Tuesday, June 16, 2009

Sold 8 Shares of My Company Stock for a Loss and I’m Okay

I sold some of my company stock at a loss yesterday but I’m okay with it. Here’s (my long-winded explanation) why:

I’m currently reverse-arbitraging a 0% credit card promotional rate that is set to expire on 10/28/09. As of 5/31/09, my credit card balance is $11,574.08, and every month, I pay $122 to my credit card company and stash away $931 into my DollarSavingsDirect savings account that pays 2.0% APY in interest. I’ve so far saved $4,313.08 and at this rate, I’ll be $2,000 short in paying off my credit card balance by October.

I was never worried about the shortfall since knew I was going to make it up by selling some of my company stock that I’ve purchased through my company ESOP plan. The only open issues were: (a) when do I sell my company stock and (b) at what price? I was hoping that I could sell 7 shares for about $285 - $290/share. If so, I can make a small profit AND pay off my credit card debt.

But as they say, the best laid plans of mice and men go oft astray. *Sigh*

Right now, the stock is trading in the $250 - $265/share range but it looks like it’s incrementally trending lower. It also looks like options traders are buying protection between $230 - $280/share range with the October contracts. Great. I potentially have a $20/share downside or a potential $30/share upside if I wait.

I’ve always said I suck at stock trading. (I suck worse at dating, but that’s a topic for whole ‘nother blog.) And to be fair, Peter Lynch allegedly said something to the effect that a good stock picker will only be right six times out of 10. The corollary is that a good stock picker will also be wrong four times out of 10.

Since I can’t predict the future and I need the money, I decided to bite the bullet and sold 8 shares of my company stock for $250.79/share. My total net loss from this transaction is $305.98. I generally don’t like selling stocks (especially good stocks) at a loss, but I’m not too upset about it. Why?
  1. Money I need in the next 5 to 10 years, much less money I need in the next 4 months, shouldn’t be in the stock market.
  2. I can harvest the loss from this sale to reduce my capital gains tax on a $405.91 profit I realized in a prior stock sale earlier this year.
  3. Since I purchased the stock through an ESOP, my actual contribution was $1,409.72 (and my company matched $896.59). So if you only take my own contributions into account, I’ve actually come out ahead by about $596.60 (minus taxes I paid on the company match.)
I’ve sold my company stocks in the past to pay off debts before and hopefully this will be the last I’ll ever need to do so. I’m pretty confident that all of my future stock purchases from hereon forward will serve its intended purpose –- as my long term nest egg.


444 Dad said...

I always look at company match as pure gain - so it looks like you come out ahead in my book. Take the money and run with it. Good job.

444 said...

I am still trying to figure out ESOPs; I think I see several differences between yours and the one Eddie Haskell above just got.

1. You buy yours and get a match, just like with a 401K...? Ours isn't bought but is just distributed to us.

2. Yours is publicly traded; ours is not. Therefore, we can't really buy and sell (maybe we could sell but don't want to) ours. I know we are not able to buy it; there are only so many available at a time.

Part of the difference may be that ours represents 100% employee ownership which I know is relatively rare; I don't know if your company is the same but I'm guessing not.

That gives you a window into my very murky understanding of ESOPs.

Shtinkykat said...

Sounds like everyone's ESOP plan is different. Miss M's company structures theirs as a retirement account. Sounds like Eddie Haskell's company is an employee-owned company where the ownership is not in a publicly traded stock but ownership share. Mine is just a voluntary straight stock purchase in a taxable account. For every dollar I spend to buy the company stock, the company matches 1/3. The company also pays out bonuses in the ESOP if certain financial goals are met. I see this as free money. Not sure why more people don't participate at my company.

444 Dad said...

I used to work for a large newspaper (which is currently headed for bankruptcy). At the time they had an AWESOME stock bonus and ESOP plan. They matched dollar for dollar company stock purchase in your 401k , and each year we got stock options based on company performance. I was lucky enough to cash out while the options and stock still had value. The options were free money, and so was the match.

444 said...

Thanks for your comment regarding the contractor - I doubt it's the one you're thinking of (whichever that is) because it's not that huge; I looked it up, though, and it's in the top 40 or 50 largest gov't contractors and thankfully got top-percentile high marks for ethics (I found it on a list ranking the companies by size/dollars and then giving grades for various ethics scores.)

I also get the feeling, based on my friend's son's experience on a similar track with a different contractor, that he'll get to keep a job and a career, or rather, they won't want to let him go. I just don't want to jinx it so I say that hopefully, it'll turn into something more. He has a cubicle and a computer and ID tags - sheesh! He is only 17!

Miss M said...

Hey it's OK to sell stocks, many investors feel buy and hold is a sign you shouldn't be in the market to begin with. I certainly have a lot to learn! Also selling these shares should help keep you in balance, it's easy to let company stock become too large a portion of your portfolio.

oil exploration said...

How much % return is very very good for full time stock trader ?

444 Dad said...

That's a very subjective question. It depends on how much risk a person is willing to take. I would think a careful investor these days should at least be able to beat the average mutual fund. I like to use the DOW as a benchmark and try to meet or beat the percentage gain every day. If you can do that you are doing ok.

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444 Dad said...

I think Anonymous really summed it up well. You know what I hate about Company Match - now that we're talking about it again - Why do they always buy in during a rally? Why can't they buy in when the stock is low once in awhile?It's supposed to dollar cost average over the long term - but they ALWAYS buy on the worst possible day.