Does your company offer an Employee Stock Purchase Program (ESPP) as a benefit? If so, you should definitely take advantage of it!
Wealthfront has an excellent write up that covers everything you would want to know about ESPPs. Here is my bullet point answers to common questions:
Yes you should do it. There is literally almost no risk due to the discount from the company.
It’s all upside with a minimum guaranteed return of the discount (and any appreciation in the stock is all upside!)
Yes you can sell it right away (personal opinion: you should).
Yeah the payroll deductions can hurt you for 6 months, but look at is as a 6 month savings account with a REALLY high return. You could literally make up the difference with credit cards and come out ahead (although please don’t do that).
Sign up as soon as possible especially if the program has a look back (locked in rate for an extended period of time).
You can usually decrease your participation at anytime if needed, but I don’t recommend as it resets your look back.
Max it out to the limit offered by your company. There is a federal cap of $25k per year.
ESPP is a no brainer. There is absolutely no risk/downside and all upside. It’s a guaranteed MINIMUM semi-annual return of the discounted 15% (over 30% annual return!). If the stock goes up, it’s even more. If it goes down, you still get the 15% discount so there is no risk. The one catch is you have to be able to live without a percentage of your check for 6 months. Just view it as a savings account. I highly recommend you enroll, especially if you have the option of the 2 year look back rate.
Feel free to hit me up on Twitter with any questions.
I recently ran a completely unscientific Twitter poll about which seat would you chose on airplane:
As you can see, everyone chose the aisle or window seat (and I assume the votes for the middle seat were accidental). But let me contrast this with my last flight. I chose the middle seat. On purpose. Why would I do this? I was on a Southwest flight which has no assigned seats. As I boarded, the flight attendant told me the flight was half full (side note: considering it’s a flight, would she be considered an optimist or a pessimist?) so I chose the middle seat and put my stuff on the seats next to me. No one sat next to me so I had the entire row to myself. The situation matters. What if you need frequent visits to the bathroom? Then the aisle seat would be preferable. What if you are flying with a child? Take the middle seat and corner them against the window. There are a variety of factors that influence your choice of seat. Context matters.
In a semi-meaningless regular season NBA game, Steph Curry made a buzzer beating 3 point shot at the end of a half. Curry might be the best 3 pointer shooter in the history of the NBA and has made countless 3 pointers, many of them at the of the half or game. So why should be this one in particular be interesting? Let me add some context. It was against the Oklahoma City Thunder, a heated rival. It was in Oklahoma. About 5 seconds of game time prior to hitting the 3 pointer, there was an “NBA fight” involving him and half the Thunder as they set up for a jump ball. Curry had been jostling for position and there was a lot of pushing a shoving and one can imagine his masculinity was probably called into question. So that 3 pointer wasn’t just any 3 pointer. It was a direct response, in-your-face, I’m-better-at-basketball-than-you, 3 pointer. It also put them up by 20, a nice round number that many announcers use as the line of demoralization. All of these factors made this specific 3 pointer special. Context is about making things special. (And this particular 3 by Steph Curry, is one my favorites.)
Many times in my career in corporate finance, I have seen numbers reported without context. Check out the table below:
Are these good or bad months? We can tell that March was the best month and February the worst, but there is nothing else to put them into context. Now look at this table:
Or this chart:
By adding context to the numbers, we get a better picture of revenue. Now we can see Q1 in more context (in this example, a historical context). We have made it “special”.
An oft familiar finance interview question for college students is “what is the company’s stock price?”. Many students reply with a very specific number like “$30.52”. It’s obvious they memorized it right before the interview in hopes to impress. How much better of an answer would it be if they replied “it’s about $30 which is a 52 week high and up about 10% from the start of the year”? The context is more important than the exact number. Context shows understanding.
One bit of warning, don’t go overboard with context. There is balance to be found between too much context and not enough. The right amount drives the most important point. Once you have decided on the key takeaway, use context to convey your message. We don’t need to know how what Curry had for dinner that night in OKC, or what the revenue was for those months 5 years ago. Context should be relevant.
Context matters, it makes something special, and it shows understanding. By adding relevant context, you make it easier for your audience to understand your message.
(For the record, all else being equal, I choose the window seat. It’s the easiest way to take a nap.)