Company I work for has offered me the opportunity to buy its stock.

[Jmo1969]

First it is a private company, not listed on any exchange.
Second it makes money. Good money.
Third, it's now paying a dividend. Last year the dividend yield was 12%
The prior years dividend yield was 10%.
I get to buy the stock at book value. Book is north of 250mm. A similar firm just sold for 2.2xs book.
It seems like a no brainer.
Down sides are this. You can't leave the firm with the stock. You have to sell it back at book. Also the chairman and president at +|- 70 yrs old and they own a boatload. I think they try an monetize their holdings of 10-20mm+ at something closer to 2x book before they walk out the door.

How much of your net worth would you invest in a company you work for?


Sent from my iPhone using Early Retirement Forum

[Meadbh]

I wouldn't invest any of my NW in a company that I worked for, because that would be putting too many eggs in one basket.

[Totoro]

Quote:

Originally Posted by Jmo1969 How much of your net worth would you invest in a company you work for?

The same amount as if I weren't working for it. With the same criteria.

If you are credibly garantueed to be able to sell back the stock at the purchase price and have a double digit dividend in the mean time, that on the surface looks like a good deal.

[haha]

Quote:

Originally Posted by Jmo1969 How much of your net worth would you invest in a company you work for? Sent from my iPhone using Early Retirement Forum

Depends on the company, but sometimes it is the kiss of death to decline something like this.

Ha

[38Chevy454]

How sure is the company stability? Especially if the 70 year old owners are not around, will it continue the same? Is the industry outlook for the company on a rise or decline? Is the stock liquidity a real assured thing? What is the total distribution of stock for all? What are some risks of the other stock holders?

I think it is a great potential opportunity for you, but it also keeps you very susceptible to how the company does in future. The too many eggs in one basket problem as stated above.

If you plan to stay working there for a while, it is probably good to show you are a company man and show that by buying in. As for how much? That is a question you have to answer and hopefully some of my questions above give some help.

[Mr._Graybeard]

Quote:

Originally Posted by haha Depends on the company, but sometimes it is the kiss of death to decline something like this. Ha

Yep, DW and I were both pushed hard by our bosses to invest in the company ESOP (we both worked there). In fact, we were encouraged to leverage our stock purchases to maximize the amount we could buy -- the dividends would pay off the loan. Once you left the company, you had to sell at a price the company determined. Since the stock price never went down, you were all but guaranteed a nice capital gain.

The stock was a great incentive for employee retention -- we called it "the golden handcuffs."

The system worked great as long as the company was privately-held. More than a few blue-collar workers with the company retired as millionaires.

Since then, the company has gone public, the dividend is gone and the stock is mostly in the hands of mutual funds.

[RetireAge50]

Book value sounds like an accounting term. Will book value increase over time? Would not want to be tied to the company waiting for it to sell to get more than book.

But if you understand the company well might be good opportunity. I'd probably go with a small percentage and think of it as your high risk part of your portfolio.

[jollystomper]

The "rule of thumb" I believe is no more than 5-10% of your assets in any individual stock, including the company you work for. You have to weight that against your knowledge of the companies workings and future prospects. Remember, stock values change based on future perceptions.

Personally I never went about 25% of my assets in my company's stock, and that was mainly because I was just learning about diversification. I cut it way back once I became more educated on this matter.

[LOL!]

My spouse's former company also was private and had an elderly owner who needed to cash out. Basically, the company was the owner's retirement plan. So an ESOP was set up and folks could buy shares. The "managers" of the company also wanted to do a buy out, so some 401(k) money got diverted to the ESOP. And a note was used to buy a big chunk of company with future corporate profits used to pay it off. Outside independent appraisers were used to set the value of the company.

Anyways, the company went bankrupt very shortly thereafter. So despite all the apparent checks and balances, and all the good numbers, all it took was Great Recession and the loss of some contracts.

The owner is now in his mid-70's working at another company.

I think the owner probably tried to sell his company privately, but no one would buy it for what he needed, so he sold it to his employees. They needed jobs, so they bought it.

I'm not saying that you should not buy company stock, but go into it with your eye wide open and be prepared for deceit and fraud.

[kcowan]

The company is offering to pay you 12% and also return your principal. What is not to like? You can track the value of your principal. So the only downside is that you would have to leave to get your principal back. You might want to do that anyway. I would do it.

[Tractor guy]

When I was working, I was given stock options that required me to hold a certain amount of stock in the company in order to receive more. I always kept only the minimum needed to qualify for the program. When I retired, I immediately dropped my holdings to less than 5% of my net worth and am in the process of reducing it further.

IMOP, holding more than 5% should only be considered if there is some overriding financial compensation for the increased risk. I don't consider 10% enough compensation to hold a large position in a small privately held company that I worked for. As others have said, the value can go to zero in a heartbeat (literally, the owner can die). You are compounding the risk of loss of employment by having investments in the same company.

[FIRE'd@51]

Quote:

Originally Posted by haha Depends on the company, but sometimes it is the kiss of death to decline something like this. Ha

+1

Since you work there, you must have a good idea of how stable the company's income is, and the risks to it. The key thing is if the talent is there to run the company as profitably (or more profitably) when the current management leaves. You should know the answer to that question. If the answer to both questions is yes, I wouldn't hesitate to invest a significant amount of my net worth in the company.

[Texas Proud]

I agree that 5% to 10% is OK...

One of the questions I would ask, is it a Sub S or a C corp... Sub S you get a K-1 for your share of income each year.... if you do not get cash distributions, you pay tax from your own money...


I own stock in two companies where I used to work.... one a mega and the second a very small private firm... the small private one has a lot more risk, but it has a lot better return (except for last year when it was pretty bad)... this year probably 10% or so...

[clifp]

Although I was burned being giving the chance to buy stock in a start up I worked for.

I think is is probably ok to invest 5% and I guess if pushed 10% would be ok. However, it is important to do you own diligence. Get a copy of the companies financially. See if there is a market withing the company to sell or buy the shares. In short analyze the company like you would any other stock or investment.

[Running_Man]

Based on the assumption you are 45 and you are planning on retiring in 6 years I would probably limit to 5 percent of net worth. The younger you were and longer you had to work the larger portion of your net worth - if you were 30 even up to 50 percent would not be unreasonable - you would get other investments as you aged.

[sanfanciscotreat]

Some are beter than others. I purchased company stock soon after becoming employed and had 20+ years to retirement. Turned out to be an excellent investment. During later years, I did not buy as stock was accumulating in a profit sharing program. Some stock acquired ten years ago has a basis of $12 and is now trading at slightly less than $100. Selling off each year to reduce the percentage of my portfolio.

[pb4uski]

It sounds attractive to me in that there is good yield and the possibility of a good kicker if it ever IPOed or was sold. There is liquidity risk and risk to principal should the book value fall, but if it fell it would probably be due to losses and from what you wrote it is consistently profitable.

Worst case is you lose your investment and your job (but incrementally you only lose your investment). Best case is some sort of sell out where you more than double your money in addition to the dividend yield. Static case is they continue along and at some point you leave and get the increase in book value during your holding period in addition to any dividends received.

I would put up to 5% in and lean to the lower end of the 5-10% range because having your income source tied to that firm adds additional risk.

[Rustic23]

I really don't have a good answer for you, but I'll bet several people that worked for Enron could give you some advice.