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My company is considering selling itself, and the stock has has gone up 50% in value in the last couple weeks. How long should I wait to sell my stock?

Should I wait for announcement of offers? Hold until my stock gets exchanged into the new stock (which goes down in value when they make the offer)? Other considerations?

  • FYI I believe this is on topic because it does not discuss a specific financial item, but should you sell given some circumstances that are relatively generic, without speculating about a specific company like Apple. See related meta discussion – Alex B Oct 22 '10 at 22:25
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This happened to me recently. What became the final offer was a cash buy-out of all of our shares rather than a conversion. The cash buy-out was higher than the company's original asking price and than the stock ever went on the market before hand. I was extremely pleased to have held on to the stock until the end.

That said, it sounds like your situation is different. You can't necessarily time this sort of thing. You can just make your best decision and determine to be happy with the way it all plays out.

  • I like the extra information provided by your answer in conjunction with @duffbeer's advice to takes gains on a portion of my shares. It was fortunate I dumped 100 shares on the rumor because at the end of the day, the company announced it's just exploring its options and immediately closed the trading window for all employees to avoid SEC insider trading concerns. – SpecKK Oct 26 '10 at 7:18
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What's your basis? If you have just made a 50% gain, maybe you should cash out a portion and hold the rest. Don't be greedy, but don't pass up an opportunity either.

  • Why does it matter what their basis is? Are there particular tax considerations? If not, their basis is irrelevant. – Mike Haskel Nov 25 '15 at 11:49
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I'm not sure what you expect in terms of answers, but it depends on personal factors. It pretty well has to depend on personal factors, since otherwise everyone would want to do the same thing (either everyone thinks the current price is one to sell at, or everyone thinks it's one to buy at), and there would be no trades. You wouldn't be able to do what you want, except on the liquidity provided by market makers. Once that's hit, the price is shifting quickly, so your calculation will change quickly too.

Purely in terms of maximising expected value taking into account the time value of money, it's all about the same. The market "should" already know everything you know, which means that one time to sell is as good as any other. The current price is generally below the expected acquisition price because there's a chance the deal will fall through and the stock price will plummet.

That's not to say there aren't clever "sure-fire" trading strategies around acquisitions, but they're certain to be based on more than just timing when to sell an existing holding of stock.

If you have information that the market doesn't (and assuming it is legal to do so) then you trade based on that information. If you know something the market doesn't that's going to be good for price, hold. If you know something that will reduce the price, sell now. And "know" can be used in a loose sense, if you have a strong opinion against the market then you might like to invest based on that. Nothing beats being paid for being right.

Finally, bear in mind that expected return is not the same as utility. You have your own investment goals and your own view of risk. If you're more risk-averse than the market then you might prefer to sell now rather than wait for the acquisition. If you're more risk-prone than the market then you might prefer a 90% chance of $1 to 90c. That's fine, hold the stock.

The extreme case of this is that you might have a fixed sum at which you will definitely sell up, put everything into the most secure investments you can find, and retire to the Caribbean. If that's the case then you become totally risk-averse the instant your holding crosses that line. Sell and order cocktails.

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This is but one opinion. Seek others before your act.

"When someone puts a million dollars in your hand, close your hand."

A 50% gain in two weeks is huge.

  • ill take a check for the million then. – NuWin Nov 25 '15 at 5:55
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I believe firmly that a bird in the hand is worth two in the bush. Cash your gains out and be happy with your profit.

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Here is one "other consideration": don't, don't, don't sell based on insider information. Insider trading can land you in jail. And it's not restricted to top executives. Even overhearing a discussion about the current status of the acquisition talks can mean that you have insider information that you legally cannot act on in many jurisdictions.

If you are just a regular employee, the SEC will likely not subject your dealings to special scrutiny, especially since lots of your colleagues will likely trade your company's shares at this point in time. And if you definitely hold insider info (for example, if you are intimately involved with the acquisition talks), you will likely have had a very serious warning about insider trading and know what you can and what you cannot do. Nevertheless, it's better to be careful here.

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