Joined a new company on Tuesday--a large regional commercial bank as a senior analyst in their credit group. They have a stock purchase program. It's kind of mediocre--basically you can automatically purchase company stock out of auto deductions from wages. The main benefit is that there are no transaction fees and you can buy as little or as much stock in any denomination as low as $5 ($29/share stock price). Stock is a sideways performer paying about 4.5% dividend.
I was in a loan committee today and we were discussing a $50 million credit line that we are looking to grant to a smaller bank. If the smaller bank defaults we take 25% ownership stake in a bank of $3 billion in assets. Problem is, I didn't feel any "buy-in" today when discussing the file, although I see myself at this organization long-term (5+ years).
Have any of you bought stock in your employer in order to feel a sense of "buy-in" with the company? Did it help? Even a small amount?
Really concentrating your income base to one firm there. Diversify?
I've done it, and it does give you a sense of ownership while you're at work. That said, @Oreos is right in that you shouldn't have all your eggs in one basket, so make sure stock in your employer is only a nominal percentage of your overall portfolio.
My bank matches our ESOP contributions $0.50 on the dollar up to a certain amount, so I contribute enough to maximize the company match. Always try to take advantage of free money when you can.
This.
Don't do it. If the company goes under, you are out of a job and your stock....
^^ What he said. Don't tie up both your human capital and your financial capital in the same asset.
And if it gets bought out at a premium, you can realize significant gains. All banks have to give a UBPR, even if private, which you can use to assess your bank’s financial health. If you’re looking at good loan to deposit ratios, profitability, credit quality, and strong market presence, then there’s certainly no reason not to believe it’s a possibility.
Consolidation of regional and community banks is very common.
I was thinking like $60/month. Nothing too significant. I agree though--used to work at Freddie Mac when the place went under in 2008. Stock price went from $30 or so to about 50 cents.
I would much rather have them grant stocks and options to me as part of compensation package, apart from salary, that spending cash out of my own pockets to buy shares.
Enron.... But no I think it's a decent idea to have some money, clearly not all though
Only if you get a match or discount.
Damn it didn't mean to res a thread =/
Based on past experience, I would not recommend this.
assuming you mean ESPP (employee stock purchase program). I recommend you participate in this at the maximum level only AFTER you've maximized other retirement savings (401k max is $18k this year, Roth IRA is $5,500). after the vested shares become eligible for long term cap gains taxation, sell them.
this way, you don't have all of your eggs in one basket but you're not leaving free money on the table. you should NEVER have all of your money in one stock, your employer or otherwise, but you'd be foolish to not take advantage of this if your other savings is already maxed out.
thebrofessor thanks for writing this, glad I found it. Presented with a similar opp to OP (5 years ago!) and this was a helpful reminder.
It depends on what they offer, and how much risk you're willing to take. I remember talking to Citi employees during the crisis and telling them that they're basically fucked for having their eintire savings in Citi stock and getting axed way back when. (Citi went from $600 to under $30)
Yes, the Brofessor is broadly right.
in a former life, I was at citi smith barney, most people I knew who got fucked weren't disciplined, had restricted awards/options that evaporated, or had deferred comp invested in the stock (or something similar, I can't recall now).
you literally cannot lose if you buy the stock at a discount and sell it right away. unfortunately, people think "well, the stock's done well, I'll just hold for a while" and then it goes up more for 9months "well, I can't sell now, I need to wait for long term capital gains to kick in" the it goes down "damn, it was just at X (20% higher than today), I can't sell now, it'll come back" and sometimes it does, sometimes it doesn't.
discipline always beats greed in investing
From a portfolio theory perceptive, you should actually SHORT your company's stock to avoid overexposure given that the vast majority of your income is already tied to their performance.
This is definitely one of those "in theory but not in practice" thoughts if you subscribe to even semi-strong market efficiency principles. Unless you have proprietary knowledge that your company is going to zero then...
My father bought stock in his bank and he did have that sense of ownership you’re referring to. Now sure how much RBS trades for now.
Unless you work for unilever, diageo, Coca-Cola etc then I don’t think doubling down on your employer is a good idea. Particularly if your employer is a bank.
Not a good idea given how large the organization is. You'll never be able to meaningfully impact to justify owning stock.
Diversify.
Unless there is a discount like most ESPPs, I'd never buy my company's stock.
You're either too far from material information to have any edge or You're far into material information and have an edge; but risk SEC action when you sell before a downturn.
Did we not learn anything from Enron?
The Economist had an article about this a couple weeks back and took it one step further, saying investment bankers should invest their 401(k) in government bonds while school teachers should invest theirs in the S&P, following the same logic that your income should be more diversified. As others have said, this is probably not the best idea.
I respect the Economist but I don't know if I agree with this advice. How would a 401k in government bonds prepare one for retirement?
It doesn't, at least in most people's opinion. I don't remember off the top of my head, but it was a bit hyperbolic in nature.
I think the idea here (albiet a bad one) is that teacher are over exposed to the government (Total income:Pensions, Salary, Ect)and therefore should invest in the S&P to get market exposure with their extra money. Whearas Investment Bankers (Probably some blanket term for someone who is exposed to financial markets) are exposed to financial markets already and would be able to diversify out by investing in government bonds with their extra money.
I think that is what they are getting at. Not the brightest of all ideas i've ever heard but definitely something.
You're already pretty heavily invested in your company in the sense that your earnings over the next several years are correlated to how well they do. So it wouldn't really make sense for you to feel more "bought in" by buying a small amount of stock.
To me, the real opportunity is to buy if you feel the stock is cheap. You have an advantaged position where you are exposed to many details of the business. You have a level of access that stock analysts don't have, yet it's not MNPI (I assume). Subject to being diversified, you should take advantage when you see an opportunity.
If your employer is giving you discounted stock or other incentives, sure. But I guess it depends on the discount, vest window (if any), and your risk tolerance.
I'm not sure why it would make sense to purchase employer stock out of some sense of buy in. That seems silly. If my employer wants me to "buy in" by owning stock, they can give me some stock. I'm not going to buy it on my own unless I think that's the best place for my money. Doesn't make sense to de-diversify and plant all of your financial and human capital in one place just for "the feels".
OK, no one seems to understand what I'm saying. @DCDepository" is this part of a ESPP or are you talking about buying shares on the open market?
ESPP - yes, do...but sell right away (guaranteed return) open market - meh
I agree with thebrofessor. Always take the free money. My company's ESPP are capped at 25k contribution per year buying the stock at 15% discount. So I write a check for $21,250 on the first day of the year sell the stock right away for $25k and pocket the $3,750 (minus income tax I'll have to pay on that of course). It's literally free money, just like the 401k match. I maximize my employer's contribution then put the rest in a roth IRA so I can invest in whatever I want.
On a side note: I actually get RSUs and ISOs and these have a lot of variables to factor in, and tax strategies to optimize your payout but you are at the mercy of the performance of the stock. I think it's awesome exposure in your 20s, 30s as you can afford to take more risk for a bigger payout but it can be scary if you have a family to feed or you are about to retire.
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