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Author: arnoldk Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75337  
Subject: Company Stock - Opinions? Date: 1/7/2000 8:03 AM
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Just joined the Foolish club and want to say thanks to all - I'm getting quite an education reading all of your posts! I'd love to hear your foolish opinions on something...I'm getting ready to transfer 401K holdings to an IRA. Fully 50% of those holdings are in a single company stock. I plan to sell at least some of the stock, but I'm curious to hear opinions...the company is Fortune 50 and is expected to have good EPS growth in the near-term. What percentage might you hold onto and what percentage might you spread out into other equities? I'm a conservative investor (say it isn't so!) and don't want to take every breath by that ticker symbol every day. Thanks!
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Author: ZZFly One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17477 of 75337
Subject: Re: Company Stock - Opinions? Date: 1/7/2000 9:14 AM
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<<...I'm getting ready to transfer 401K holdings to an IRA. Fully 50% of those holdings are in a single company stock. I plan to sell at least some of the stock, but I'm curious to hear opinions...the company is Fortune 50 and is expected to have good EPS growth in the near-term. What percentage might you hold onto and what percentage might you spread out into other equities? I'm a conservative investor (say it isn't so!) and don't want to take every breath by that ticker symbol every day. Thanks! >>

I am in a similar situation - my wife's 401(k) has a company stock account. I assume you are still employed with the company in question, if not the answer is not much different.

Diversification in your portfolio is critical to eleminate stock specific risk - if your income is also tied to the company this risk is increased.

You may want to consider reducing you single company holding to 5% and no more than 10% of your 401(k) protfolio.

Using an asset allocation model for various asset classes, internationa, small cap growth, large cap value,large cap growth you can build a long term strategy. We do not know your age - but you said that you were risk advise - bonds should also be considered.

An example of this portfolio might be:

Specific company stock 5%
Large Cap Growth 15%
Large Cap Value 10%
Bonds 20%
Small Cap Growth 20% (two seperate funds)
S%P Index 20%
International 10%

I hope this helps

P.S. To evaluate funds you may want to consider morningstar and sort the funds by those in the top 8oth percential for the past 3 and 5 year returns ending 12/31/99





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Author: DollarsForFuture Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17497 of 75337
Subject: Re: Company Stock - Opinions? Date: 1/7/2000 3:49 PM
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arnoldk,

Here's some extra information that you didn't ask for, but may find helpful.

1 1/2 years ago I transferred my 401k to IRA. You should contact your 401k admininstrator about transfering the stock "in kind". I found out they wouldn't do that for my stock, so they liquidated it and distributed the funds to me.

If you do a search of the "ask a foolish question" board, I answered a question about rollovers, what to watch out for (don't take the money yourself) and what steps you need to go thru to complete the transaction (ex: who to ask for which forms, etc.)

I'm not an expert, just someone who did this recently.

DFF

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Author: mphipps Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17512 of 75337
Subject: Re: Company Stock - Opinions? Date: 1/7/2000 7:10 PM
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That is simple don't sell it. Transfer the stock to the new IRA. You will be happier in the long run.
I have to think that you had a good reason to do it.
Questions
1. Is this 401k your only investments.
2. What percentage of your total retirement is in this stock.?
It might not be 50%.
What is good EPS growth. How has it done versus the S&P?
Did you know you can write cover calls in IRA. Covered calls are more conservative that investing in the stock.

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Author: arnoldk Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17513 of 75337
Subject: Re: Company Stock - Opinions? Date: 1/7/2000 7:29 PM
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I do plan to transfer the stock to the new IRA - and then I plan to sell it (or a good percentage of it). Don't think I could sleep at night otherwise because there's just too many eggs in that there basket. Had I gotten my financial act together earlier, I would have already moved and sold some of it since my company allows in-service 401K transfers of x/year - something for other foolers over-invested in their corporate stock to consider. I'm fortunate in that my company's done well, but I'm not trusting in that to continue indefinitely.

Now - I need some more education. What is a "cover call?"


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Author: mphipps Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17523 of 75337
Subject: Re: Company Stock - Opinions? Date: 1/7/2000 10:30 PM
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Cover Call.
Is a option that you write that gives someone the right to buy your stock at a set price.
Here is how it works.

Lets take Boeing stock.
Amount of stock you own is 1000 shares
Value (40 share) $40000
Ok now you don't think Boeing is going to move very much above say 50 for the next year
So you write a cover call price of 50 for 1000 shares
Calls are written in units of 100. One call equals 100 shares.
And lets say the market strike price for calls at 50 is $2.
You will write 10 calls (100x10=1000 shares)
You will get credited to your account $2000. If the price never reaches 50 over the life of the option then you have made $2000 minus commission and you still own 1000 shares.
What happens if it reach 50. On the option expiration date your stock will get called. Bad, no you will be force to sell the stock at 50 a share. You get
50000 minus commission+2000minus commission.
What you are doing with covered calls is your are locking in a predetermined price.
Which IMO would resolve your concerns.
You should go talk to a broker about it before you run off and sell all your stock. What you are doing when you sell a stock, like you are talking about, is converting an appreciating asset into the a very poor appreciating asset called cash. And you will not get returns better than the cost of money. And I bet your stock pays a dividend, too.
Of course this is only one mans option. Point is think through all possible scenarios and understand all your opinions. If that stock was good enough to invest in over time why is in not good now.

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Author: Bobbcat Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17526 of 75337
Subject: Re: Company Stock - Opinions? Date: 1/8/2000 8:51 AM
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I'm getting ready to transfer 401K holdings to an IRA. Fully 50% of those holdings are in a single company stock.

If you are over age 59 1/2 OR
If you are terminating from employment with the company on or after age 55:

Since this is COMPANY Stock -

If you take the stock as an in-kind taxable distribution. You will be taxed at the lower of cost or market.
Upon sale, you pay the long-term capital gains rate on the appreciation.

If you sell the stock in the IRA, you will not be taxed at that time. However, upon distribution you will be taxed at your normal tax rate. If you distribute the stock in kind out of the IRA, you have lost the above capital gains preference.

You will need to run the numbers on how this would affect your current and future tax situation.

*Cat

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Author: arnoldk Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17530 of 75337
Subject: Re: Company Stock - Opinions? Date: 1/8/2000 9:26 AM
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Thank you for the cover call explanation. I'll give that some serious thought and more research. In answer to one question you raise - (if the stock was good enough to invest in before, why not now?) - fool school session is in. My stock position did not result from conscious investment decision but from ignorance and, then, 401K neglect. The company matched with stock and I neglected to gradually move it out to an IRA and sell it, so it piled up. I only found out I could do anything with it while in-service fairly recently. My reasons for wanting to sell it when I transfer my 401K holdings are numerous. For starters, it's a huge chunk of my portfolio and I'd have a heart attack if the stock tanked one day. I don't watch my investments all all that frequently and will be watching this company far less closely once I depart. I'm decades from retirement and I know that reigning philosophy says I can afford risk, but, I confess, I'm much more inclined to seek safety and security. Granted, this is a blue chip, but it's just too much of a blue chip for this investor's nervous heart. Thanks so much for taking the time to give me the simple explanation on cover calls. It definitely is another option worth considering.

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Author: Tim411 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17617 of 75337
Subject: Re: Company Stock - Opinions? Date: 1/10/2000 7:04 PM
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ArnoldK : I have gone through this. I have seen great companies such as IBM,Intc,Ko,and even this last week,Lu. really drop big time in a short time. It can happen to you. I have made a lot of money since I took over my retirement funds. One of the great safety valves is diversification. Another hint is that I would have made even more if I would have put 80% of my money into great Mutuel funds like Janus or Fidelity. They are a great way to diverswify your funds with people that really know what is going on and can take action on it. You can still keep 20% of your money in your own account to trade as you wish. If you want more info from me I'll be happy to share with you what I did and my advise. If not good luck.

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Author: Doucy Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17619 of 75337
Subject: Re: Company Stock - Opinions? Date: 1/10/2000 7:15 PM
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Hi, I tried to post this a few minutes ago but the boards crashed just before I hit the "send." Here goes again.
The gist of my posting was to be cautious about using covered calls. They are more risky than was implied by the poster who recommended them. Here's a link to a recent series of articles on options (of which covered calls are one type) from the Rule Maker portfolio:
http://www.fool.com/portfolios/rulemaker/1999/rulemaker991112.htm
Like you, I recently (a year ago) made a decision to take control of my retirement portfolio, by switching my mutual fund IRA to a brokerage account. I have learned a tremendous amount on Fool.com, and it's been a thrill to shape my portfolio (it doesn't hurt that the bad decisions I made were nicely cushioned by the great year the other picks are having. A great year for the market can make even a newbie look competent.)
I mention this just to encourage you to stick to your gut about diversifying, and make your decision on the basis of your self-knowledge and diligent research, rather than giving responsibility for this to an outsider (like a broker). But it sounds like I don't have to tell you that. Good luck, and have fun.
Helen


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Author: etarwater Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17633 of 75337
Subject: Re: Company Stock - Opinions? Date: 1/11/2000 7:18 AM
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You might to into "metamarkets.com" the Open Fund, OPENX & take a look. It is a tech fund & Don has a real fine track record. It isn't a conservative fund but is doing very well. It is a way to have a great return & letting someone else do all the worring. I have watched it since it started 8-31-99 & just dropped $15k into it so I can take a few min. off the ticker tape. This way I won't worry so much about my other tech stock & which one should I buy & which one should I sell. If he can double that for me in the next year I will buy a PT Cruiser. That is my play money fund.

For What It's Worth.

Ernie

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Author: mathetes Big red star, 1000 posts Old School Fool Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17840 of 75337
Subject: Re: Company Stock - Opinions? Date: 1/15/2000 1:59 PM
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I haven't seen anybody state any cautions on the issue of diversification, so let me throw in my two cents on that side. I think even no less than Warren Buffett has been quoted as saying that diversification is overrated. Whether he said it or not isn't the point... the point is that many of the world's wealthiest got there without being overly frantic about this sacred cow of diversification. (Consider one William Gates, for example; though, granted, his share of MSFT is likely bigger than any share you or I might have of our own Fortune 50 companies.)

If the company in which you have all this nest egg is basically a sound one, one that has grown steadily over the years, one in an industry that isn't likely to go the way of the buggy whip in the next decade or two.... then there needn't be any rush to sell 90% or more of that quickly.

It probably is prudent to move in the direction of diversification -- I don't mean to totally dump on that idea -- but I've read postings in the past from people who seem to have suddenly awakened, sold a huge chunk just so they could sleep at night..... And yes, the IBMs of the world (as cited by another recent poster in this chain) do take tumbles on the market. Generally, the IBMs of the world also come back. If you are heavily invested in a Fortune 50 company, there is a certain amount of exposure to risk, yes; that "risk" also brings with it the potential for continued growth.

mathetes

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