Diversify???

[chemnerd99]

OK Here's the deal. My EF is my old company stock. I got it dirt cheap and it is now skyrocketting. I put in 6K they matched 3K and it is now worth 21K. What do I do? Its SYT and is a 5 star stock blah blah. I don't want to miss out on any future "Microsoft" gains but my DH keeps telling me remember Enron. I don't know much about stocks. My 401K is a target fund and is a separate line in my T R Price statement. Help.

[bimetalaupt]

To win do nothing.. you could go 50/50 rebalance.. or 60/40 efficient Frontier.. but hang in there.. Max out your contributions.. if you try NOT to use bonds and stock be sure your investments are mutually Exclusive

Best of luck!!.. check with Frank on MT also..

Bruce

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[Savoir Faire-Demogague in NJ]

What percentage is $21,000 of your total holdings?
If it is more than 1 or 2%, I would sell some.

Holding stock in a single company is very risky.

[Gardening Grandma]

Mar 14, 2011 11:39:03 GMT -5 chemnerd99 said:

OK Here's the deal. My EF is my old company stock. I got it dirt cheap and it is now skyrocketting. I put in 6K they matched 3K and it is now worth 21K. What do I do? Its SYT and is a 5 star stock blah blah. I don't want to miss out on any future "Microsoft" gains but my DH keeps telling me remember Enron. I don't know much about stocks. My 401K is a target fund and is a separate line in my T R Price statement. Help.

Since the point of an EF is to have immediate access in an emergency, I would not keep an EF in stock. I'd figure out how much I needed in an EF, sell the stock, put the amount for an EF in a money market fund and put the rest in a CD while I learned more about investing. Then I'd invest the rest.

I don't want to miss out on any future "Microsoft" gains but my DH keeps telling me remember Enron.
Listen to your DH. I'd take the gains. Nothing goes up forever.

[chemnerd99]

Ohh. My 401K is 90K my EF is 21K and is 100% SYT. Listen to the DH then. But mom says hold. Confused.

[Deleted]

IMHO, you should not have more than 5% of your net worth in one single stock. So if your net is $420k or more, I would say you can leave it. If it is any less, I would think of diversifying away from that single stock.

[hoops902]

"I don't want to miss out on any future "Microsoft" gains "

Of course you don't want to miss out on Microsoft gains. How do you feel about missing out on all the other stocks that gain that you're not invested in though?


You need to think of it this way: If you had $21,000 in cash right now and had only your 401k and that $21K...would you take that $21,000 and invest it in that single stock? This is the psychological side of investing that keeps people making sub-optimal decisions. You are attached to this stock because you already own it and you don't want to feel "bad" by selling it "too soon". If you had never owned this stock you wouldn't have that same psychological attachment to it. The psychological attachment is making it harder to make the "correct" unbiased decision.

Honestly, your simple analysis of "I don't want to miss out on any gains" is a strong indication you should probably sell. Absent a significant analysis of the stock price to the actual value of the company, it seems you don't necessarily know enough about the intrinsic value of the company to make a good decision about owning a single company's stock or not.

In short: Sell. Even if you do miss out on future gains you're still making the correct decision at this point in time. And yes you are going to feel foolish if the stock rises, but that's ok, in reality it's no different than when any other stock rises and you didn't purchase it before the rise.

[qofcc]

Honestly, your simple analysis of "I don't want to miss out on any gains" is a strong indication you should probably sell. Absent a significant analysis of the stock price to the actual value of the company, it seems you don't necessarily know enough about the intrinsic value of the company to make a good decision about owning a single company's stock or not.

Or do you know something? If you worked there and you feel strongly that it's a good successful company and you believe they're going to achieve their goals, then there's nothing wrong with hanging on to some of the stock.

But don't use that as your EF. What if you pulled out the $6K you put in and the $3K they matched and let the rest of the gains ride for a bit, but keep a close watch?

[hoops902]

"Or do you know something? If you worked there and you feel strongly that it's a good successful company and you believe they're going to achieve their goals, then there's nothing wrong with hanging on to some of the stock."

The problem with this is that unless you are at the very top of the company, you likely don't know enough of the big picture to judge this. And even if you did, most people tend to be far too optimistic about the company they work for (back to the whole psychological aspect). i.e. Just because you work at McDonald's and your store sells a ton of hamburgers doesn't mean that the company as a whole is going to have a rising stock price.

I agree with the rest though, at a minimum you can't be using this as your EF.

[bimetalaupt]

Mar 14, 2011 11:39:03 GMT -5 chemnerd99 said:

OK Here's the deal. My EF is my old company stock. I got it dirt cheap and it is now skyrocketting. I put in 6K they matched 3K and it is now worth 21K. What do I do? Its SYT and is a 5 star stock blah blah. I don't want to miss out on any future "Microsoft" gains but my DH keeps telling me remember Enron. I don't know much about stocks. My 401K is a target fund and is a separate line in my T R Price statement. Help.

You did say T.R.Price Taget Fund.. As before max out your investments in this fund.. as you do your old company stock will decline as a percentage to the 5% max level some advisors promote...it is all about risk.. which is value time one SD for a year=..value at risk!!!!..
Try thinking of some of the big deals that were promoted with the COB buying large amounts of stocks to give the idea things were going well.. Worldcom...

We shorted Enron after a seminar that did not make for a good business plan.

Best of luck,

Bruce

[sil]

My first job out of college was for a company just about to go public, that had one of the biggest opening days in NASDAQ history. I was brand new, and a lowly employee, but even so my options were worth close to $50k when I could have exercised/sold them.

I held because the company was doing great, we were getting contracts left and right. Then the tech bubble burst and I think I ended up getting about $8k when I sold low.

I was right to believe in the company, but wrong not to diversify when I had the chance. Granted, I would've taken a hit in any diversified fund at the time, but I could have softened the blow.

So even if you know the company, that doesnt mean you know the whole picture.

[sil]

My first job out of college was for a company just about to go public, that had one of the biggest opening days in NASDAQ history. I was brand new, and a lowly employee, but even so my options were worth close to $50k when I could have exercised/sold them.

I held because the company was doing great, we were getting contracts left and right. Then the tech bubble burst and I think I ended up getting about $8k when I sold low.

I was right to believe in the company, but wrong not to diversify when I had the chance. Granted, I would've taken a hit in any diversified fund at the time, but I could have softened the blow.

So even if you know the company, that doesnt mean you know the whole picture.

[gsbrq]

Sell all but the original $6k.

That way, you have captured the $15k in gains, and you still have a decent chunk of your net worth in the company stock, so you can reap further benefits if it continues to go up, but you have minimized your potential losses.

Put the 15k in something more appropriate for an emergency fund...cds, money market fund, etc....you may miss out on some gains, but you know it will be there if you ever need it.

[mesquite77]

I limit my exposure to an individual stock to 4% of my portfolio. 4% means much more to me that $21,000 or $2,100 or $210,000.

[sunuva]

Put in a stop loss (stop limit, whatever it is your broker/banker/institution calls it).

Say, put in an order to sell if the price of the stock drops such that it would be worth 18K.

If, in a couple months, the stock hasn't dipped that much and you're still sitting with it - no big deal. If the stock has, instead, gone up, then adjust your stop order to, say, 20K.

True, you may not necessarily be capturing "all of the gains." But you are not necessarily selling stock on a future Microsoft-growth potential (I don't know how much "insider" information you have). I use Stop Limits all the time - sometimes to limit my losses and other times to simply capture the gains on a stock that experiences jitters or is in a downward trend.

You shouldn't have to pay any fees for placing an order - only for transactions completed. Of course, I don't know the particulars of your "brokerage" account. If it is parlayed through the company, you may not have the ability to stop limit and only the ability to buy or sell at current market price.

[bimetalaupt]

Mar 15, 2011 8:23:54 GMT -5 sunuva said:

Put in a stop loss (stop limit, whatever it is your broker/banker/institution calls it).

Say, put in an order to sell if the price of the stock drops such that it would be worth 18K.

If, in a couple months, the stock hasn't dipped that much and you're still sitting with it - no big deal. If the stock has, instead, gone up, then adjust your stop order to, say, 20K.

True, you may not necessarily be capturing "all of the gains." But you are not necessarily selling stock on a future Microsoft-growth potential (I don't know how much "insider" information you have). I use Stop Limits all the time - sometimes to limit my losses and other times to simply capture the gains on a stock that experiences jitters or is in a downward trend.

You shouldn't have to pay any fees for placing an order - only for transactions completed. Of course, I don't know the particulars of your "brokerage" account. If it is parlayed through the company, you may not have the ability to stop limit and only the ability to buy or sell at current market price.

Sun,
I am not sure where you got your thoughts on "Stop Loss Orders" but what happens is at a set price the order goes to the floor to sell all stock at any price.. You can bet on lossing another 1/2 do to action of the market.. I had a friend in the day crash of 1987 that was 100% taken out of the market at the bottom before the market return up later that day.. It was caused by that false order.. by the next day the market was up and he was out.. without knowing it and had lost all his holdings..

Most professional I know do not use "Stop Loss".. The trades should have been cancelled but were not. NASDEQ cancelled the same problem orders last May... So you end up selling when you should have been buying.. Recheck the math on the 50/50 rebalance system...

Just a thought,
Bruce

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[phil5185]

Hey, sure do like those Round-up Ready soybeans and seed corn, nice clean fields, and no more terrible noises as giant mature weeds crash thru the Combine.

I would be afraid of the current 23 PE when the general market is in the 14 range. Plus the leveling of the Ethanol trend, that powered a bunch of the run-up over the past few years.

In general, as the others say, most investors limit an individual stock to 5%. And a very common mistake is over-investing in the company that we work for - ie, loyalty, etc. But they already dictate your salary, healthcare, vacation, yada - those might be reasons to go below 5%?

In terms of broad categories, a Total Market Index represents the US economy (and most of the world economy). Your Target Fund has this in your 401k. Next, you have Sectors - a sector carries the same statistical risk as the Index plus the risk of an industry calamity. Third, you have individual stocks - a stock carries the risk of the Market, plus the risk of the Sector, plus the added risk of a company failure. Ironically, all 3 categories have about the same average longterm return. Therefore, the added risks of category 2 & 3 are uncompensated risks, the worst kind. You need risk - but compensated risk.

[chemnerd99]

Errr. Didn't quite understand that Phil. Sell then. I still haven't done anything.

[SVT]

Mar 26, 2011 20:04:21 GMT -5 chemnerd99 said:

Errr. Didn't quite understand that Phil. Sell then. I still haven't done anything.

PE is the price/earnings ratio. Phil is saying it might be overvalued right now, meaning there's a decent chance the stock could fall. However, there are other measurements besides P/E to determine if the stock is a good buy.

But anyway, yes, we're all trying to say sell. It's too risky to be invested so much into one stock.

[runewell]

Mar 14, 2011 11:44:56 GMT -5 bimetalaupt said:

To win do nothing.. you could go 50/50 rebalance.. or 60/40 efficient Frontier.. but hang in there.. Max out your contributions.. if you try NOT to use bonds and stock be sure your investments are mutually Exclusive

Best of luck!!.. check with Frank on MT also..

Bruce

What on earth is this gobbledygook?

[runewell]

SYT doesn't seem like anything amazing. It has outperformed the S&P a bit over the last three years, but I think I would sell it and diversify in a way that isn't costly, if possible.

[chemnerd99]

hI, OK I can't seem to find the original documents but my Quicken says 208 shares at 21.59 in 2005 and 132 shares at 34.16 in 2006. I had to transfer it to T Rowe when I left the company. Its now at 64.98. I think I have to pay capital gains. Will T Rowe have the original numbers to sell or do I have to find them in my pile of paper doom. Also will this affect my fasfa, I am going back to school to be a pharmacist. Thanks alot.

kris

[bimetalaupt]

Mar 27, 2011 3:22:09 GMT -5 runewell said:

Mar 14, 2011 11:44:56 GMT -5 bimetalaupt said:

To win do nothing.. you could go 50/50 rebalance.. or 60/40 efficient Frontier.. but hang in there.. Max out your contributions.. if you try NOT to use bonds and stock be sure your investments are mutually Exclusive
RUN.. ALSO THE ANSWER WAS ABOUT HOW TO REBALANCE AN UNBALANCED SYSTEM WITH 100% STOCKS.. IF YOU BUY BONDS RATHER THEN SELLING THEM YOU ARE BUYING AT THE TOP.. WAITE FOR BOND TO CORRECT.. LOOK OF A 5 HANDLE ON THE 10 YEAR T-NOTE AND 7 ON THE 30 YEAR T-BOND BEFORE YOU GET TOO READY TO BALANCE .. THEN THEY HAVE THE 100 YEARS BONDS THEY HAVE BEEN TALKING ABOUT.. I WOULD NEED AN 8 HANDEL TO GET TOO EXCITED.. ???I THINK BILL GROSS COULD BE RIGHT TODAY... IN THE MEAN TIME I PLAN TO WITH AT THE 21 CLUB.. THAT IS CHARLES' 21 CLUB.... WILL WE SEE YOU THEIR?
Best of luck!!.. check with Frank on MT also..

Bruce

What on earth is this gobbledygook?

Run

Most response to sell in panic is wrong!! most correct action is to do the other thing and if you rebalance to 50/50 or 60/40 odds are you will do the right thing at the right time..IF YOU CHECK OUT THE EFFICIENT FRONTIER SYSTEM.. THE GREATEST TOTAL RETURN IS 100% STOCK OVER YEARS.. LAST 10 YEARS WERE THE ODD BALL WHEN BONDS MADE MORE MONEY THE STOCKS...

Bruce

EDIT IN CAPITALS 3:03 BRUCE

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