
Why I'm Selling My Google Stock Grant - aveshcsingh
http://www.avesh.me/tech/2015/8/10/why-im-selling-my-google-stock
======
army
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.

~~~
MaulingMonkey
> 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.

Aye, it's not a diverse investment. _Especially_ if you consider your
employment a form of investment.

~~~
zardo
Don't forget your house, its value is dependent on the local economy, which
could be tied to your employer. If you own a house in a town that is largely
employed by ACME, and you work there, and you invest your money in ACME, if
ACME goes under you lose your job, your retirement savings, and potentially
the value of your home.

------
amelius
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.

~~~
joosters
Exactly! If I was given $5000 in cash and my impulse is not to immediately run
out and buy Facebook shares with it, why then should I do anything else but
sell $5000 worth of Facebook shares that I get given?

------
7Figures2Commas
> 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.

~~~
grey-area
I agree the article is correct that he should sell even if he believes his
thesis, because as an employee he doesn't really control FB's direction in any
meaningful way and yet depends on it for his livelihood.

Also the P/E of Facebook is currently 98 vs the average of 15 and Apple's 13,
so Dan's thesis (say 100x growth in stock price) would require 100x growth in
revenue or a huge drop in costs. Neither seems likely given the historical
fate of walled gardens like FB and the trouble both FB and Twitter have seen
substantially profiting from their audience in a sustainable way. Facebook is
looking pretty frothy to me at the moment and its long-term dominance far from
assured, let alone its ability to grow revenue.

[https://www.google.co.uk/finance?q=facebook](https://www.google.co.uk/finance?q=facebook)

------
mehrdada
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).

------
spc476
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.

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

Loss of life partner caused by financial hardship is actually a blessing...
Better find out as early as possible that finances are a critical part of the
relationship.

Or maybe it is an American thing...

~~~
david-given
No, all cats are like that. As soon as you stop opening the cans of cat food
your usefulness to them is over.

------
sebastianbk
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](http://www.bogleheads.org/wiki/Three-fund_portfolio)

------
mgraczyk
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.

~~~
mifreewil
Pretty sure the typical tech grad (or any grad) has a negative net worth.

~~~
bitJericho
Even more reason to sell that stock and pay back the student loans. While
student loans will more than likely have a lower interest rate than the
interest you earn on a successful company's stock, student loans are forever
and can't be forgiven except in rare circumstances (in the US). Pay that off
and don't be so stupid as to take student loans again!!

------
ignoramous
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.

~~~
fiachamp
IMO - its a question of exposure and convexity of your positions moreso than
risk. Risk involves predicting the chance that different outcomes occur
and...no one is really good at that. However, do you feel comfortable exposing
X% of your total assets to the upside of Google growth? If you think in terms
of controlling your max loss per opportunity and making sure you're in ones
that have significantly more upside than exposure, you don't need to predict
correctly quite as much.

------
cheradenine01
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.

------
choppaface
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).

~~~
kspaans
I've heard that leveraged funds aren't great as long-term vehicles[0]. Even
the summary of TQQQ says this:

 _Due to the compounding of daily returns, ProShares ' returns over periods
other than one day will likely differ in amount and possibly direction from
the target return for the same period._

Though if you are into market timing, they seem cool.

0 - [http://canadiancouchpotato.com/2010/01/26/the-trouble-
with-l...](http://canadiancouchpotato.com/2010/01/26/the-trouble-with-
leveraged-etf/)

EDIT: formatting

~~~
choppaface
Yes, and there are some volatility issues too-- the price of the ETF/ETN can
fail to follow the target in cases of scarce supply/demand.

Agree that it's most effective to buy at the bottom of a crash. E.g. see SVXY
Feb 2015-present.

------
Cthulhu_
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.

------
jcheng
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.

------
nbevans
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.

~~~
bitJericho
When I worked for a large internet company I would make about 2-3000 a year in
stock options. Years later I could have probably bought a house had I not
offloaded them immediately. Had the company done poorly, that money would be
gone. I spent it on living expenses. Who's right and who's wrong? The one who
ends up ahead of course. Can you tell the future?

The stock market is a gamble and you're not the house. You'll lose if you try
to play. Sure you might make some money if you hold on, but only the house
(the investment companies) are really guaranteed to win.

If I didn't need that money, I would have placed it into savings, invest in my
own company or buy a house or something. Having had a stint as a gambler, I
can say that gambling is for fools.

~~~
zardo
Financially, the right decision is the one with the greater expected value,
while accounting for the marginal utility of money. Your understanding of the
stock market is fundamentally wrong, owning a stock is owning a piece of a
company, a company where people spend most of their lives trying to make a
profit, for you, the shareholder. It's a gamble to put all your money on one
company, because some companies fail. Buying shares in a large number of
companies is the best long term expected value you'll find.

------
kriro
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.

------
anonu
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.

~~~
mostlystatic
Is there any advantage in having GOOG stock when you work at Google, rather
than selling half of your GOOG stock and buying FB?

I think the expected return would be the same, but it would be less extreme
(less likely to be 10x, less likely to be .1x, more likely somewhere in-
between).

------
jklein11
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
'. :)

------
eddd
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.

~~~
Marazan
Thousands of Enron employees thought the same as you. They were ruined when
their stock went to 0 overnight due to corporate malfeasance that was hidden
from them

~~~
eddd
Enron didn't collapse overnight. And employees should the first ones who
realised that something is going wrong in the company.

~~~
Marazan
Stock price closed at $4.11 27th of Novemeber.

Stock price closed at $0.60 28th of November.

I'm willing to say that wasn't the literal definition of overnight but it is
close enough for a turn of phrase.

------
gleenn
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.

~~~
foobar2020
Then why not sell your stock grants and buy some competitor shares? Similar
risk, more diversification. Also this requires you to pay actual attention,
instead of simply believing that "your company is the best company".

------
tzm
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.

~~~
aveshcsingh
Thanks for the feedback! I do agree that holding employee stock could be part
of an investment strategy. This post is geared towards the surprising number
of people who hold employee stock as a result of a stock grant and without
serious thought on whether they want to invest in their company.

What part of the risk premise is confusing?

------
onedev
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.

~~~
aveshcsingh
Thanks for the feedback!

What parts didn't make sense?

~~~
jfoster
I would suggest that this bit doesn't make sense:

"Imagine that tomorrow the Department of Justice files an antitrust lawsuit
against Google. The company is forced to split off into a dozen shards. My
entire department is eliminated to cut costs, and I'm without a job. My life
savings, held in large part in Google stock, pretty much disappears. The tech
sector is in a recession, so I can't find a new job that pays enough to cover
rent. My nest egg, my safety blanket, is gone."

It makes it sound as though you are living from paycheck to paycheck aside
from your stock grants. It's possible that you are, even, but I think most
people working at a big tech company would not be.

~~~
icebraining
How much savings did you have accumulated one year after graduating? It
doesn't seem surprising to me that stock grants are a significant part of it,
though I can't say I have experience working for a large tech company.

~~~
jfoster
For a recent graduate perhaps it would make sense, but the article doesn't
come across as advice for recent graduates. In any case, I think the point is
that the advice is applying a simple rule (sell granted stock ASAP) to
everyone, seemingly ignoring all circumstances.

Selling granted stock is certainly good advice for someone, but not
necessarily for everyone.

~~~
icebraining
_" I'm writing this post because many of my Class of '14 friends are about to
receive their first stock grants."_

This implies it's advice to them, not necessarily to everyone.

~~~
jfoster
It also refers to the stock as nest eggs, though. It suggests that the advice
is intended for well beyond the first couple of years.

Overall, it just seems a confused post. The circumstances it envisages are
extremely remote, and if there was such a huge change in the industry, a bit
of cash that you got from selling your first year's worth of granted stock
isn't going to make much of a difference.

