ExxonMobil $1mm+ position -
Hey guys,
Have occasionally monitored this website since I was an Intern but have never posted. After coming to the realization there are actually some pretty intelligent people on this thing, I'm interested in thoughts from the general public on how best to proceed with the following:
My father has accumulated a position of $1mm+ in ExxonMobil via a retirement savings account after a previous tenure at the company. He and my mother will both be retiring over the next 2 years and they are trying to figure out what to do with it. Some details:
-They are middle class and do not have finance backgrounds so they are leaning on me to provide insight and guidance
-This is really their main source of retirement funds. They do have other smaller holdings in more stable investments (money market funds etc)
-What they are currently doing (concentrated in one stock (which fucking cratered in Q1 2020 but is now back) and just "falling back" on its legendary dividend is incredibly risky. But they don't know any better. And I'm afraid to move it into higher growth, more stable etc. investments without more discrete / educated reasoning
-It's worth mentioning it seems Exxon is in a turnaround phase and that dividend is incredible
-This will be passed down to me if they do not use the funds in their life time
Any thoughts or questions are welcome. Thank you.
I have nothing against XOM but I would not want all of my money in any one stock, especially during retirement. I would absolutely diversify. If you have to hold that much XOM then I would definitely look into selling calls and buying puts or at least selling calls to hedge.
Thank you. Just diversify into broad market indices?
That depends on their income needs. If they don’t need the money then probably broad exposure. For equity income there are funds like JEPI that sell covered calls or focus on quality like the etf VIG that focuses on companies that continue to grow their dividend. If they don’t have an advisor already then it might be worth talking to one. thebrofessor might have some ideas.
Crude oil prices and Exxon shares are correlated and as long as the oil prices are high Exxon is going to be making bank but the best days will be over soon since renewable is on the rise and eventually will be replaced, you need to put the money in the market probably vanguard VTI and S&P 500. One concentrated position can do wonders and horrors.
For now, Just place a stop-limit on the Exxon position so it automatically sells your position if it goes below what it has been currently trading at
and get a financial advisor for your parents or try to read some books on investing personal capital
I can send you the names of a few if you want
Thank you. I agree allocating a portion to a stop limit order makes sense given where they are currently trading compared to historical levels. The question is what %?
And if we keep the funds in equity, and just buy broad market indices, is that in itself too risky? Under the assumption they will have to drawn down on these funds from time to time for living, healthcare, emergency etc
Its all-time high is 104.38 and it is currently trading at 84.09 and your parents have made nice capital gains in this oil run and it would keep on going unless these main variables change
OIL VARIABLES
1) Demand for oil decreases (God-Forbid some pandemic variant )
2) Nuclear Deal with Iran
3) Saudis and OPEC decided to increase production
4) The Russian war ends (at current levels it is having an impact)
5) idiosyncratic risk to Exxon (could be anything check this and it's data https://app.koyfin.com/snapshot/s/eq-8kgk4n# and the risks in their 10k)
6) some other systemic risk to oil markets
out of the money protective puts
A simple strategy to limit your losses when you are bullish but nervous about a stock. If you own 11892 shares of Exxon and the price falls below strike 75, you can exercise your put to sell your position at a strike price of $75. This is similar to a stop-limit, but it guarantees the selling price, whereas a limit stop-loss may not be executed and a market stop-loss may be at an unfavorable price.
The disadvantage is that if the stock goes up, you will have reduced your potential profit by the cost of the put. This "insurance" may be worth it, however,
increases your breakeven or kills your margin of safety
with your information, your parents have more than 11892 shares at current prices of 1 million dollars
119 puts for protecting your whole portfolio
119 puts expiring on 21 October 2022 cost $45,815 - Strike is $75 (3.85 bid price)
119 puts expiring at 20 January 2023 cost $58,191 -Strike is $70 (4.89 bidprice)
Exxon has volatility of 3 percent which is $30,000 on 300 hundred bps / (3%) change on a million-dollar position
with a $9 decrease in Exxon, there is a $107,028 decrease in your portfolio of almost 10.7%
with a $3.8 increase in Exxon, there is a $45,189 increase in your portfolio which makes you breakeven 87.39
you will have to keep on selling old puts and then buying new ones to stop them from expiring worthless and for over the counter options which are usually longer in time 3 to 10 years you have to buy from a third party who will likely screw you and there is counterparty risk
so a lot of commission and time lost alongside many option pricing risks (time, volatility, underlying stock, rates)
so puts will be costly and you are not well aware to handle and spend a large amount of time to see how these derivatives will work every day
and there is not sufficient open interest and volume in these respective puts so that is another risk and a problem
stop-limit loss
the biggest con is the stop-limit not working due to some technical issue or being exercised by a short term price decrease
you should have 2 different stop limits at different prices for a 50% of your portfolio for example 5900 shares at $75 and 5900 shares at $70
stop limit in my opinion depends on where you see the market going in the future and your risk tolerance at $75 you lose $107,028
indexes
you can calculate and forecast expenses for 14 months and then can put them into a relatively safe and less volatile index so your parents can withdraw from there every 3 months, so they have cash for 3 months, and for the next 11 months the money is an index that is less correlated than the market
and the rest of the money in the riskier indexes so your majority of the portfolio doesn't don't miss on the best days in the market and you can withdraw money annually every year from the risky index to put in the 14 months one
cash 3 months -liquid
safe index 14 months- less risky
risky index -rest of the money
this way you can actively manage the risky part of the portfolio and can escape bad years if you can time the market
RIGHT NOW
get an investment advisor because you are in not a position to make these decisions these are just insights and the s&p 500 is tech concentrated it might not be the best place to invest right now because of rate hikes since it would affect the discount rate and tech valuations plus you will be spending a great deal of time so you have a lot of opportunity cost with your time unless you are into investing
note this isn't investment advice just calculations and repaying to WSO a community
OP, be VERY VERY VERY VERY careful if your dad is still employed by XOM. 99% of the time it's illegal for active employees to have derivatives of their company stock outside of company-granted stock options
Get an advisor, but not the first one you run into. Interview a few, and work with one that best suits your needs as a family.
Also, thebrofessor please chime in?
I would sell immediately 50 - 75% of it and move it into a combination of vanguard total market, vanguard extended market and vanguard total bond with the exact breakdown dependent on things like how much debt your folks have, their expenses in retirement and how long you expect them to live.
Having all your retirement funds in one single stock is unnecessarily risky with little upside and lots of downside.
They can keep 25% of it since they seem to be in love with the dividend policy.
I own XOM personally, though it's a 1-3% position as all of my individual names are, just full disclosure
if I were them, I'd sell it down to where it's no more than 5% of the account because if it's in a 401k/IRA, there's no capital gains to worry about, and then I'd go looking for an advisor
here's how I'd shop for one: https://www.wallstreetoasis.com/comment/2621691#comment-2621691
and if they go to the end of that and don't have anyone worthwhile, just be DIY but be diversified, plenty of resources on bogleheads to figure that out
Wtf sell 100% of it while you can. Oil and gas is a declining industry
Are we in the industry guessing business or the valuation business? Why do we think buffet just added OXY. The reality is XOM is far from risky at this valuation vs some of the crazy things people on here propose.
The other poster did a great takeaway on how to use options to maintain and exit this current position. I was going to suggest covered calls to lower exposure truly, but they did indepth math.
That all said your parents need an advisor as everyone has said already unless you plan to o this indepth yourself going forward.
I will say this. If you are a dividend stock investor there is no better stock than XOM. They are fully committed to their dividends plan as could be seen during the pndemic where they ensured the dividends kept flowing even when other majors suspended them.
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