Did you get rich on a single stock?

[poorcarver]

Years ago I worked for a megacorp that had a variety of programs (pre 401 days) to purchase corporate stock at a 10% discount over the market price. Some mechanisms were pre-tax, some after tax. We always managed our lives so that we could live on one persons paycheck so I spent my entire earning on the various programs for about five years. So including dividends, growth and several splits things really got interesting. When I left megacorp I sold it all and have done indexes ever since. Did not get rich by any means but got a great start for which I remain grateful.

 

[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.

 

[REWahoo]

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.

This board has thousands of members and I count roughly 30 on this thread who responded yes, or at least positively - a very small fraction. That doesn't seem inconsistent with the general preference for market index investing, it simply indicates a few found a different way to enhance their bottom line.

 

[RunningBum]

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 learned that I caught lightning in a bottle, then some of it escaped, and the best way to refill the bottle was from diversifying, much of it in indices. I've never said that one can't beat the market index, but other than a fortunate streak I don't think I can without taking more risk.

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.

I think there are a lot of differences, too many to list. I would not have taken a big pay cut to work at a startup, unless I was given a significant share of the company and felt prospects are good.

 

[jabbahop]

I lucked out on company stock options and selling them have become a big part of our retirement nest egg. In hindsight I was wise to turn down offers to go to startups as my stock has continued to appreciate and all of them went out of business. I was just looking at option statements from when I started priced below $5 now above $60. Now if I had the guts to hold those to today we'd be in a beach house in Kauai but I am sure not complaining!


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[Lsbcal]

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.

Most of our nestegg came from megacorp stability and long term investing.

Agree with REWahoo above. This thread is interesting but is a very biased sample of all those taking risky paths. Some who bet and lost are still working, some are not responding because who wants to talk about painful truths?

 

[Fermion]

This board has thousands of members and I count roughly 30 on this thread who responded yes, or at least positively - a very small fraction. That doesn't seem inconsistent with the general preference for market index investing, it simply indicates a few found a different way to enhance their bottom line.

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%.

 

[REWahoo]

1482 views, 30 people positive, assume all of the other views were neutral or negative, that is still 2% that beat the market.

As I said, a very small fraction.

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.

 

[anethum]

I went to work at a startup (and didn't have to take a pay cut) and got stock options. The company never really took off and after about 5 years there, we were bought by a megacorp. Shortly thereafter, megacorp started to lay us off. I made inquiries about my stock options and was eventually sent some documents which looked like creative accounting to me. The upshot was that our stock options were deemed to be worthless. My fellow startup co-workers showed little interest in the whole matter.

My first 401(k) was with a megacorp and their matching funds could only be used to purchase company stock. We could not move it out of company stock unless we were over 55 years old. Fortunately, the company stock did fairly well, but I don't think it did any better than the stock market as a whole. When I left, I rolled the 401(k) into an IRA and was finally able to get it out of company stock.

 

[Fermion]

Perhaps it is just survivor bias and we are not hearing from the many people who got stock options that expired worthless. It may be they will not be retiring early and thus don't come to this forum.

We were granted some 20 thousand stock options over several years that mostly expired worthless but managed to get a few tens of thousands from a portion of them. I could have just as easily worked at a different company for a bit more money and put that extra money into Apple, or Gilead, or Netflix....or Etoys or Radio Shack (not that Radio Shack has looked good for many decades).

 

[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]

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]

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]

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]

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]

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]

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.

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]

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]

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]

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.

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]

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]

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!!