stock question - would you keep buying?

[rh71]

I get a 5% discount to purchase a stock that is currently over $200/share and has been stable for years. Every month it comes out to just under $300 that I spend on it (I chose a fixed %) which means 1.5 shares/month bought. Calculating what I've spent the last 3 years and what those holdings are worth, I've gained a net of $2100 (before taxes if sold of course).

Given that savings rates are horrible, I am doing ok, but this is still a risk going forward. Part of me wants to pocket the $300/month instead even though I don't need it for anything in particular. Would you keep buying and why?

 

[Miramonti]

I don't suppose it's relevant to know what it is...

 

[Rakehellion]

It's a bad idea to put all your eggs in one basket.

 

[kranky]

My view is that you made an instant 5% due to the discount, but no more after that because the price is so stable. So can you buy it, then sell after a month or two, collect your 5%, and then move the money to where you could potentially get a better return? I would still consider that "pocketing the money" as it's still available to you if you want it.

 

[rh71]

I am not a gambler (or investor if you want to say that) and I only do this 1 stock because of the discount. Basically my question boils down to - am I crazy for giving up this 5% every month?

Historically I've gotten *some* gain from it, but nothing earth shattering (would you call $2100 gain - not just from the 5% discount - in 3 years good or not?). With stocks, it's always a risk to lose it all. Having said that, would it make sense to NOT cash out, but simply stop buying every month, hold what I have?

 

[Vdubchaos]

If you don't want something, 5% discount shouldn't make you want it.



also chances are, the stock is WAY overvalued anyways.....so they are still making out even at 5% discount.

:biggrin:

 

[xeemzor]

Take the 5% profit every month and stick it in a target age retirement fund.

 

[Sho'Nuff]

I get a 5% discount to purchase a stock that is currently over $200/share and has been stable for years. Every month it comes out to just under $300 that I spend on it (I chose a fixed %) which means 1.5 shares/month bought. Calculating what I've spent the last 3 years and what those holdings are worth, I've gained a net of $2100 (before taxes if sold of course).

Given that savings rates are horrible, I am doing ok, but this is still a risk going forward. Part of me wants to pocket the $300/month instead even though I don't need it for anything in particular. Would you keep buying and why?

Are there restrictions on when you can sell? Most employee stock purchase programs come with strings attached.

 

[Miramonti]

It really all depends on what your goals are and what rules or guidelines you have in the process. It's obviously been only paper to you and not liquid, so you may not miss it much if one day much of it is no longer there. But I tend to believe if a person will bet it all and is willing to lose much or all of their investment, they probably will. (ie it may be 'play money', but playing with it isn't wise.) Unfortunate results don't always happen to these situations tho.

Good luck with it and if you hold it may it be the next apple, otherwise may it be used to purchase the next winning powerball ticket.

 

[rh71]

Are there restrictions on when you can sell? Most employee stock purchase programs come with strings attached.

Can't sell what was bought in the current 6 month period.

 

[kranky]

I would keep buying, then sell after the 6-month holding period is up, and move the money to an index fund for long-term appreciation. You get the quick 5% profit but then get to diversify so you don't have a lot of money in a single stock.

5% is nothing to walk away from. Now if the stock was fluctuating wildly, that 5% would not be a sure thing - but if it's stable, I would continue to take it.

And why not ramp up the 5%? Sell what you have, put it in the bank for living expenses. Increase your purchases because you can afford to have more taken out of your check given the stash in the bank. Sell after 6 months, earn 5% on a bigger pile.

Check to see if there are restrictions on buying stock if you sell any. You don't want to get locked out of purchases for 6 months because you chose to sell some.

 

[DaveSimmons]

Is this your employer? That increases the risk substantially that the stock will nosedive at the same time that you lose your job.

That is: the company does badly, stock tanks, employees get laid off.

It's OK to have some company stock, but that should not be a majority of your investments.

 

[ultimatebob]

If it's $200 a share and stable, it's probably IBM. The bonus on that stock is that is has a nice little dividend as well.

I know that I belonged to the stock purchase plan when I worked there. Why not... 5% off market value is free money!

I kept 7 shares of that stock when I left... one for every year I worked there. They've doubled in value since then, and consistently pay about $22 a year in dividends. I should have kept more.

 

[DaveSimmons]

You can get dividends more safely with something like an S&P 500 index fund (500 largest US stocks) or even a dividend-focused mutual fund or ETF.

Getting an instant 5% profit is nice, but keeping too many eggs in one basket is dangerous.

 

[Flynn Isaac]

I always buy by following Warren Buffett strategy. He said buy those are now selling now because it will rise ,,,,

 

[aaksheytalwar]

It's a bad idea to put all your eggs in one basket.

This.

 

[Arcadio]

I always buy by following Warren Buffett strategy. He said buy those are now selling now because it will rise ,,,,

I'm trying to understand your post..

 

[aaksheytalwar]

I'm trying to understand your post..

He seems high.

 

[dr150]

OP,
Are you talking about ESPP shares where you're getting the discount?...

 

[ultimatebob]

You can get dividends more safely with something like an S&P 500 index fund (500 largest US stocks) or even a dividend-focused mutual fund or ETF.

Getting an instant 5% profit is nice, but keeping too many eggs in one basket is dangerous.

The funny thing is that IBM is so diversified that it's kinda like owning a technology focused mutual fund. Since they have big investments in hardware, software, services, and financing, it's more like owning shares of something like a technology focused Berkshire Hathaway instead of a single company.

But, yeah... having a large investment in the company where you work is a bad idea. If the company goes to hell AND you lose your job (think Enron, a company was was almost as big as IBM when it failed), your wallet is taking a double whammy.

But, hey, even the investment consultants that IBM brings in on occasion to review your 401k would tell you to diversify.

 

[JamesV]

I bought stock in Pepsi, as a manager of a Pizza Hut in the 90's. That $10 a month is now probably in the hundreds.

But I sold, because I needed the cash. My net investment is paltry compared to today. I have around $40k invested in bank accounts, and barely make pennies on the dollar. That same amount invested in the stock I got through my work back then... if I could put everything I made into it, I'd be as close to rich as I've ever been.

I barely get 1% on multi-year CDs, and around 1/10th of 1% on everything else now. When I look back, at my 5-6% earnings on 1980ish bank accounts, compared to my 0.15% returns now, I wish I had sunk everything I had into those company-matched buys.

Do NOT sell. Hold and invest. Today's money is worth what people speculate tomorrow's will be worth, and you simply cannot find that return today on anything but pyramid schemes that will eventually land in you jail, and even 20 million dollars isn't worth jail time in my opinion.

Buy. Buy hard and buy fast. And later regale your descendants of the glory days when you could make 0.01% off of your take home pay from deals with your employer.

 

[dr150]

My suggestion is to buy that discounted stock and sell it immediately. Take that built-in profit advantage and invest it in an S&P 500 index fund.

 

[Blain]

I always buy by following Warren Buffett strategy. He said buy those are now selling now because it will rise ,,,,

I've never heard him say anything like that.

 

[ultimatebob]

My suggestion is to buy that discounted stock and sell it immediately. Take that built-in profit advantage and invest it in an S&P 500 index fund.

They already thought of that... Selling any of the discounted stock instantly suspends any future purchases for something like a year. At least that's how it worked when I was there.

 

[JTsyo]

I would keep buying, then sell after the 6-month holding period is up, and move the money to an index fund for long-term appreciation. You get the quick 5% profit but then get to diversify so you don't have a lot of money in a single stock.

5% is nothing to walk away from. Now if the stock was fluctuating wildly, that 5% would not be a sure thing - but if it's stable, I would continue to take it.

And why not ramp up the 5%? Sell what you have, put it in the bank for living expenses. Increase your purchases because you can afford to have more taken out of your check given the stash in the bank. Sell after 6 months, earn 5% on a bigger pile.

Check to see if there are restrictions on buying stock if you sell any. You don't want to get locked out of purchases for 6 months because you chose to sell some.

I would say hold it for 1 yr min. Paying 15% vs 30% for tax is a big jump. $300 *.05 = $15
$15*.7= $10.50
$15*.85= $12.75

Personally I would just hold it and collect the dividend. No reason to buy and sell for $15/month. If you look at the 5 year charts, there has been some growth with IBM. They also grow the dividends each year, so the yield you get improves for your current holdings. Might see more when the economy picks up. Look to sell at the next peak.