A lot of the times as the employee of a startup or a bigger company you’ll get a grant of equity with your offer. This post deals with equity from private companies. Meaning companies that haven’t gone public via an IPO or similar.
The way I look into company stocks is this:
- Calculate how much you “are losing” while employed in said company (roughly see what’s the upper band you would get elsewhere). The only reason you get stocks is because you are not getting the upper band of money you would otherwise.
- Wait for liquidity events and spread your risk. This is basically me saying do not be greedy. If you never sold anything because you thought things will only go up then you’ve been a bit greedy and you took unnecessary risk.
- Don’t leave in the market money you can’t lose. So on a previous company IPO I sold some amount of stock to get me to this level. Everything else left in the market is money nice to have.
- Accept you can’t time the market. It’s a gamble. You’ll win some, you’ll lose some. Make sure you offload some risk on a timely manner.
- Finally while getting advice from random people on the web know that each person is different, the circumstances are different and the bets we took are different. Don’t compare yourself too much.
Based on the above I can tell you with confidence that I am very calm. I don’t sweat too much about the price of my existing positions. Even if the price goies too low I am still reassured while the company is sensible in its spending and has a profit. If not I would sell ASAP and limit my damage.
Insider knowledge can help boost your confidence, or the opposite. The knowledge has to do with knowing the old and the current employees (many of whom might even be your friends) and finally key people like CEO, CFO, CTO can help you build a better picture. That knowledge will be an indication of the work ethic and the standards the company adheres to.
Finally, and most importantly, you can’t change the past. What’s done is done. The markets are out of your hands. The biggest value right now is take your learnings on investment, risk, diversification and markets and apply them again in the future.