Insta-Sell All RSUs, Always

It's the only rational thing to do, yet this principle is universally violated

For everyone’s edification:

I worked at Microsoft during 12 years where the stock went up a total of $0.15 (not a typo). During that period it was common for people to treat MSFT RSUs as cash equivalents, selling RSUs as they vested.

However, I’ve mostly worked in rapid-growth companies, joining Facebook in 2010 when it had 500 engineers and OpenAI in 2023 when it had 120 engineers. Most people I’ve worked with at these companies hold their RSUs when they vest, and have made very good money doing so.

This is wrong. Doing this is irrational, and if you’ve profited this way, you’ve made money gambling instead of working/vesting/earning.

First Principles

None of the rest of this will make any sense to you if we don’t agree on this principle: when it comes to stocks, you shouldn’t hold what you wouldn’t buy.

Investment boffins will no doubt highlight 17 different ways this principle isn’t inviolate. They’ll mention things like tax differentials over time, insider information edge, and systematic liquidation, along with a bunch of other erudite justifications. They are by and large wrong. If you’re about to comment on this post with esoteric reason 18, I contend you, too, are likely wrong.

You shouldn’t hold what you wouldn’t buy. You shouldn’t. Doing so is irrational.

People don’t intuitively grasp this principle because of omission bias, the tendency to think worse of bad outcomes stemming from action vs. inaction. This is famously demonstrated by the trolley problem, where many people won’t pull the lever that saves lives since their action would also end one life.

Is there a difference between taking $800 out of your bank and buying a used MacBook Pro versus lazily staring at your used MacBook Pro, worth $800, and not selling it? In each case, you have $800 less than you could, and you own a crufty laptop.

Amy & Bob

Let’s map this to RSUs. Amy works at Acme and her friend Bob works on middle-out algorithms at Hooli.

1. Amy just vested $500,000 of Acme RSUs based on astounding work performance. She doesn’t sell the shares because none of her coworkers do. They tell her that Acme has only ever doubled every 18 months like clockwork.

2. Bob, upon hearing of Amy’s great review, buys $500,000 of Acme stock.

Bob is crazy, right? Assuming he wasn’t going to buy $500k of Acme for his own reasons even before learning of Amy’s review, he’s crazy. Right?

Here’s the Sybil moment: you are both Amy and Bob. There’s no difference between not selling shares you have versus taking money from your bank and buying the same number of shares. If Bob is crazy — and he is — you’d be equally crazy not to instantly sell every RSU the moment you vest them.

In either case, your bank account is short $500k and you hold $500k of Acme shares. You’re holding a crufty MacBook Pro whereas you could have had $800.

The fact that Bob doesn’t work at Acme makes this example clearer to many people in a way that it really shouldn’t (i.e. in a way that’s not rational). For instance, suppose you work at Google, but every time you get a great performance review, they issued you shares of Hooli? Would you hold those shares?

If your answer is Yes, this article isn’t for you.

But My Friends Are Filthy Rich

You’ve no doubt got dozens of friends who’ve diamond-handed themselves to riches by never selling RSUs. Heck, I’ve got dozens too.

In fact, I’ll do you one better: I’ve lost at least $48M (also not a typo) following my own advice while at Facebook. After Facebook’s post-IPO lock-up, I sold all my vested shares at $21 each. With this week’s META at $726/share, I would have made $48M if I had instead held them until today. That’s far more lost by one decision than I’ve made in my entire career.

But it was one great decision.

You can hindsight criticize and backseat drive all sorts of investment decisions 13 years after the fact. Anyone remember ENE? That little stock ticker required a bit of clicking on, eh?

Near the years when Facebook IPO’d:

• Google+ had recently launched, widely said to be Goliath’s awakening.

• Countless articles augured the demise of Facebook’s revenue given the shift to mobile.

Would you have, in those circumstances, taken $1.4M cash and purchased Facebook on E*TRADE? If Yes, you’re either hopelessly blinded by hindsight bias, preternaturally reckless, or astoundingly rich.

On that last note…

It’s Not Even Right If You’re Bullish

Suppose you swear to me you’re not holding Acme RSUs simply because you happen to work there, that you’d go on the open market to buy $1.4M of Acme today. Even under those extremely unlikely circumstances, I’d still say it’s a reasoning error to hold vested Acme RSUs unless you already have $20M+ in the bank.

The fact is for most people, vested stock represents severe concentration risk. Unless you’re already quite wealthy, or your company gives token amounts of stock, the RSUs you vest likely represent a significant percentage of your overall assets. When Facebook IPO’d, my vested RSUs represented 65%+ of everything I owned, including my house. Putting that amount of faith in one stock, no matter how confident you are, is foolhardy.

Fireside True Story™ time: when I first joined Microsoft as a bright-eyed 22-year-old, Stacy (not her real name) was retiring from the team I joined. In preparation to leave Microsoft after many years, she borrowed $2M to buy call options on MSFT. It wasn’t enough for Stacy to just buy the stock; she was so sure it’d go up (“I’ve worked here eight years, and it’s always doubled every two years”) that she bought options… using borrowed money. With the stock above $110 (pre-split), I told her another doubling would make MSFT larger than Exxon Mobil, which in the late 90’s had the largest market cap of any American company. This hardly fazed Stacy as we toasted her at the farewell party.

Within a month, the stock had fallen to $40. And it would not recover the $110 price for 17 years. (For the last time, not a typo).

You Shouldn’t Hold What You Wouldn’t Buy

The next time you vest RSUs, ask yourself whether you’d buy those same number of shares even if you didn’t work at the company. If not, you need to sell immediately. It’s the only rational thing to do. To hold under those circumstances is as irrational as believing in betting with house money.

If the stock goes to the moon several years after selling, congratulate the coworker who rolls up in a megayacht purchased by holding her RSUs the exact same way you would congratulate someone who became a millionaire by always betting on black at the local roulette table. You toast their good fortune, not their financial prowess.

A bird in the hand doesn’t at all guarantee there are two in the proverbial bush. Sometimes there’s disgustingly half a bird in there. Many times, especially if you’re at some hotshot startup, the bush doesn’t contain any birds at all, despite emitting a veritable symphony of chirps. And you never really wanted a bird in the first place.

Insta-sell RSUs upon vest. 100% of them. Always.