Why I'm Selling My Google Stock Grant

Not sure why the other comments are so negative. I don't see how you can dispute that having a large part of your net worth in a single stock leaves you vulnerable if anything happens to it. There's also the fact that your fortunes are still very closely tied to your company's through unvested stock, bonuses, and employment. Regardless of how positive you are on your company, you're probably already sufficiently invested in it. I can't imagine any combination of individual situation and risk tolerance that would make holding a large amount of a single publicly-traded stock an optimal investment strategy.

There is a simpler way to put it: if you wouldn't buy the stock if you had the money in cash, then clearly you should sell the stock.

> Dan tells me that he plans to hold on to his Facebook shares. He's going to sit on the nest egg while it grows and matures. He'll slowly nourish it with solid technical contributions until it turns to a small fortune. Facebook, he says, is valued at a small fraction of what it will be in 5 years.

First, if Dan's thesis is right (Facebook "is valued at a small fraction of what it will be in 5 years"), you don't need to work at Facebook to profit. You can invest in FB shares, or even long-dated options, and let folks like Dan do all the hard work.

Second, the real question for Dan is how much of the dollar value of his equity compensation he should hold in FB shares. If Dan has $50,000 in investments, virtually all of which consist of FB shares, that's problematic, even if he believes strongly in his thesis.

> You should think of the grant as cash compensation. If you decide to not sell the stock immediately, this is equivalent to taking out a portion of your paycheck to buy stock in your company.

This is spot on. That doesn't mean that employees shouldn't retain some of their shares, but they should consider whether they'd purchase the same number of shares if they had a pool of cash to invest.

There's a more concrete, specific reason, than generic risk that you should consider and discount the stock price of the company you work for accordingly: it is less liquid for you relative to the market, because you cannot trade it in blackout periods. Lack of liquidity is a cost to you, therefore, if you work at Google, a share of GOOG should be less valuable to you than the market price (assuming you consider the current market price to be fair, which is a totally different matter).

In 1999, an accquaintace of mine had his Internet company bought out for $1 million in cash and $19 million in stock of the buying company with a 2-year vesting period. One year later he was given the option to cash out his stock early, but given the momentum of the stock market at the time (he now had nearly $30 million in stock) he elected not to cash out.

A few months later the tech stock market crashed.

He lost his wealth, his job, his wife, the house and the cat.

I just sold all of my Microsoft stock two days ago and now I come across this article. Avesh is absolutely right about the points he is making and I think that everybody who are entitled to stocks as a part of their payment package should sell these immediately and construct a more balanced portfolio instead.

If you (like myself) feel like you are better at writing software than acting like a wolf on Wall Street you should take a look at index funds. An index fund is a fund that reflects the development of an index (e.g., S&P 500 or FTSE 100). Rather than paying a portfolio manager a high fee (of up to 5% of the invested portfolio) to actively manage your investments, an index fund is designed so that it simply follows an index. This is much cheaper than actively managing the portfolio. Since John Bogle came up with the idea about 40 years ago and founded The Vanguard Group, history has proven time and time again that active investors can't beat the market in the long run. Index funds therefore yield a higher net return because of their lower costs (typically around 0.5%).

If you are new to investing, I would suggest to go with the three-fund portfolio[1]. Divide your portfolio into three parts and invest in a domestic stock market index fund, an international stock market index fund and a domestic bond index fund. This would probably yield an annual return of 10-15% with a very controlled level of risk. I have constructed my portfolio like this and I am really happy about it. I don't have to constantly worry about my investments and at the same time I can expect a fairly solid rate of return.

[1]: http://www.bogleheads.org/wiki/Three-fund_portfolio

Well said. Of course, the entire premise can be justified succinctly by recognizing that a portfolio consisting of the typical 23 year old tech grad's net worth ($25-$100k) plus the first round of grants from a large tech company ($10-$40) would consist of 9.1%-61.5% stock in a single tech company. Keeping the stock would put you anywhere from foolishly to comically over invested in the company.

I know a couple of senior managers who follow exactly what's written in the blog. Another friend did something clever. Since he believes in tech industry's indomitable rise (aka Software eating the world), he uses his stocks to trade stocks of other publicly traded companies. He buys Netflix, Facebook, and stock of other lesser known companies when he's feeling like a gambler.

He treats his stock compensation as bonus. And that has worked well for him. He has a set timeline for when he cashes out, and usually draws a lot of funds only when he's investing that to buy land or house or put that money in indexed funds...

The managers I spoke about have, by my estimates, lost 10x value on the stock grant. They sold too early, too many years back. But they are still at the company. No matter how risk averse you are, that must hurt.

Some stocks are chickens that lay golden eggs.

I wonder if there's a nice mathematical way of maximising income from this.

A good way to treat the risk:

If, instead of the stock, you had been given the equivalent cash value (at today's prices) - would you choose to invest all of it in GOOG stock?

I would use that way of thinking to determine what amount of stock I wished to hold.

As Ramit Sethi likes to argue, the greatest risk in financial management is ending up in analysis paralysis and failing to utilize your energy where you have much more leverage-- improving your own skills and impact. You risk over-allocating yourself not to an investment or sector but to financial greed itself.

Tho, in favor of the OP: GOOG 2012-present has doubled, but well-diversified leveraged funds have had better returns (TQQQ and SVXY are up ~6x).

I have a small part of my savings invested in the company I work for (about 15% or so); it's had 10-25% interest every year for its ten year existence and I have confidence enough in my company. The rest is divided between savings and a traditional bank account (about half, which is still enough to pay the rent and such for a year), and various investment products (some traditional shares, I'm at a few hundred in profit on those if I decide to sell now, and an investment fund that spreads it out over many stocks).

The safe option - stashing it in a savings account - is not worth your while; interest rates on savings account over here have dived below 1% now, which means that you're actually making a loss on them if you add inflation and increased taxes and such to it. Moving part to a higher risk, but higher interest rate is worth it to me. Even if the interest on the investments would be just 2%, it's still better than a savings account.

I have seen people follow this strategy and then the stock goes through the roof. Yes, diversification is generally smart, but seeing all of your colleagues get rich while you make 8% returns can be very difficult emotionally. Therefore, I'd sell most of the grant but keep a significant fraction (maybe 25%) as a hedge.

They joined big companies just a year ago as wet behind the ears, good for very little, graduates. So realistically how much stock are really talking about here? I'm assuming it is pitifully small which is why it was so easy to come to the decision to offload it on a whim.

Are there any benefits to stock grants over purchasing stock yourself? I'm assuming there is no transaction cost? If so I'd just treat the grants as part of my portfolio and divest with the money I make from the job.

You have to believe in the company you work for to some degree. If you don't the smarter risk management move would be to move on to another company not to sell your grants.

Nevertheless the overall point is good. You should treat grants as an additional item depending on the same company you draw your income from.

Totally agree on the "risk" assessment. However, when you are young you can take outsized risk for the first few years. A company like GOOG or FB isn't going to implode overnight. The upside scenario is much more likely than the downside. So, I agree with the risk reduction and diversification argument, but I would wait a few years. The benefits of having significant market outperformance in one stock while you're young will carry over into the life of your nest egg.

I think you are making a great point considering the risk of investing in a company that is also paying your salary. To take it a step further you can consider this salary to be an annuity and find the present value. If you look at your portfolio including the present value of your salary, it more than likely emphasize the lack of diversification in your portfolio.

Just as a side note, for your blog, the title shows the hexidecimal value of '. :)

I think, it is not that simple. In your case you have access to a lot more information about the company than most of investors. If you really believe in business that you are in, I think you should keep the stock. If something happened in company, you would be the first one at the door since you live and breathe the company's news. It's almost insider trading, but legal.

It may be somewhat foolish to be so heavily invested in a single stock because of risk, but as a newgrad you are about as far away from retirement as you can get, you should be taking on riskier stocks if you have the energy to pay attention to it, that time is now. Gradually shifting to less risky stocks happens withage, hold on to some of those crazy shares now.

Empty advice. Risk is an element no matter where you invest. I expected to read more about risk management or factors to consider, etc. Instead, you're left holding thin air.

Regarding holding employee stock, I consider it as part of an investment strategy that's based on market conditions and personal profile.. much like any other stock.

I surely wouldn't sell for the sake of risk. The premise sounds naive and confusing.

This is incredibly naive. Please don't try to pass off blanket financial advice to others without knowing specifics or having any context on their situation. Different people have different risk profiles.

Also much of the logic in this post just doesn't make sense to be honest.