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When to Sell Your Employee Stock?

If you work for a public company then you probably struggle with deciding when you should sell your stock options or RSUs. The data, which we’ll share in this post, clearly says you should sell immediately, but if you’re like most people, that just doesn’t feel right. Perhaps it’s because you feel like you’re being disloyal to your employer (you’re not), you would be embarrassed facing your CEO if you did (she will never know), or you fear the regret you would feel if your company’s stock continues to appreciate. In this post, we use historical data to examine the liquidation decision from the behavioral perspective of regret minimization. Strikingly, we find that the longer you wait to liquidate, the […]

Why Diversify a Concentrated Portfolio?

If you work for a successful company, chances are a significant share of your wealth is tied up in your employer’s equity. This likely makes you wonder if you are better served diversifying out of your concentrated position. In this post, we use Modern Portfolio Theory to show why your employer’s stock has to have amazing prospects to justify maintaining a large position in it. Modern Portfolio Theory in Reverse In their Nobel Prize winning work on Modern Portfolio Theory (MPT), Harry Markowitz and Bill Sharpe provided a recipe for the construction of the ideal portfolio given an investor’s beliefs about asset returns and attitudes towards bearing risk. MPT states that one can construct an “efficient frontier” of optimal portfolios […]