Did you get rich on a single stock?

[rodi]

It took me a long time to realize I was a terrible stock picker. My individual stock picks have been craptastic. My timing of the market, even worse. So I do index funds with an asset allocation plan, rebalance periodically.

I have a friend who was an early QCOM employee (within the first 100 employees.) She got seriously rich on options, grants, ESPP, etc. I know a couple of other Qualcomm employees who have paid cash for McMansions in Carmel Valley off of exercised stock options. I'm not one of them, though.

I did participate in every stock purchase plan offered at my megacorp - but since the price had a tendancy to decline I was in full "churn and burn" mode - capturing the 15% discount, no matter what, even if it meant paying income tax rates rather than LTCG taxes. That filled my kids 529's nicely but didn't get me rich.

[RunningBum]

Quote:

Originally Posted by Fermion I was under the impression that the amount of people who beat the market by going into one or just a couple of stocks was much less than 2%.

I certainly wouldn't say 2%, I'd guess much higher. The problem is, it's high risk. If the stock tanks, you are back at square one. It's not worth the risk, IMO. It's not my business if others want to take that risk.

Many of us with stock options, ok, I'll just speak for myself, I didn't go in with the plan to put all my money in one stock. I took a job at a young public company that looked like it could do well, and actually got a salary bump and a chance to do more exciting work. I knew the stock options could do well and that clinched the risk of leaving megamegacorp, but I didn't dream of just how well it would go. The only real decision I made was a no-decision to not exercise some options as some matured after a year, so it really just happened that I put all my eggs in one basket.

[Fermion]

Quote:

Originally Posted by RunningBum I certainly wouldn't say 2%, I'd guess much higher. The problem is, it's high risk. If the stock tanks, you are back at square one. It's not worth the risk, IMO. It's not my business if others want to take that risk.

Not sure. I think there is bias on this site. If this were a website for people wanting to discuss how to spend their lottery winnings, we might see a bias for people advocating or at least describing their very positive experience buying lottery tickets. Because this website is about early retirement, it is likely going to attract people with money or in the process of gaining/saving money.

[mpeirce]

Quote:

Originally Posted by REWahoo And I'm not sure I'd classify making a killing on company stock options as "going into one or just a couple of stocks". I'd make the assumption those were not the only investments most of those individuals had.

I agree.

I personally did very well with some options, not they were not the only reason I retired when I did, though it helped a lot.

On the other hand, I (like to) think that it was a case of "Luck is what happens when preparation meets opportunity" I did two things at my last job:

(1) for the ESPP I always maxed this out, but then when I'd held it long enough to get long term capital gain treatment, I'd sell half and put it into my normal, well diversified, investment portfolio. The other half I let ride. I wasn't betting everything on one stock, but I also was exposing myself to a great opportunity by accumulating shares a good prices. Yes, I had paid attention to the Enron debacle.

(2) I ignored my stock options for years - just holding them, but not paying attention to them as "income". In other jobs I had options and maybe made a few bucks, but often they were worthless. Since I didn't put any money into these options I wasn't risking anything. After a few years the stock really climbed and I had accumulated quite a lot. I started to notice that if it went up much more it might push me into the land of financial independence. It eventually did and thats how I got to retire at 49 rather than a number of years later.

Lucky me!

On the other hand, I worked with many people who had the same opportunities and didn't reap the rewards I was able to.

One guy I recall cashed in his options after a slight run up and spent it on his house. Nice for him in the short term, but he missed out on a much bigger deal. Most people I knew sold their options when they were up a bit. They were content with a modest gain, but missed out on some really excellent gains.

And very few folks I worked with contributed the max to their ESPP (and sadly their 401(k)). I'd bring this up with some of my coworkers at times and they just didn't get it that they should be shoveling money into savings and that the company match and the deal with the ESPP plan was "free money". Sad.

So this wasn't lottery money, but truly what happens when preparation meets opportunity.

[Fermion]

Quote:

Originally Posted by mpeirce So this wasn't lottery money, but truly what happens when preparation meets opportunity.

Sorry, it was lottery money. Just because you don't look at the price of your options doesn't mean that isn't potential money you have on the table.

What if the guy who sold his options and put the money on his house a short while later took money out of his house and bought options or stock with it? Not lottery money?

[RunningBum]

Quote:

Originally Posted by Fermion Not sure. I think there is bias on this site. If this were a website for people wanting to discuss how to spend their lottery winnings, we might see a bias for people advocating or at least describing their very positive experience buying lottery tickets. Because this website is about early retirement, it is likely going to attract people with money or in the process of gaining/saving money.

Indices are made up of individual stocks. I don't see how it's possible that only 2% would do better than the entire index, even over time.

[MichaelB]

Quote:

Originally Posted by Fermion Quite amazing the amount of people in this thread that got rich (or made a lot of money) on one or a few stocks/options yet the general consensus is that you can't beat the market index. LOL. I don't see a huge difference in taking a job at a startup, getting paid $50,000 and a bunch of options vs taking a job at megacorp and getting paid $80,000 and investing $20,000 of that in a couple of individual stocks with huge growth potential.

Quote:

Originally Posted by Fermion 1482 views, 30 people positive, assume all of the other views were neutral or negative, that is still 2% that beat the market. I was under the impression that the amount of people who beat the market by going into one or just a couple of stocks was much less than 2%.

You're comparing two completely different things. Stock options are highly leveraged, so by definition, any increase in the stock price will generate much more value in options than in stock ownership.

Over a long period, say 5 - 10 years, compensation given in stock options will always produce much more cash than salary paid in cash and then invested in the same stock. Options may even perform better if the underlying stock price grows more slowly than the overall market.

[mpeirce]

Quote:

Originally Posted by MichaelB Over a long period, say 5 - 10 years, compensation given in stock options will always produce much more cash than salary paid in cash and then invested in the same stock. Options may even perform better if the underlying stock price grows more slowly than the overall market.

Sadly you'll be seeing fewer people showing up here in the future because of stock options. That misguided "reform" called Sarbanes–Oxley pretty much destroyed the use of many option incentives for mid-level employees. My old company eliminated (non-qualified) options for people like me and replaced them with restricted shares of stock - no where near as good a deal for people.

A darn shame really.

[Fermion]

Quote:

Originally Posted by MichaelB You're comparing two completely different things. Stock options are highly leveraged, so by definition, any increase in the stock price will generate much more value in options than in stock ownership. Over a long period, say 5 - 10 years, compensation given in stock options will always produce much more cash than salary paid in cash and then invested in the same stock. Options may even perform better if the underlying stock price grows more slowly than the overall market.

Most public companies you can buy long dated stock options. Believe me I know. I made a boatload this year off of Apple 2015 calls. That and Gilead has me beating the index this year by 30%.

Is it gambling? Yes. Is it much different than going to work for Apple or Gilead and getting the options for free? Not really, except the tax treatment is better in some situations if the company grants you the options.

[gerntz]

To the extent that we're rich, yes. Employer profit sharing.

[MichaelB]

Quote:

Originally Posted by Fermion Most public companies you can buy long dated stock options. Believe me I know. I made a boatload this year off of Apple 2015 calls. That and Gilead has me beating the index this year by 30%. Is it gambling? Yes. Is it much different than going to work for Apple or Gilead and getting the options for free? Not really, except the tax treatment is better in some situations if the company grants you the options.

True, but your earlier point was a comparison of compensation saved and invested vs compensation given in stock options. The employees with options didn't choose investments that outperformed, they were lucky to get no-loss leveraged compensation options instead of cash bonuses.

Quote:

Originally Posted by mpeirce Sadly you'll be seeing fewer people showing up here in the future because of stock options. That misguided "reform" called Sarbanes–Oxley pretty much destroyed the use of many option incentives for mid-level employees. My old company eliminated (non-qualified) options for people like me and replaced them with restricted shares of stock - no where near as good a deal for people. A darn shame really.

How did S/O discourage stock options? The move from options to restricted stock has been underway for many years and coincided with a decade of poor stock price performance. The financial statements of many S&P conmanies show options are still common.

[Fermion]

Quote:

Originally Posted by MichaelB True, but your earlier point was a comparison of compensation saved and invested vs compensation given in stock options. The employees with options didn't choose investments that outperformed, they were lucky to get no-loss leveraged compensation options instead of cash bonuses.

My other comparison was valid.

Stock options do cost a company something...they are not just free candy (sometimes it seems like they are given to execs like that though).

If company A wants to be competitive in an industry it has to offer substantially equal compensation to other companies or it will not get the best hires. If company A happens to be private or for some reason can't or won't offer stock options, it has to offer a higher pay than company B which is giving out options. If you choose to work for company A and take the additional salary you received over working for B and then invested it in options in company B (or C, or D or any company with equal prospects to B) you would be in a similar financial situation to the person working at company B. (ok maybe with taxes and certain things the person at B is a little better off).

How can you not say the person at company A is gambling with his extra income by investing it in options at company B?

How can you then say the person at company B working at reduced salary but getting options is not gambling?

For those that say they can have their cake and eat it too, getting options at a startup while taking no reduction in pay, I contend they performed better on the salary negotiation at the startup than they did at their former company. They just as well might have received an even higher salary at another company if they did as well in the interview.

[Travelwanted]

Early on I was attempting to be a stock picker. Had many winners and losers. I won big with Apple and lost big shorting financials when they put in the rule about shorting.

I made my money working. I lost significant money early on in the stock market crash and real estate bust (commercial and residential). Until the recovery I had lost more investing than I had ever made.

Fortunately, as my income is high and I LBYM, I recovered. Now, I can finally say I have made more investing than I have lost. But, I have learned (fortunately early on) to keep it simple, inexpensive, diversify and most importantly stick to a plan.

[mpeirce]

Quote:

Originally Posted by MichaelB How did S/O discourage stock options? The move from options to restricted stock has been underway for many years and coincided with a decade of poor stock price performance. The financial statements of many S&P conmanies show options are still common.

An HR person I talked to once mentioned it when I asked about the elimination of options at the company. Something about a change in how options were treated on the balance sheet of the company. Some companies may continue with options, but I'm aware of at least a few that switched after SOX.

[VaCollector]

Yep…inherited shares of BAC…retired knowing that I could get by on the dividends and would have the continued growth to fund most anything else I could imagine…

Then came the banking fiasco and BAC's troubles….still decided to try and make it work rather than return to it….I'm sill poorer and still holding BAC….

To add to my incredible investment skills, when I sold the 3 rental properties that we owned at the peak of the real estate market, I also put those funds in BAC (before the meltdown) ….only to watch those funds melt away too….


Some of us never learn!!

[calmloki]

Quote:

Originally Posted by VaCollector Yep…inherited shares of BAC…retired knowing that I could get by on the dividends and would have the continued growth to fund most anything else I could imagine… Then came the banking fiasco and BAC's troubles….still decided to try and make it work rather than return to it….I'm sill poorer and still holding BAC…. To add to my incredible investment skills, when I sold the 3 rental properties that we owned at the peak of the real estate market, I also put those funds in BAC (before the meltdown) ….only to watch those funds melt away too…. Some of us never learn!!

I remember that episode as I had bought BAC at $26? for the fat dividends, then bought it when it went on sale at $20, then bought it a third time I believe. I block painful memories real effectively, but I think we sold before BAC hit the single digits. Don't I remember that your stock was purchased up in the $30+ range? Good for you hanging on when it got down to $6.

Edit: oh - and I don't recall holding the stock long enough to ever collect any of those fabled dividends. Think they chopped them just after I hit the buy button.

[Lancelot]

I stopped swinging for home runs- now I just try to get on base

[MichaelB]

Quote:

Originally Posted by mpeirce An HR person I talked to once mentioned it when I asked about the elimination of options at the company. Something about a change in how options were treated on the balance sheet of the company. Some companies may continue with options, but I'm aware of at least a few that switched after SOX.

The change in accounting for stock options was not S/O, it was a FASB 123(R), done in 2004. It basically said that companies had to account for the fair market value of stock options when they were awarded. Before that it was a great deal for everyone, as companies could award lots of compensation and never show it as cost or expense. Of course, shareholders (and taxpayers) were paying for it even though it was never included in a financial statement. The FASB rightfully changed that, and when "free compensation" suddenly had a cost it became less popular.

Sarbanes Oxley did prohibit the use of option backdating. This is where the board awards an option grant to the CEO but instead of using the stock price on grant date makes it retroactive to the date over the past year where the stock price was at its lowest. Strangely, this was not always against the law. Changing that led to less use for executive compensation.

Nothing wrong with either of these changes, but that's IMHO.

[latexman]

Rich? No, but one time I did swing my entire 401k account into the company stock when there was a high profile financial emergency. After about 3 years my account increased about 4X, so I got out and diversified again. It was risky, but it was the best thing I've ever done.

[FANOFJESUS]

Quote:

Originally Posted by VaCollector Yep…inherited shares of BAC…retired knowing that I could get by on the dividends and would have the continued growth to fund most anything else I could imagine… Then came the banking fiasco and BAC's troubles….still decided to try and make it work rather than return to it….I'm sill poorer and still holding BAC…. To add to my incredible investment skills, when I sold the 3 rental properties that we owned at the peak of the real estate market, I also put those funds in BAC (before the meltdown) ….only to watch those funds melt away too…. Some of us never learn!!

That was pain full just reading it. Who would think that the bank stocks would do that.