were worth north of $450K in 2002..I kept hanging on for more. They tanked and the company survived. I worked for a very senior executive. and had a friend in finance at top levels.. NO ONE saw it coming...

I finally sold my "$300K" of options just before their 10 year expiration date.... for $9000.

take it off the table while you can.... if you are doing a good job and the company grows they will give you more stock and you will get to sell again.

I learned the hard way that $450K is more than $9000
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