SkyWest Employee Stock Purchase Program and 401K

[skywav8r]

When I was at Skywest I bought a truck with my ESPP and made enough for a good down payment on a house. 15% to 5% sucks but its better than a stick in your eye. I watched the trends in the stock price for years. For the three weeks following the 6 month stock purchase the stock drops about 5-10%. Between 3-5 weeks post purchase the stock is even money or higher. i.e. don't sell the minute you get it. Too bad you ASA guys weren't around to enjoy the stock splits and the jumps from the teens up to $40. $$$$ Bottom line, if you have the money, the ESPP is still a good thing.

 

[Chairman]

Sure won't beat Jan 06 when the return was 79% and the company ran out of stock to issue. Was a great perk huge loss in the so called "Total compensation package"

 

[Andy Neill]

Andy, do you realize this is on Selling price ONLY not the better of the two prices?

I do indeed. It may be helpful if you could show me where my math is in error.

 

[Roger Dat]

I do indeed. It may be helpful if you could show me where my math is in error.

This money is coming out of our checks after taxes, not before.

At least it is over here in Atlanta.

 

[Andy Neill]

This money is coming out of our checks after taxes, not before.

At least it is over here in Atlanta.

Very true but that doesn't affect the return rate I stated. By the way, there is a way to juice the total you get from SKYW Inc by setting your 401k levels to the right spot.

 

[Roger Dat]

so help me out here. If i get a 5% discount on a stock and buy it, how does that make it 21%.
Why not just 5%

I'm not sure I get it

 

[Andy Neill]

so help me out here. If i get a 5% discount on a stock and buy it, how does that make it 21%.
Why not just 5%

I'm not sure I get it

Step by step. Let's say you are putting in $100 per paycheck (every two weeks) for a total of $1300 over the course of 6 months. At the end of that time, you buy 100/95th times $1300 worth of stock ($1368.42) for $1300. That is a benefit of 5.26%, right?

Now that benefit was realized on an average of $650. In other words, you didn't put in $1300 at the beginning of the period. You deposited it $100 every two weeks. So a benefit of $68.42 on an average balance of $650 is 10.52%.

Finally, this was the return on a six month period. Annualized, that rate of return would be 21.14%. In other words, this is a better deal than depositing $100 per month for 6 months in a savings account that promises an APY of 20%.

Does that clear things up. If not, give me your figures.

Let me ask this. If you don't do this to the max, what are you going to do with the money that will deliver that much return?

 

[Roger Dat]

Alright now, got someone smarter than me to explain what you were saying. Now it is clear. Thanks

What were wqe making when we got a 15% discount. I was putting in the whole 15% of my check....

 

[SpyFlysDOTs]

Did you subtract the 15% tax on your profit?

 

[Andy Neill]

Did you subtract the 15% tax on your profit?

OK. If you want to play that game, 15% of 21% is 3.65% so the return is only 17.35%. What are you doing to get that kind of return? The tax on saving interest is more and the return is much less.

If you don't want to go with this, point me in a better direction. I can't handle all this negativity. I'm in a success mode - not a victim mode.

 

[crj567]

That's about to go to 35% tax if our new commie-who-be-in-charge has anything to do with it.

 

[DoinTime]

Finally, this was the return on a six month period. Annualized, that rate of return would be 21.14%. In other words, this is a better deal than depositing $100 per month for 6 months in a savings account that promises an APY of 20%.

If you are depositing $100 every two weeks thats equivalent to $216.66 per month. If you were depositing that money into an account with an APR of 20.00% your account balance would look like this:

month 1 = 220.27
month 2 = 444.21
month 3 = 671.88
month 4 = 903.34
month 5 = 1138.66
month 6 = 1377.90

If you carry out the year it looks like this:

month 7 = 1621.13
month 8 = 1868.41
month 9 = 2119.81
month 10 = 2375.39
month 11 = 2638.28
month 12 = 2902.50

A pilot in the stock program would have $2736.84 in assets at the end of the year. A pilot putting that same amount of money into an account yielding 20% annually would have $2902.50. This is all based on the pilot putting in $2600 of their own money paid evenly through the year.

I'm no rocket scientist but if you think the stock program yields 20+% per year without stock price movement you are nuts. Fuzzy math indeed.

 

[Andy Neill]

If you are depositing $100 every two weeks thats equivalent to $216.66 per month. If you were depositing that money into an account with an APR of 20.00% your account balance would look like this:

month 1 = 220.27
month 2 = 444.21
month 3 = 671.88
month 4 = 903.34
month 5 = 1138.66
month 6 = 1377.90

If you carry out the year it looks like this:

Only three things wrong there.
1. I said 20% APY not APR. That's about 18.5% APR if you have daily compounding.
2. I made no statements about return over the year. The figures I gave are only for the six months involved in each ESPP deposit period. If I had access to a 20% APY account (do you), I would do the ESPP and then dump the proceeds in the savings account at the end of each 6 month period.
3. I see you awarded a full month's interest off that first months deposit. Likewise, each subsequent month is overstated for that reason.

Now the question is, do you have access to any investment vehicle that will deliver this kind of return? If so, opt out. If not, you will be leaving money on the table if you opt out. The employees who enjoy profit sharing and the shareholders will thank you.

Convinced yet?

 

[SKYWRJGUY]

Andy:

Um, that is a bit fuzzy. If you are going to take the average balance by splitting the beginning and ending sums, then you must also take average return over the same period: 0% to start plus 5% to end = 2.5% over the period--you're essentially mixing units. It is absolutely important to recall the return is not based on an average balance, but the total at the end of the period. I could start with 1301 dollars IN and take OUT all but 1 dollar at the terminus and still have an average of 650 dollars; with a return of $.05, by your logic, my annual return would be .007% x 2 = .014%, though in actuality, it was still 5%. As you know, annual rates of return are not based on periodic averages, but differences between start and end periods divided by return--the units remain constant regardless of how calculated.

When the Feds claim a 4.00% average annual GDP growth they multiple a quarterly return times the number of quarter, i.e., a 1QFY10 GDP growth of 1.25% would yield a 5% GDP growth rate. They do not say the 0.5% over hald the period is worth 8% annually. The concept is purely additive...

PS: You're confounding knowledge of economics/accounting with years of service. Simply having money to retire is not solely a function of knowledge--I'd be willing to bet age more than anything. If we controlled for age, you may find some of us arguing here and you may have equivalent net worths...

 

[Andy Neill]

Attn all SKYW/ASA folks. Stay away from the ESPP. I don't know what I'm talking about. After all, you have jobs and I retired. Invest in a 5% APY CD instead. Have a nice day.