Taking Assessment of My Portfolio Returns, Part 5: Company Ownership

In the 1st part of this series I determined that the total return for my net worth was a measly $2,094. In the 2nd and 3rd parts, I found my retirement and cash accounts had respectable returns of $8,331 and $778 respectively, for the year. In the 4th part I found my stock investment accounts had an embarrassing return of -$685 .

I decided to review my holdings of my employer (IBM) separately. I have both a small amount of options and regularly participate in our ESPP. However, the stock price has fallen from $98.58 to $82.20 over the course of 2005. The results as not going to be pretty.








$ 3,138.00

$ -







$ 7,371.58






$ 7,371.58



Things are starting to fall into place and its ugly. Clearly the biggest hit on my total return came from my large exposure to company stock via my ESPP and stock options. If I had just cashed out of these plans at the end of last year, my total returns on net worth would have jumped up from $2,094 to $11,237 or a 7.1% annual RoR on my total net worth.

In hindsight its easy to say common sense should have told me to reduced my exposure to my employer. I certainly paid a high price by not doing so. Hopefully this will be a mistake that I can build off of in future years.

I clearly need to take action and reduce my exposure to the volatility of my employers valuation. In the next part of this series I will take a look at the return on my rental property and then I will lake a look at lessons learned and what actions I need to take to improve my annual returns for 2006.

Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7

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Comments (6)

DATE: 12:55 PM
Looks like your on the right track. Nothing like learning from experience. Check out my new blog site.http://dollarsandsense1.blogspot.com. Just getting started. Any helpful tid bits of advise would be welcom.

DATE: 12:57 PM
2 million, I read somewhere that it is a very bad idea to invest in the stock of the company that employs you. It is considered "too many eggs in one basket". This is because you already depend on the company doing well for your salary and benefits. Adding the stock on top of this is too much concentration. This being said, it is often hard to resist these plans because of the discounts they offer. We invested in my husbands last year (PBI). I thought it would be hard to lose because on July 3 2006 the stock will be purchased at a 10% discount to the June 30 2005 price. At this point it still does not look like we will come out so well. However, we have the option to withdraw from the plan and get all our money back until June 30 2006. We may have to do that. j

DATE: 2:35 PM
Oops - I just realized that this didn't include my cash dividends of $251.37 for the year from my IBM stock (not that it changes things much). I am in the process of updating my return with this included. The correct total rate of return should be -28.66% (it was -29.47% w/out the dividends).

DATE: 5:43 PM
You probably know IBM better than I do, but I would think that you need to take the long term view of things.Is this a good company ? Yes, of course. I may not be the most hip or hot or exciting, but the whole world trusts this company. This stock will go up again !Didn't I read somewhere recently that Bill Gates answered IBM when someone asked which competitor he feared most ? Most people might have guessed he would say Google. But I don't believe in Google. They're a one trick pony. Yes, they offer some nice gadgets. Yes, I use gmail. Never refuse a free lunch.But I'll bet on IBM in the long run. As a matter of fact, I'll probably buy some stock in the next couple of months. It looks cheap to me.Just hang on and ride the storm ... Review your returns in a couple more years !

DATE: 8:43 PM
I am an IBMer too and I contribute full 10% before the 15% discount went away. But my rule of thumb is to always cash out once a year so that I am locked in that 15%. Some years, I even cash out twice a year. I don't mind paying higher tax, but I cerntainly can't afford to take a downturn hit. After all, investing a lot of our salary into one single stock fund is plain dangerous...

DATE: 9:05 AM
2million - First off, I love your blog. I have been reading it for a few months now.On this subject I must say you have learned something important. I have to agree with others on putting too many eggs in one basket. If your company is doing well your reward is bonuses, salary increases and possibly, stock options. I used to work in Corp America too and saw so many colleagues putting lots of $$ in company stock only to get burned time and time again. My strategy was to set a small goal for a gain over the ending price of the purchase period (say 5%) and when that is added to the discount offered to the ESPP it was very respectable and then immediately sell it. This way I could get the free money (discount) without alot of exposure.Good luck!

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A personal finance weblog of my journey to reach my goal of $2 million + the value of my primary residence.
Current Net Worth: $1,574,185


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