16 ms·

If you had $1MM in cash, how much of it would you use to buy the company's stock?

baron816 9y ago
Correct
YZF 9y ago
This is absolutely the right way to think about this. However if you have options the situation is different. There may also be tax considerations. Another variable is whether your personal effort materially affects the outcome for the company. If you think your work will dramatically increase the value of the company you may want to own more stock ... presumably though if this is the case it's already reflected in your compensation (and maybe part of that is stocks/options as well). The way I tend to think about this is that if you're working for the company you're already invested in it to some degree so from a diversification perspective I'd tend to want to own less stock of the company I work for.
- abalone 9y ago
  > Another variable is whether your personal effort materially affects the outcome for the company. Well no, the question supposes you work for the company in either case. If you held $1M in cash, would you invest it all in the company you work for because maybe you can affect the outcome? If not then probably you shouldn't hold onto $1M in equity... if you're perfectly rational that is.
  - jjeaff 9y ago
    There is one reason that it might behoove you to keep everything invested in the company you work for. It may be that you have insider information that no one else knows.
    - abalone 9y ago
      That's fine. The question is not "are there good reasons to invest in your employer." It's "are you rational enough to treat $1M equity and $1M cash the same." Also, it is uncontroversially a bad idea to invest "everything" you have in one company.
    - YZF 8y ago
      Technically if you buy the stock based on insider information you're breaking the law. If you get stock and don't sell it I don't see how that can be considered insider trading...
      - jjeaff 8y ago
        Yes, which is why I said "keep" the stock. If you're buying and selling based on insider info, you could be in trouble (thought unlikely as an employee that isn't an executive). But no one could be prosecuted for just not selling stock they receive as compensation.
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rifung 9y ago
This exactly. I work at Google and it astonishes me how surprised people are when I tell them I use autosale, the company program where your stocks are sold immediately as they vest. They always ask "Don't you think Google stock is going to go up?" And I always reply that yes I do think it will go up but 1) that's not the right question to ask, you should ask whether it will go up more/less than anything else you could invest in with that money 2) My future compensation, both in terms of stock and salary, is already heavily tied to Google's future performance, so I have even more incentive to diversify compared with someone who doesn't work there.
- anitil 9y ago
  I had a friend lose almost everything in the dotcom crash by being solely invested in his employer. His advice exactly mirrored yours
  - lev99 9y ago
    I think it's very poor idea to own stock in your employer. This famously is highlighted by Enron encouraging it's employers to invest their retirement account disproportionately in enron stock. The employees that did lost their job and their retirement account at the same time. [0] It's probably a less bad idea to own stock in a company you control on a managerial level (C level or on the board). [0] https://www.nytimes.com/2001/11/22/business/employees-retirement-plan-is-a-victim-as-enron-tumbles.html https://www.nytimes.com/2001/11/22/business/employees-retire...
    - TheCoelacanth 9y ago
      Even for CEOs and board members diversification is a good idea. They are just limited in how much they can diversify because it looks bad if they sell too much of their stock.
    - charlesdm 9y ago
      Honestly, it depends. Generally you want to divest, but you would have been an idiot to divest Facebook stock, for example. If you believe it's a great investment (which you might -- given you work there!) then keep the money in. You might understand the business better than other investors that are not working in the company because you have a better view of the market and/or the stuff that is being worked on. If not, sell and reinvest in a different asset.
louprado 9y ago
And then take that answer and invest even less given that, as an employee, you are already exposed to downside risk.
gwbas1c 9y ago
I think it's really dumb to buy your employer's stock on the open market. (Not including whatever stock plan you already heave,) You're already exposed to risk from loosing your job.

Correct

YZF 9y ago

This is absolutely the right way to think about this. However if you have options the situation is different. There may also be tax considerations. Another variable is whether your personal effort materially affects the outcome for the company. If you think your work will dramatically increase the value of the company you may want to own more stock ... presumably though if this is the case it's already reflected in your compensation (and maybe part of that is stocks/options as well). The way I tend to think about this is that if you're working for the company you're already invested in it to some degree so from a diversification perspective I'd tend to want to own less stock of the company I work for.

abalone 9y ago
> Another variable is whether your personal effort materially affects the outcome for the company. Well no, the question supposes you work for the company in either case. If you held $1M in cash, would you invest it all in the company you work for because maybe you can affect the outcome? If not then probably you shouldn't hold onto $1M in equity... if you're perfectly rational that is.
- jjeaff 9y ago
  There is one reason that it might behoove you to keep everything invested in the company you work for. It may be that you have insider information that no one else knows.
  - abalone 9y ago
    That's fine. The question is not "are there good reasons to invest in your employer." It's "are you rational enough to treat $1M equity and $1M cash the same." Also, it is uncontroversially a bad idea to invest "everything" you have in one company.
  - YZF 8y ago
    Technically if you buy the stock based on insider information you're breaking the law. If you get stock and don't sell it I don't see how that can be considered insider trading...
    - jjeaff 8y ago
      Yes, which is why I said "keep" the stock. If you're buying and selling based on insider info, you could be in trouble (thought unlikely as an employee that isn't an executive). But no one could be prosecuted for just not selling stock they receive as compensation.
- deleted 9y ago
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deleted 9y ago
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rifung 9y ago

This exactly. I work at Google and it astonishes me how surprised people are when I tell them I use autosale, the company program where your stocks are sold immediately as they vest. They always ask "Don't you think Google stock is going to go up?" And I always reply that yes I do think it will go up but 1) that's not the right question to ask, you should ask whether it will go up more/less than anything else you could invest in with that money 2) My future compensation, both in terms of stock and salary, is already heavily tied to Google's future performance, so I have even more incentive to diversify compared with someone who doesn't work there.

anitil 9y ago
I had a friend lose almost everything in the dotcom crash by being solely invested in his employer. His advice exactly mirrored yours
- lev99 9y ago
  I think it's very poor idea to own stock in your employer. This famously is highlighted by Enron encouraging it's employers to invest their retirement account disproportionately in enron stock. The employees that did lost their job and their retirement account at the same time. [0] It's probably a less bad idea to own stock in a company you control on a managerial level (C level or on the board). [0] https://www.nytimes.com/2001/11/22/business/employees-retirement-plan-is-a-victim-as-enron-tumbles.html https://www.nytimes.com/2001/11/22/business/employees-retire...
  - TheCoelacanth 9y ago
    Even for CEOs and board members diversification is a good idea. They are just limited in how much they can diversify because it looks bad if they sell too much of their stock.
  - charlesdm 9y ago
    Honestly, it depends. Generally you want to divest, but you would have been an idiot to divest Facebook stock, for example. If you believe it's a great investment (which you might -- given you work there!) then keep the money in. You might understand the business better than other investors that are not working in the company because you have a better view of the market and/or the stuff that is being worked on. If not, sell and reinvest in a different asset.

louprado 9y ago

And then take that answer and invest even less given that, as an employee, you are already exposed to downside risk.

gwbas1c 9y ago

I think it's really dumb to buy your employer's stock on the open market. (Not including whatever stock plan you already heave,) You're already exposed to risk from loosing your job.