How to Think About Stock Options, Healthcare Without Insurance, and Handling Rejection

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1:42Welcome to Office Hours with Prop G. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question for next time, you can send a voice recording to officehoursofpropgmedia.com. Again, that's officehoursofpropgmedia.com. Or post your question on the Scott Galloway subreddit, and we just might feature it in our next episode. First question.

2:06Hey, Scott. I'm graduating this upcoming May with a mechanical engineering degree. I have a few job offers lined up, and I feel really fortunate given the current job market for new college grads. One opportunity I'm particularly excited about is an aerospace startup, and I'm excited about it because the company is well positioned within a rapidly growing sector. When I reviewed the offer, I noticed that a large and meaningful portion of the total compensation comes in the form of incentive stock options. As someone who's only been paid hourly as an intern, I'm not sure how to value them or what the tax implications are.

2:42How should early career professionals think about ISOs and what advice do you have for young professionals navigating stock options for the first time? And just a quick thank you. My dad and I watch markets every day and talk about it whenever we catch up. I moved far away from college and the show has been a great way for us to stay connected. So this is the mother of all good problems. And first off, thanks. One of my favorite things is when I hear that people listen to or watch one of the podcasts with a family member. That makes me feel wonderful, especially fathers and sons and mothers and sons.

3:13Okay, so current income or your salary, generally speaking, 90 to 98 % of us will spend everything that comes to our hands, especially as a young person. My first job was at Morgan Stanley, and I was making more money than all of my friends. I don't think I saved it. I saved enough of it to go to Europe, but I didn't really save any of it. Because when you're young and you have money and you live in a capitalist economy with millions of AI-driven offers every second, everywhere you look, it's very hard to hold on to cash. And you'll always convince yourself that, oh, an upgrade from economy to economy plus is an investment in myself.

3:44And I'm going on a date, so I should spend more money. It's just really easy to spend everything. So an ISO is an incentive stock option. Now, essentially, a stock option is, say your company, this aerospace company, is worth$100 million. And they give you 0.1 % of options or 0.05 % of options. That's equivalent to options on stock worth approximately$50 ,000 at that moment, usually at VES over four years. So they're saying, all right, we're going to pay you 80 or 100 grand in salary, and we're going to give you options that have a notional value of$12 ,500. Now, if they just gave you the stock right now, it's a taxable event.

4:27what that means is you'd have to pay tax on that$12 ,500. So options are not taxable at the moment they're granted, meaning they're saying, okay, we want you to be motivated. We want you to act like an owner. So the company's worth$100 million now. We're going to issue you options, meaning you have the option to buy our stock at a predetermined price at some point in the future. Now, the great about common equity, which you'll be getting, is sometimes it's valued at a much lower price than the$100 million that maybe they just took, valuation they took capital in. So say it's valued at 20 or 30 million because common is less valuable than preferred.

5:05I'll go into that some other point. That means at some point, if the company gets sold for 300 million, if you exercise those options, you have to buy, you have to write a check to exercise those options, but it's at a lower price than the notional value. And then if you hold on to the equity after you've bought those options or exercise those options, If you hold onto it for more than a year, you get long-term capital gains, which is taxed at a lower rate than your current income. All of this is a long-winded way of saying that equity is how you get wealthy. And what I would do is I would go to AI and I would type in the name of the company, the evaluation of the last funding round, how many options you've been given on how many shares at what strike price.

5:48It's probably going to ask you what is the total number of outstanding shares. And then you're going to say, what are these worth? right now, and it'll give you a notional value. The reason I bring this up is one, it's an absolutely fantastic way to build wealth. And two, if you're going to negotiate anything, when people are saying, I've got an offer, I want to negotiate. If you have a second or third offer, what you may want to say is, love the company, want to start here. Can you see your way clear to increasing my options package as I want to be an owner? I really believe in this company. That's what I tell people to negotiate around because your option value grows tax deferred.

6:24What do I mean by that? Say your options double in value. Until you exercise them, it doesn't get clipped. In other words, you don't lose 37 % of it every year, whereas the money you get paid in salary every year, you lose 30 to 40 to 45 % of it. So it doesn't grow as fast. It doesn't compound as quickly. whereas equity just continues to grow unimpaired by taxation until you decide to sell it. It grows tax-deferred, if you will, and compounds faster. So ISOs and options are how when you meet someone who's really wealthy and they work for a company, typically they've made their money through options and exercising those options, getting equity in the company, and then at some point selling it.

7:10Find out how much, quote-unquote, they're worth. go and type in ISO into AI or into Google and learn about it. Find the value on it as a percentage of your salary. And then if you're going to negotiate, and the best way to negotiate is to be transparent, I really want to work here, and say, and tell them, it sounds like you have three offers. I'd really like to come here. Is there any way we can increase the options package? I have never really saved a lot of money with current income, and I am wealthy because of the equity I've owned in companies. But let me just circle back to the beginning.

7:44So it's on you to learn what options are, the tax advantages, figure out what they're worth. And then if you can, negotiate a little bit more. And also employers are really receptive to the notion that I don't want more current income. I want more options because I want to be an owner here, a bigger owner here. But this is the mother of all good opportunities. You should feel really good about yourself. You've studied hard. It sounds like you've got great certification and you've got a good job offer. And this is absolutely, everybody wants to be you, young man. So congratulations and well done.

8:17Question number two comes from a listener who emailed us. Hi, Scott. Love the pod. In the past, you've mentioned that you forego medical insurance for your family and pay out of pocket. How does that work? Do you negotiate every office visitor procedure? What has your experience been like asking for a friend? Thanks. First off, I am not suggesting or endorsing going naked without health insurance. We have in the U.S. decided to monetize health care. Health care isn't about making Americans healthier. It's about making the owners of the stock of that health care company wealthier. And if you're in the top 10%, you get the best health care in the world.

8:55If you're in the bottom 90, I would argue you're probably somewhere around fifth or sixth in terms of G7, in terms of care. Now, I think insurance is one of the biggest scams in history. If I had to do over again, I think I just would have bought rental real estate, but a close second would have been I would have gone into the insurance industry. If you meet somebody who's got high EQ and fairly mediocre IQ and they make a shit ton of money, there's a one in three chance they're in insurance. For every$100 you give to insurance, life insurance, fire, auto, medical insurance, 45 % goes to profits and administration, meaning if you pay Aetna or Cigna or the insurance company$100, that you're going to get about$55 back in reimbursements.

9:40Now, what they play on is fear, and that is people will take up for a guaranteed series of small losses in order to avoid an extraordinary loss, right? I know my health insurance will be$20 ,000 or$30 ,000 a year for my family, and I'll pay that in case my wife gets lung cancer and it costs a half a million dollars, which we don't have, which can be, I think one of the reasons I'm so motivated is because of healthcare costs and how fucked up our system is, how rapacious and vile it is. And that is, when my mom got cancer, she was discharged early from the hospital. I came home to a situation that was traumatizing, and it got me very motivated because at that moment, I couldn't take care of my mom at the level I wanted to or felt like I was obligated to.

10:27I can go naked without insurance. I found that I was paying$40 ,000 or$50 ,000 a year for my insurance. And what I found is even after paying$30 ,000 or$40 ,000 or$50 ,000 a year, I was going out of network, arguing, or someone in my family was arguing with how to get reimbursed. I'm like, fuck this shit. And so not having had health insurance or the traditional health insurance I was paying for for eight or nine years now is like somewhere between three and four hundred thousand dollars in savings, which will buy a lot of health care. I'm in a position to do this because I'm bulletproof. What do I mean by that?

11:03Anything could happen to me from a health perspective and I can afford it to me and my family. I can get the best health care. So again, it's another transfer of wealth from people who can't afford that economic shock to the people who can. I use one of these douchebag concierge medical services now. I pay$60 ,000 a year to have a doctor basically send my, if I need a drug to my house, I have this portable kit with everything I need. I go in and they scan the shit out of me. If I text my doctor, he texts me back within two minutes. I am getting an absolute different level of care. Most people cannot afford that.

11:35But what I would suggest is if you're already worth several million dollars, I would suggest that you think long and hard about going naked. And if your employer isn't paying it for you, because health insurance, just keep in mind, you're getting 55 cents on the dollar. But I do think we are going to face this. If we look at our deficit, which is$2 trillion a year, there are 350 million Americans. We pay on average 13 ,000 a year for our healthcare. The rest of the G7 pays 6 ,500. If you do the math, it actually adds up to$2 trillion in incremental healthcare expenditures for which we receive lower life expectancy, more obesity, more anxiety.

12:15In other words, we pay more for a shittier product, unless again, see above, you're in the top 10%. So I think all roads around economic responsibility and deficit reduction lead to one place, and that is reduction and attacking the healthcare industrial complex. And the way I would go about it is take Medicare eligibility down two years, every year for 10 years, until it got to 45, at which point basically three quarters of medicine in the United States by expenditure level is socialized. And I would just keep going. It is time. And if people want to call me a communist or socialist, fine. Fine.

12:47Yeah, those nations, when your wife is diagnosed in London with lung cancer, it doesn't mean you're also going to go bankrupt, which is kind of the second thought you have after the horrific news, like, okay, we're going to go bankrupt in America. And obviously, if your employer offers it and you're fortunate enough to get insurance through your employer, great, go for it. Healthcare is a basic human rights. You know, Bernie Sanders this whole thing, okay, whatever. It should be, happiness is not only a function of what you have, it's absence from things being taken from you. And too many Americans are having their dignity taken from them because of the monetization of our healthcare system.

13:25Thanks for the question. We'll be right back after a quick break. Thank you. That's a big deal when every hire counts. With LinkedIn Jobs AI Assistant, you can skip confusing steps in recruiting jargon. It filters through applicants based on criteria you've set for your role and surfaces only the best matches so you're not stuck sorting through a mountain of resumes. LinkedIn Jobs AI Assistant can even suggest 25 great fit candidates daily so you can invite them to apply and keep things moving. Hire right the first time. Post your job for free at linkedin.com slash prof. Then promote it to use LinkedIn Jobs' new AI assistant, making it easier and faster to find top candidates.

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16:56Welcome back. Our final question is from Bobrick8899 on Reddit. Is that like Ricky Bobby from Talladega Nights? They say, Hi, Scott. Regarding overcoming failure and rejection, you said mourn and get back up. What are some effective ways to mourn and what are some mindset and techniques that can help us get back up? Thanks so much. That's an interesting question. I've always said the key to my success is rejection or the ability to endure it. Rejection from schools, applied to nine business schools, got rejected from eight of them. And then UCLA let me in. Can you believe that? California taxpayers and regents of UCLA let me in UCLA.

17:33And then my girlfriend, who I was madly in love with, got into Haas. And I called Haas, who had rejected me and said, look, I'd really like to go there. Is there any way I could go there? Otherwise, both of us are going to UCLA and they let me in and started to inspire this upward spiral of prosperity for me. But anyway, I've always been able to absorb rejection from employers, universities, women, and still managed to find a way to feel good about myself and step back up to the plate. I've probably pitched. Yeah, I've raised several hundred million dollars in my companies, but I've probably pitched two or three hundred.

18:09and I think I've gotten, say I've pitched 300, I think I've gotten 294 no's. So your ability, the only thing that people you admire, unless they were smart enough to be born rich, have in common is they've endured a shit ton of no's to get to great yeses. So how do you endure those no's? Get used to them. A lot of approaches, send a lot of emails, try and get a lot of meetings, ask a lot. And when you get the no, realize you're going to be fine. I don't know what the practice I don't know if I played with the right toys or the wrong toys. I've always had the best salespeople either have very high self-esteem or very low self-esteem.

18:44I don't know the psychology around your ability to mourn and move on, but I do believe that if you never develop calluses, you can't lift heavy weights. I would also suggest the one thing I got stuck around, I've had a lot of failure professionally, a decent amount romantically, but I was always able to get past it. The only thing that I had trouble getting past was after my mom died, for about two, three years, I just didn't do much of anything. I just didn't feel much. I had trouble engaging in relationships and work. And finally, I just started. You know what helped me? It was talking about it.

19:20I didn't do therapy, but I talked to a lot of people about grief. And I became very open about it. And that helped. I still talk about it, you know. I'm a 51-year-old man, 61, who's still not over the death of his mother. And that's okay. And I talk about it and it helps. But I would say give yourself a statute of limitations. All right, you lose your job. Give yourself a week to mourn and be upset and angry and talk about what assholes they are. And then week two, you're back on LinkedIn. You're sending out emails. You're having coffees. You're meeting with people. I know a lot of very successful people who got stuck.

19:54They started a hedge fund. It didn't work out the way they'd hoped. and they kind of just go sideways for five or 10 years because their life has been up and to the right. And the first time they get beamed in the face, they have trouble getting up off the ground. So give yourself time to mourn. If someone dies, I don't know, mourn for a month, two months, I get it. And talk to people, be very open about it. I find fitness and eating well are really important. But then if you aren't getting past it, maybe seek help, whether it's therapy or just being very open to people about how you're struggling with it and want, I mean, everybody loses somebody.

20:31Everybody gets fired. I think I've been fired from almost every job I've ever had. So you got to learn how to, you know, there's a lot of people who can help, whether it's friends who've been through the same thing. Or also, I love the notion of action absorbs anxiety. If you lose your job and you're upset about your career, start immediately trying to get coffees with people and start applying forward into a ton of other jobs. I just think every day you're going to feel better about yourself and you won't be in bed paralyzed. You're not going to be able to make money again if every day you're sending out emails and updating your CV and trying to get coffees with people.

21:06Also being very social, I think, helps get a job. I love the stat that when Google puts out a job wreck, they get 200 CVs, they shut it down within like 10 minutes, they bring in the 20 most qualified, but 70 % of the time, the person who ultimately gets the offer is someone who has an internal advocate. So being social is really, really important. But be aggressive, get off your heels and onto your toes. Long-winded way of saying I'm not a licensed therapist and I don't know that that's what's worked for me. Thanks for the question. That's all for this episode. If you'd like to submit a question, please email a voice recording to officehoursofproptmedia.com.

21:41Again, that's officehoursofproptmedia.com. Or if you prefer to ask on Reddit, just post your question on the Scott Galloway subreddit and we just might feature it in an upcoming episode. This episode was produced by Jennifer Sanchez. Our assistant producer is Laura Janair. Drew Burrows is our technical director. Thank you for listening to the PropG pod from PropG Media.

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