My money mistake: ESPP


I am in the fortunate position of having an employee stock purchase plan (ESPP) available to me. The popular advice is to wait for the buy, then turn around and sell. I always told myself I would follow this advice. I didn’t. Here is what I should have done.

  1. 2 July: Let the ESPP execute: buy $6,867.72 ÷ ($87.04 × 85%)1 = 92 stocks ($6,806.528)
  2. 6 July: Sell stocks at opening price 92 × $88.47 = $8,139.24
  3. 7 July: Buy S&P 500 ETFs (VOO) at opening price $8,139.24 ÷ $289.67 = 28

My Mistake

On 6 July, I thought “I don’t need this money right now. Why not try to sell for more? The stock was $100 before COVID. I could sell for somewhere a little below that. I don’t even mind if I have to wait until the end of the year, because I don’t need this money right now." I thought some time before the end of the year, that I would sell my shares at $96.71 ($8,897.32). I planned to profit an additional $750 for being patient.

Back in July, I still had student loans, so my plan was to finish paying them off in order to reduce my monthly costs. Increase my cash flow, you know?

It is September now, and I have paid off those student loans. I have different ideas on what to do with the money. I would probably buy VOO.

Opportunity Cost

So how much did I lose? It’s 4 September and the S&P 500 has done well since July. Yesterday it was up by nearly 15% since 7 July. It dipped today, but is still up by 10.7%. Meanwhile, my company stock was up 2.2% yesterday. It also dipped today, and is down by 3.7% since 7 July.

If I sold today or Tuesday, then I would still be ahead (thank you 15% discount). What bothers me more is missing out on the S&P 500 growth.

Since I had this realization yesterday, let’s say I sold my company stock yesterday, 92 × 88.86 = $8,155.80. I profit only $16.56 more than if I sold in July. If I followed my original plan (and bought VOO instead of paying off student loans), then my VOO shares would be worth 27 × $314.60 = $8,808.80. Compare that to my gamble: $8,897.32. You might think “Having VOO today would be worth less than if you waited to sell your company stock," but by that time the S&P 500 would most likely also have grown. And who knows by how much more.

My take away from this experience is that I should have compared the growth of my company’s stock to the S&P 500, then made a more informed decision between holding or selling. With this new information, I would have sold, because my company’s stock does not usually outperform the S&P 500. If I worked for Apple, or Tesla, then I think this post would be more of a celebration.

If it wasn’t already obvious, my plan is to sell my company stock, then buy VOO. The S&P 500 might dip more next week, but I would rather buy before the next rally.

Inspired by one of the “Famous Four” questions asked on The BiggerPockets Money Show: “What is your biggest money mistake?"

  1. The ESPP provides a 15% discount. ↩︎