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Thread: The Stock/Investment Thread

  1. #601
    Senior Member Flixy's Avatar
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    I had pretty much the same deal at my old job. Side note is that IIRC here buying the shares right away meant you had to pay taxes on the 'profit' based on the current stock valuation. That's of course lower than the price they'd be sold for later.. but also means if the company goes under you've not only lost the money you paid for the options but also a significant amount of taxes. That, combined with the very big risk of going under made me go risk averse and just keep them as options until an acquisition.

    Of course for me it was moot because i got laid off less than a month before the options vested But the fact that they had to lay off half the company does nicely illustrate the high risks (that was after the first clinical study, even!).
    Keep on keepin' the beat alive!

  2. #602
    Here in Sweden, I'd use a tax-privileged "investment savings account" for unlisted shares, to avoid this problem. It's possible the tax man is less keen on such devices in the US. Other than that, best to take a whole portfolio view in approaching these decisions. If a decision is liable to drastically increase your risk and drastically reduce your liquidity, you might be able to compensate for it. Or your overall financial and social situation might be solid enough that you can take a hit to the tune of 10-20k.

    These decisions are sometimes made very difficult by psychology and social considerations. Loss aversion is an issue, sure, but the risk of feeling and looking like a sucker can be even more discouraging. Nobody wants to be the one person in their group who played it safe and missed out on the big payoff. It can eat away at you for years.

    It's a cool company with a potentially game-changing product, and even in a reasonable worst case scenario you won't be out on the street. If you can take the risk from a psychological perspective, do it, and compensate financially as needed. If you can't take the risk, don't, and try to do more with other investments so you don't feel like you missed out too badly. But before making a decision, find out for certain whether there's some way to structure this to minimize the tax hit. At the very least, you might be offsetting the capital gains against future losses, which changes the calculation somewhat.
    “Humanity's greatest advances are not in its discoveries, but in how those discoveries are applied to reduce inequity.”
    — Bill Gates

  3. #603
    Quote Originally Posted by Flixy View Post
    I had pretty much the same deal at my old job. Side note is that IIRC here buying the shares right away meant you had to pay taxes on the 'profit' based on the current stock valuation. That's of course lower than the price they'd be sold for later.. but also means if the company goes under you've not only lost the money you paid for the options but also a significant amount of taxes. That, combined with the very big risk of going under made me go risk averse and just keep them as options until an acquisition.
    So in the US the difference between the strike price and the exercise price is only treated as income from the perspective of the Alternative Minimum Tax (and even then can be clawed back in years when you don't hit the AMT threshold). While I would love to have enough income that the AMT applied to me, I am not currently subject to it.

    Also, since the company is pre-revenue the calculated appreciation in the stock value is quite low at the moment; I'd only be on the hook for a few thousand in income even if the AMT applied (so figure max $500 tax hit). If AMT rules change again I might become liable, but it would be a small amount overall.

    My concern has more to do with the risk; while Loki's right that in theory I could quantify the calculation by estimates of the risk and payoff, the reality is that even my well-informed guesses have massive confidence intervals. There's just too many variables, especially when we're discussing a new technology with extremely uncertain clinical prospects. The upside is massive, but the risk is also pretty darned big. And one thing we know about risk analysis is that humans are actually pretty good at analyzing quantifiable decisions with easily understood and semi-likely risks... but terrible at understanding the real probability of less likely but very impactful risks. It's the unknown unknowns that are the problem here from a quantification perspective.

    Of course for me it was moot because i got laid off less than a month before the options vested But the fact that they had to lay off half the company does nicely illustrate the high risks (that was after the first clinical study, even!).
    First: bummer. Second: yeah, this is hardly a straightforward path to regulatory approval and market success.



    For those who are curious, my general feeling is to exercise the vested options right around 1 year before the earliest point of logical acquisition, then follow with new tranches of exercise 1 year before each significant milestone would be achieved. It's not as aggressive as exercising continuously as new shares vest every month after the 1 year cutoff (which is itself a paperwork nightmare) but much more risky than waiting for a more likely acquisition date (say, 1 or 2 year FIH data). It does help to cut any potential AMT exposure, though, because an earlier exercise has a lower price spread and subsequent exercises will be smaller dollar quantities. Of course, it does mean that I have to dip into my cash reserves, but it's not like I was going to be able to afford a downpayment on a house anytime soon in any event.
    "When I meet God, I am going to ask him two questions: Why relativity? And why turbulence? I really believe he will have an answer for the first." - Werner Heisenberg (maybe)

  4. #604
    A friend here needed a $7.5k down payment on a 3,000 sq. foot house (granted they only paid 5% down).
    Hope is the denial of reality

  5. #605
    Well, if I put down 20% on a 1700 sqft condo I'd need about $250k. But then I'd still need to figure out how to finance a $1 million mortgage. So $10k more or less is a rounding error.

    Also, you live in a postapocalyptic hellscape.
    "When I meet God, I am going to ask him two questions: Why relativity? And why turbulence? I really believe he will have an answer for the first." - Werner Heisenberg (maybe)

  6. #606
    At least we're not surrounded by dead Kennedys.
    Hope is the denial of reality

  7. #607
    First, they're from California. Second, they broke up in 1986.

    Also, the Kennedy I voted against in September is very much alive; I see him around town from time to time.
    "When I meet God, I am going to ask him two questions: Why relativity? And why turbulence? I really believe he will have an answer for the first." - Werner Heisenberg (maybe)

  8. #608
    I hope you told him that.
    Hope is the denial of reality

  9. #609
    We're not exactly buddies; I'm not a political social climber. I leave such activities to my friends in local government. Also, I can't say mean things to gingers now that I have two of them.
    "When I meet God, I am going to ask him two questions: Why relativity? And why turbulence? I really believe he will have an answer for the first." - Werner Heisenberg (maybe)

  10. #610
    They need better role models.
    Hope is the denial of reality

  11. #611
    Senior Member Flixy's Avatar
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    Quote Originally Posted by Loki View Post
    At least we're not surrounded by dead Kennedys.
    Hey, they're a pretty cool band!
    Keep on keepin' the beat alive!

  12. #612
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    Today I was watching Generation Wealth and as they were showing the effects of the 2008 crash, I realized that that whole crash didn't really happen for me personally. At least, not in a harmful way; it depressed interest rates and at some points the interest on my mortgage went so low that it didn't make sense any longer to pay it off. What I did see by the time it had run it's cause was that my net worth had easily doubled, maybe even tripled. And by the time we reached the covid brick wall, it had doubled again. Which is pretty much where I'm still standing. Income wise I took a little hit (8% net income decline) but that barely registers because my spending has decreased much more dramatically.

    Does it feel significantly worse for any of you ?
    Congratulations America

  13. #613
    No. In 2008 I was still in uni, leading a life that wasn't noticeably affected by broader economic changes. The low interest-rates that followed led to a surge in home prices that peaked around the time we sold our condo and bought the one we currently live in, leaving us with a small mortgage with a very low interest rate. I didn't have any equities at the time of the crash, but my wife's portfolio took a major hit—and then bounced back in a big way. Frankly, middle class Sweden was pretty well shielded from the brunt of the crisis.
    “Humanity's greatest advances are not in its discoveries, but in how those discoveries are applied to reduce inequity.”
    — Bill Gates

  14. #614
    I got into grad school right as it happened. Pretty insulated there.
    Hope is the denial of reality

  15. #615
    Quote Originally Posted by Hazir View Post
    Today I was watching Generation Wealth and as they were showing the effects of the 2008 crash, I realized that that whole crash didn't really happen for me personally. At least, not in a harmful way; it depressed interest rates and at some points the interest on my mortgage went so low that it didn't make sense any longer to pay it off. What I did see by the time it had run it's cause was that my net worth had easily doubled, maybe even tripled. And by the time we reached the covid brick wall, it had doubled again. Which is pretty much where I'm still standing. Income wise I took a little hit (8% net income decline) but that barely registers because my spending has decreased much more dramatically.

    Does it feel significantly worse for any of you ?
    I was in the middle of my PhD so was spared the worst of it. I actually kinda benefitted because a fellowship I applied for was funded by ARRA money. And the sum total of my assets was a few thousand dollars in a savings account so I didn't miss much there.

    My wife started working in early 2009, and I suspect her starting salary lagged quite a bit because of the timing. That has been shown to lead to significant decreases in lifetime earnings; it's certainly possible that's the case, but her salary has tripled since then so we don't have many complaints.

    I guess we didn't lose much from the market crash, but since we only started investing for retirement in 2009, the bulk of our current assets did not benefit from the market early recovery. But I'm not super upset about that either.

    I think perhaps the biggest effect on us has been housing; supply really dried up and continues to be limited in places we look. We question when if ever we'll be in a position to purchase a home.
    "When I meet God, I am going to ask him two questions: Why relativity? And why turbulence? I really believe he will have an answer for the first." - Werner Heisenberg (maybe)

  16. #616
    The housing market tanked so my parents where unable to sell to fulfill their dream of moving up north, even though my dad already had a job up there. So my parents spent the last few months of good health apart. Dad got cancer. His treatment schedule was largely at the mercy of charities. Even then it still bankrupted them and my mom eventually lost the house.

    I went several years without a raise, but it didn't really hinder my financial situation. But it sure as shit didn't make saving for a house any easier. At its worst I was denied vacation time and forced to take a week of furlough that was spread throughout the year.

    Right now we just got notice that raises will not be happening for 2020 performances, but the county will be covering the raise in insurance premiums.
    "In a field where an overlooked bug could cost millions, you want people who will speak their minds, even if they’re sometimes obnoxious about it."

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