Should I purchase company stock through my ESPP?

Question

I have been contributing several hundred dollars per paycheck to my Employee Stock Purchase Program (stock symbol MDP) at a 15% discount. I was immediately selling at the end of each quarter with significant ROI (even after capital gains tax). There was previously no holding period but starting with shares purchased this quarter, there will be a 6 month holding minimum. That is, shares purchased Oct-Dec 2013 cannot be sold until July 2014. Should I continue contributing knowing that the risk is now much greater? Is there any way to mitigate the risk so that I feel comfortable with this program again? Or perhaps I should just take my investment dollars elsewhere.

Answer 1

In the old version of the plan you were flipping the stock very quickly. Some of the money was tied up for almost 90 days, some for only a few weeks. The risk that the stock would fall enough to cause you to lose money was small, but not zero. Therefore you felt comfortable with risking several hundred dollars a paycheck.

The general advice is to not make the current company you work for a significant portion of your net worth because if the company suffers a disaster you can lose both the money and your job.

How much is at risk? Assume 7 checks per quarter @ $200 / check deposited. In the old program you had $1400 at risk but you owned ~$1650 in stock. Under the new plan in the first quarter you will still deposit $1400 but while waiting for the 6 month window you will deposit another $2800. By the time the first sell date occurs you will now have $4200 at risk, but you will own ~4950 in stock.

The question is would you be willing to invest $4200 today in your company stock knowing that you can't sell for 6 to 9 months? If that is too much of your net worth to put at risk, then you might have to look at some other way to allocate your money.

Note: I don't consider what you were doing as an investment. You found a way to generate some income each quarter. They are now changing the rules to make that a much riskier proposition, especially if the goal was income generation. The company may be trying to discourage participation in the new program.