Too Many Eggs In One Basket?

 

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The stock market has been having a great year (+17% S&P500), but that hasn’t stopped me from fretting over the price of MegaCorp stock (-8%), as I continue to sit on significant stock options as part of our early retirement portfolio.  While many retirees may be celebrating the record market closes this week and ongoing ‘Trump Bump’, our portfolio is sitting FLAT for the year.

I’ve written before about these MegaCorp stock options we have in our portfolio.  They represent a significant portion of our nest egg (about 25%) and the window to exercise them stretches between now and 2022.  Because they are options, they have significant leverage (a 10% share price movement up or down yields 30% increase or decrease on the value of our options).  This is great when they are going up – but it has been painful this year.

Last fall, the stock shot from $60 to $72, before dropping precipitously and finishing the year only slightly ahead at $61.  In 2017, it’s been all downside with a low point of $50 in early November.  The price now rose to near $57 this week and I unloaded a good chunk of the options that are within 6 months of expiring.  It has been a roller coaster ride – and not a fun one!

My experience with these options (which once represented more than 50% of our wealth) reminds me of the wisdom to not have too many eggs in one basket.  This often happens for people that work for a big company and have annual stock grants, option programs, and employee stock purchase plans.  Before you know it, a lot of your long term success is tied to MegaCorp’s daily stock quote.

The personal finance writer Jane Bryant Quinn calls this out in her book Making The Most of Your Money.  In addition to being dependent on one company for your income, family medical benefits, and insurance – people compound their reliance on the company by also loading up on their stock.  Some people even have a company car, company phone, and other corporate dependencies.

A friend of mine recently talked about how his company is working on some new innovations that were exciting and how he was buying extra stock in hopes of benefiting from their success.  I told him my concern would be that  you already have so much riding on the success of the company, you might want ensure you are as diversified as possible in the discretionary investments you make.  New products can succeed or fail – and most of them fail.  Additionally, individual companies can fail for reasons other than their marketplace performance – just think of Enron.

How dependent is your FIRE nest egg on a single employer? 

What’s the highest it has ever been?

Image Credit: Pixabay

11 thoughts on “Too Many Eggs In One Basket?

  1. I’m in a slightly less severe version of your situation. About five percent of our wealth is in RSUs. Thankfully my large Corp did nothing but go up this year. Still five seconds after this years vesting placed I sold. My situations actually in some ways worse. I’m considered to have insider info and thus my trading is constructed. This means I have to plan those sales months in advance. Still it’s better hen not having he assets.

    Liked by 1 person

    • 5% – that’s not bad at all. I’ve always sold stock grants as soon as I could, but the options have 10 year windows (and huge leverage) that keep you in them a long time. Golden handcuffs stay locked long after I’ve left the company.

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  2. We’ve been in a similar situation. When we first started our careers, I didn’t ever let go of our company stock and it got to around 40% of my portfolio. I dumped a lot of it at a good time and have tried to actively manage it better since then keeping it below 10%, usually well below.

    My portfolio with my new company has been similar to yours. I was wondering why it was so flat respectively when everything else was gaining so much. Then I realized I still had ALL of my company stock options still sitting in company stock which was flat to negative. D’oh!!

    I promptly dumped 70% of it and put it in the S&P 500 and a few months later dumped the rest and did the same. I missed out on the gains from earlier this year, but better late than never. It also reminded me to keep a better watch on that aspect of that account as well.

    Liked by 1 person

    • MegaCorp would like nothing better than to have their management locked up in company stock. I remember a boss who would sit down with each new employee in his group and effectively explain to them on paper and pencil how much monetary reward there was for all of us when we could drive earnings and the stock price higher.

      Liked by 1 person

  3. I have about 30% of my net worth in company stock. Why would I have so much in one stock?

    Well, I’ve already sold 99% of it. But the stock has gone up 16125% in the last 18 years. If I hadn’t sold all those shares, my net worth would be $250 million now.

    So I’m the other side of the coin.

    Liked by 1 person

    • WOW! Our MegaCorp stock options have appreciated nicely over the years, but nothing like that. I looked it up, we are up 350% over 18 years.

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      • I correctly guessed your MegaCorp long ago, but after you posted these stock prices, I am sure I guessed right… 😉

        I joined my MegaCorp as a startup, so my options were priced in the pennies. My personal return has been 90 x 16125% (the publically available return). Pretty incredible looking back now, too bad I diversified.

        Liked by 1 person

      • Yep – GIS. I kept that quiet until I retired and never formally announced it. After I retired, I didn’t think it mattered, so I’ve tried to just leave it generic. My final MegaCorp was MMM – a lot of my posts reflect on that company.

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  4. We were in a very similar position when hubs left his “Megacorp.” At that time, there were rumblings about where the company was headed, and like you, it was difficult to relax having all of those eggs in that basket. We exercised those options, got the best out of them that we could at the moment, then reinvested the proceeds in a much more diversified array of equally solid companies. It’s a good thing we did, because our “Megacorp” sort of ‘tanked’, and has never returned to the prices we got. We’re happy we didn’t try to wait for even higher returns. ~ Lynn

    Liked by 1 person

  5. My MegaCorp is up a couple more bucks (+4%) since I posted this just last week. Feeling much better than I did a few weeks ago, although it’s still down for the year.

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