May 16, 2007
Dear Everyone:
I was in “Hobby” all last week and did not have a chance to get together with “Jeannie” last weekend, so I am assuming that the remodel project is still where I last saw it: Nearly finished, but waiting for essential detail work. The backsplash for the kitchen walls and the molding for all the floors. Other than that, I think it’s almost finished.
And it has started me thinking about home improvement in general. So far, the most home improvement I’ve done was to buy two ceiling fans for the upstairs bedrooms and pay a bonded electrician to install them for me. (He even put in a dedicated circuit for them.) The fans paid for themselves the first hot night when they ran all night and I slept in comfort.
The more recent improvement was when I replaced all the horizontal blinds with shutters. Again, these paid for themselves when I could leave the windows open all night, letting the cooler air from the bay wash through the house while preserving my privacy.
Lately, I’ve been thinking about replacing all the windows in my townhouse. There are fives sets of windows, plus the sliding glass door to the patio, the most common way to come and go. Bear in mind these windows were installed 36 years ago. A neighbor, who also happens to work for the same company as I, and who also serves on the Homeowners Association board, had her windows replaced last year. She told me it would cost around $5000, but would greatly improve the value of my property.
Other people who have replaced windows have raved about the savings in heating and cooling because of better insulation. So, next big home improvement project: Replace all the windows. Now where am I going to find $5000?
A lot of people are probably thinking, “Hello! Home equity loan.”
And it’s true that the place has been appraised for more than twice what I paid for it. Nevertheless, it’s a loan, which means it has to be paid back one way or another. So I’m still thinking. (Remember when it took me a year to decide to buy a new car?)
In other news…
Back in the early 1990’s the company announced that if the company stock price closed at or above $75 three days in a row, all (qualifying) employees would be granted 100 stock options. Most of you have probably heard of stock options. Some of you even know what they are. Mostly, they go to company executives who already make more money than all the rest of us put together.
The idea is that people who work for a company, and own stock in said company, have a vested interest in the company doing well, if not better than well. Certainly after the stock option was announced everyone wanted to see the value of the stock go up. There are three ways to exercise your stock options, but I’ll only go over the one everybody chooses: Cash Out.
You get your options at $75. Say the stock goes up to $95. You “borrow” the money from the company to buy the stock at $75, then in the very next breath, sell it again at $95, repaying the $75 that you “borrowed”. You just made $20 per option. At 100 options, you made $2000, minus the 42% withholding and the broker’s fee, of course.
That stock option did so well that, in 1998, the company announced a new stock option. This time the number of options you were granted depended on how much money you got paid in the first place. Naturally, the more money you made the more options you got. This is when I learned that I would be granted 150 options and that most of the people in my Pay Scale Grade (PSG) were mechanics. (That certainly made me feel special.)
That was in 1998. I was very busy in 1998. In fact, I was very busy a lot and thus, didn’t pay a lot of attention to what the company stock was doing. (This was years before the Intranet (internal web network) which told you how the stock was doing every minute of the day – with a 20 minute delay, of course.)
One day a friend called me on the phone and said, “You don’t have to do anything.”
That’s almost always good news. What was it I didn’t have to do anything about?
“Your stock options.”
It seems, while I had been ignoring the whole thing, the company stock had climbed to $100 per share. Any time this happens for a prescribed period of time, the company splits the stock. If you had 30 shares at $100, you now had 60 shares at $50. They do this to keep the stock price in the market for small investors.
So my 150 options at $76 and something cents had split into 300 options at $38 and something cents. And I didn’t have to do anything about it.
Until earlier this month when the stock price started floating around in the mid-$70’s. That’s when I realized that, through what could only be considered benign neglect, my stock options were close to double what they were worth. Time to look into how to exercise those options.
It took a couple of weeks to get through to the brokerage and get my account set up. Then I went to “Hobby” for a week and really didn’t have time to play with stocks. The brokerage has a nifty page that lets you plug in your options and calculate how much you’d get with cash out. This is somewhat more accurate than the Excel spreadsheet that someone had given me back in the first stock option.
By this morning, the stock had slipped above $80 per share. It could go higher, but it could also drop again. (This is one reason why I’ve never cared much for gambling. It feels too much like pouring money down a hole.) I decided not to be greedy. I exercised my 300 options at $80.41.
However, placing an order is not the same as completing the transaction. It’s all done by computers, of course, but there’s still a lag between one action and the next. About an hour later, I logged back in and checked my transaction history. The stock had inched a little higher and sold at $80.72 per share for a net proceeds of just over $7300.
And that, boys and girls, is enough to pay for new windows.
Love, as always,
Pete
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