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Author: Melman Two stars, 250 posts 10+ Year Anniversary! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121189  
Subject: Re: Discounted Stock Purchase Date: 12/20/1998 12:00 AM
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[[ If I participate in the plan, and SELL all my shares at the end of each trading
quarter, I stand to gain AT LEAST 15% gross in 3 months!!! Repeat this process 3 more times till end of year... That's a whooping 60% return. Even I factor in the commission and the gain taxed at
ordinary income... I still stand to netat least 35% return. There is no
risk involved at all (Sharpe ratio = infinity), because you sell the stock immediately after the broker bought them.]]

This depends on how your plan works. My employer has a similar plan (uses a 6-month purchase period, not 3 months).

In our plan, if I intended to follow your strategy and always sell the stock immediately after purchase, the primary "risk" I have is that there is a delay of 1-2 weeks between the time the stock is purchased and the time that the stock certificate arrives in the mail. The share price could easily drop during that time.

If your employer is connected to a brokerage house (perhaps even one that allows a "same-day sale" of the stock), then the delay can be reduced. You could also play games by shorting the stock on the purchase date and delivering the shares when you get them, but then I think that margin interest will eat into your returns.

Also, you should be very familiar with the tax rules that apply to the sale of the stock, because depending on how long you held it and whether it was purchased (on the first or last day), you may find that you owe tax on MORE than just the 15% discount you received.
My employer provides tax guidance and examples... hopefully yours does too. TMFTaxes and I discussed this very topic here about two weeks ago.
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