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Some stock market questions.
azith28
Registered User regular
Registered User regular
Hiya,
Hoping some of you have some experience with the market and can explain a few things.
I own stock in the company i work for under a stock purchase plan (401k). The stock has been doing very well over the last few years, doubling in price. Now about 6 years ago, the company was holding an annual financial meeting for its employees to know where it was headed and at that time they said the goal was to hit 150 bucks a share by 2015. This year they hit 150 a share, and its still going up.
Now I've been keeping an eye on the stock on a daily basis, usually just following the link to the google page with the current prices and stories that are associated with the stock and its field since i started working here 10 years ago, and I've felt pretty confident about the stock because of its continued strength, and its been fairly predictable when it will surge and sink (rises cause people buy it right before the dividen is announced, then sold slightly right after) but even then, it recovers and continues its upward tick eventually.
What worries/confuses me is that the articles about the stock i read mostly agree that the price is too high for the stock. (Overbought i think?) dispite the fact that articles have been saying this for several months now and its continued to go up, they always mention this as a negative thing and avoid outright recommending the stock, even if they continue to praise its price going up so much.
now I got the impression back 6 years ago when they announced the expected goal price of 150 a share that this was going to trigger something like a stock split. The stock has split before, about 20 years ago. Would splitting the stock make it even more overbought or would that be the correct action to take for an overbought stock? I have avoided outright mentioning the stock because i dont really want opinions on a specific stock or field, im just trying to understand what drives a stock split and if an overbought stock is neccessarily a really bad thing if it has alot of potential to keep growing.
Thanks
Stercus, Stercus, Stercus, Morituri Sum
azith28 on
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If you bought your stock through an ESPP there may be limitations on selling, but you've been with the company so long you're probably clear of obligation
I'm not saying you SHOULD diversify... but you know... keep your options open
we also talk about other random shit and clown upon each other
I have little faith in the predictive power of analysts, but if several of them are saying the same thing, it seems likely that they might be onto something.
It was nice of management to hit their stock price targets (and I'm sure they got fat bonuses out of it), but remember that they have a vested interest in pumping up the stock price.
I think this is less of an issue now that most trading is done by computers (see: Apple and Google share prices), so I don't think it's a remedy to your company's situation. In the analysts' eyes, they probably want to see more income/profits.
Stock splits are usually made to make the stock more attractive to retail investors. Since Google/Apple have been at triple digits for years now I don't think the argument carries much water.
How much of your retirement portfolio is directly exposed to your company? Don't put all your eggs in one basket, having a big part of your retirement nut be the stock in a company that is paying your wages is risky in that you've greatly exposed yourself to single company risk. If your company misses and the price movement reverses what happens? How much of the company's solvency is reliant upon continually increasing stock price?
Honestly I'd probably cash out at least half and keep it in cash reserves or MM if you don't know where to put it. What's the saying? Pigs get fat, hogs get slaughtered?
Like everyone else is saying though, it's a bad idea to have a significant amount of your 401k invested in the company you work at. It's a matter of diversity. If one bad event happens (say a volcano destroys your company's only factory) then not only are you likely out of a job, but your 'life savings' is also going to tank. There's no reason to put so much of your future into one basket, so to speak. Diversifying away from your company's stock inside your retirement is a prudent thing to do. I would look into it. I wouldn't worry about 'overbought' though.
You're caught in the greed trap. It looks tempting to not diversify because it's worked out so well so far, right? But that's the thing. You've lured yourself into thinking that stock prices are predictable when they're not. The market is not rational. And all it takes is for the market to suddenly decide that this stock isn't worth as much and suddenly your net worth evaporates. Your gambling a lot on the assumption that it will continue to rise and won't drop significantly before you decide to cash out. As tempting as it is, it's also irrational.
Now at this point it's also tempting to respond, "but why would stock price go down significantly and unexpectedly?" You want some justification for why that would happen. But it doesn't matter why the stock price might plummet. There are oodles of reasons that could happen, and the actual why won't matter once it does happen. You'll still have lost that net worth. Diversify and you spread your risk.
Allow me to present a visual aide illustrating your point minus the volcano
The Stock is Sherwin Williams. It's outperformed Vaspar, Home Depot, RPM and several other companies in its field during the housing crisis, so its been a pretty safe haven for stock during a bad time, so even if the housing market is not recovering, its been a safe place, and if it does recover, its going to just keep going better then it has been. I'm not completely opposed to diversifying at this point, i just find it hard to believe that since im looking at another 20 years of working here, that taking the long view isnt going to hurt me. the company matches my purchases, so im buying into it at the max rate they will match. I have considered selling at this point just to diversify but havent found anything else that really seems to be so reliable.
Unless your company is only matching company stock purchases in your 401k (WTF), you should seriously take a look at switching up your allocations.
Did you say 80% of your 401k is in stocks generally, or in this stock? And what is the cap on your company's contribution?
My super laymen's intuition is that at the least, if you're not going to reduce your investment in Sherwin very much, and if it is 80% in that one stock, don't have any of your other 20% in stocks of any kind. You'll want to reduce the correlation with that minority, and my guess is bonds as a good option.
This may make sense if you are employee number 20 or lower in a thousand person organization (being essentially a founding member or director level or higher, whether or not you sell has political ramifications, and analysts will read something into that, affecting stock price), but probably a bad idea if you have any other role in the organization.
If you're really seeking advice here and not justification for your existing position, take advantage of whatever options or grants you can and then sell, keeping no more than half of your retirement in company stock (less than a third is better, but doubt you'll go that far). Cash is not a bad hedge.
Just pick a smart allocation (80% in one stock is NOT smart) and reallocate every time you majorly diverge from that allocation. Your own "smart allocation" will vary, do some research on building a diverse portfolio. There are books on this. "The Intelligent Asset Allocator" is one I see recommended a lot.
Also, since I assume money goes in with every pay period, the 20% that's not doing so well... you're buying that for cheaper because it's under-performing which will be great if it ever recovers.
It's possible that the fundamentals are going to catch up to the price if housing rebounds in a big way, but like I said earlier this might be a good time to take some of your profits out and rebalance your portfolio. Transactions within the 401(k) shouldn't have any major tax implications, but I'm not an accountant :P
Honestly I would never have more than 20% of my contributions going into a company I work for, because you'll be wiped out twice. If your unemployed and your stock is retirement is doing ok, you can keep going get a new job and your retirement is still secure. If you are heavily invested in a company and the company is horribly missmanaged and they are BSing you and cooking the books. You'll be out of a job and you will have to rebuild your retirement from scratch, and you'll miss out on years of compounding interest and tax advantaged savings. Don't trust people who have a vested interest in your investments being made in certain areas.
If it's the former, then what I would do is look into the rules around when you can sell your shares. Assuming it's a reasonable period of time (6 months-1 year, etc.) then I would do what you're doing and then sell as soon as possible. You can even time the sale for after the dividend is sent out, if you're so inclined. But the key is to put money in the stock for the matching, not to hold the stock itself.
If it's the latter, then you don't have to buy their stock at all, and I would recommend not buying more while you're trying to sell what you have now. In case I'm not being clear, I agree with what everyone else has said - you should be diversifying what you have now. Your intuition is also correct regarding taxes, and you should definitely investigate (with an accountant) the best way to get rid of the shares and diversify without taking too much of a tax hit or running afoul of other tax issues.
I guess I should make an appointment with my 401k handler and see what i can find out. I just wanted to clarify some of the questions ive had for a while.
your plan sounds strange. is it possible you're misunderstanding something?
definitely talk to the 401k handler.
That rule strikes me as absurd, but now you can see why they put it in place. It is a psychological barrier to prevent people from selling their stock, and forces you to keep accumulating more and more in order to artificially prop up the demand. I guarantee you that no one in the c-suite of your company has such a ridiculous, artificial obstacle in place. If anything that makes me more inclined to tell you to just sell as much as you can as quickly as possible (assuming you don't lose gobs of money in the process). Based on what you've described, I would not be surprised to see that some of share price increase you've seen is a direct result of employees buying, holding, and never selling. At some point, you need to break this cycle, so the more quickly this is done, the better.
There may also be ways for you to time this such that you are taking full advantage of the matching without having to deal with the ridiculous 6-month barrier. For example, perhaps you can make a single bulk purchase once each year, get the matching for the full amount, then sell 6 months later. If you can't figure out a way to work the timing in order to get the matching, then I'd just as well ignore the matching altogether as it's not going to be worth it in the long run given how much of your portfolio is already invested in the company.
Azith, it's been explained a few times why putting all your eggs in one basket can blow up in your face, so I'll let that go.
But, if you aren't happy with your long term prospects with your other fund, fire them. I'm sure your elections aren't limited to COMPANY STOCK and SHITTY MUTUAL FUND.
Hell at least throw 10% to a bond fund in case your company gets mom and pop video store'd Blockbuster'd Netflix'd.
no company that has been around a long time can have things go tits up! this isn't even accounting for the fact that equities, by their very nature, can be volatile and experience large swings even when the underlying company is doing "great".
You're committing one of the most common investing fallacies; that a stock's history is indicative of future performance. It isn't. Period.
Take whatever matching you can get and then diversify the rest. There is no logical discussion to be had on the contrary of this position.
you need to liquidate that stock and put it into a fund
funds exist for a reason
holding on to a bunch of company stocks makes sense ONLY if you are getting the stock for free as a bonus program, NOT if you actually have to buy it
Consider yourself incredibly lucky that the stock has risen as it has, I mean, holy damn, in 2012 alone its skyrocketed
This is a case of knowing when to walk away from the poker table
You've won a big hand. Now cash your chips. Put it in a fund. Funds are safe. Having 80% of your retirement in one stock is not safe.
Could the housing market recovery really get rolling and Sherwin Williams keep melting faces? Yes. but if that happens, the entire market will benefit, and thus a fund will benefit. Meanwhile a lot of negative things could happen to Sherwin Williams independent of the economy
if you wait until the CFO starts monkeying with the shares, chances are you're going to regret it
if you want to know why 80% in even a "safe" stock is insane, google "flash crash"
I am not a financial advisor. I'm just telling you, use common sense, get independent advice, and don't expose yourself to risk. You're not a day trader.
we also talk about other random shit and clown upon each other
Fidelity is legit (I use them for my work stuff, too), so you should be fine. I was just worried that it was some dude in HR.
Glad to hear your advisor helped you out.
Yep. In retirement and other accounts, you're trying to just invest in enough things and at a constant rate so your winners will outpace your losers and the general growth of the economy will grow your money. Also, due to fees on moving the money around, it's often better to just redo the mix of Future investments and hold onto what you have.
SELL APPLE!