Don't Buy And Hold Company Stock
Rusty can buy his company's stock at 10% off. He can buy as much as he wants and sell as soon as he wants. Is there any reason he shouldn't do it?
QUESTION: Rusty in Los Angeles can buy his company’s stock at 10% off. He can buy as much as he wants and sell as soon as he wants. Is there any reason he shouldn’t do it? Dave recommends checking on the fees and making sure it isn’t a volatile stock.
ANSWER: You need to check on the fees it’ll take you to sell it and what fees they employ to buy it. As long as the stock isn’t really volatile and it doesn’t go down 12% in 20 minutes, I guess you’d be okay. It could go down in 20 minutes.
Number one, I wouldn’t borrow any money to do this. Number two, if you’re going to buy it, do have it set up with a broker already—a low-fee situation to turn around and liquidate it literally in 20 minutes. Don’t buy it to hold. Here’s why I wouldn’t buy it to hold. If you were to pull your company up on a stock chart, which would be very easy to do at many websites, you could look at what’s called your 52-week high and your 52-week low, meaning the best price it sold at and the worst price it sold at in the last year. You will see a variance of more than 10% between those two figures. If you buy it and hold it a year, there’s a good chance you could lose. I don’t play single stocks for that reason. I love the stock market as a concept, and thereby I invest through good mutual funds because I’m in a bunch of different companies, the money’s spread out, and I’m not going to take it on the chin if one company goes down. But if you want to mess with this a little bit, I certainly wouldn’t bet everything you have on it or something like that, but if you want to try it once, that’d be fine.
Your coworkers probably have a discount brokerage firm of some kind that is just doing the stock turn for them. But again, don’t get enamored with this or get sucked into this and have too much of your world tied up in case something goes bad. Do it in cash. Whatever you do, don’t change your mind and decide to be a person who keeps the stock. If you can flip it immediately and you want to play with that a little bit, I don’t have any problem with you playing with it under that idea. The thing you’ve got to remember is don’t try to find one thing that is somehow the get-rich-quick pill. It’s just not one thing. It’s an overall view of life that causes you to become wealthy. That’s what you’re trying to keep in your mind.