My dumbest investment turns out to be not so much what I bought, but what I didn’t sell. Just out of university, I joined a start-up tech company in the go-go days of the late nineties. It was a good time to be an engineer. Companies held BBQs to hire software developers and gave away PT-Cruisers just for applying for a job. Employers gave out stock options and bonuses like drunken sailors just to keep people from leaving. On-site massages were a common employee perk.
A high-flying, NASDAQ-listed, high-octane tech outfit bought out the start-up company I was working with. The value of my vested stock options was an incredible 70% of my net worth. In hindsight, I should have sold all my options as soon as I was eligible to sell. I didn’t know a thing about how the stock market worked then (my wife says I still don’t!) and was dreaming about the millions my options were going to be worth in the future.
I did think about selling but I was worried about the wrong things. I was worried about the taxes I would be on hook for and worried about how much of an idiot I would be if I sell and the stock rockets from there.
You can easily guess how this story ends. A year or so later, my employer severely disappointed Wall Street expectations and the stock tanked spectacularly. A few months and a lot of internal turmoil later, my employer was acquired by a much bigger fish. The new company restructured operations by laying-off a significant chunk of the workforce, including yours truly.
Now, a couple of years later, I am (hopefully) much wiser for the experience. I consider my experience a very expensive education:
- Never tie-up any more of your financial future with that of your employer than necessary
- Never have too much riding on one stock
- Consider buying and selling a stock strictly on its merits, not tax issues