But this doesn’t just happen for frauds. I know someone who worked for IBM for years, and had pretty much his entire retirement portfolio in IBM stock. He got laid off in a downturn when the stock price was very low. Not a good situation.
When I worked for Sun, Sun stock was not even an option in our 401K. Which turned out to be a very good policy.
Back 50 years ago your average person bought stock, not shares in a mutual fund, so this was a lot more important then. Long before the time getting an order in nanoseconds early made a difference.
Many of my friend’s parents worked for AT&T, and were sitting on some pretty nice stock portfolios.
Till it all crashed out and Lucent became a penny stock.
I worked for AT&T up until the trivestiture. When 401Ks were just beginning, we had two options - AT&T shares and what was called a diversified portfolio. I split mine 50-50 (which is probably an instance of a fallacy my daughter who works in behavioral economics could identify.) As it turned out, since the market was excited by the trivestiture the AT&T stock outperformed the diversified portfolio, but I never made that mistake again. Getting laid off and the stock price decreasing are often correlated.
The CBA buys back your shares when you retire; you have the option to take out a percentage at age 57 (20% or 25% I think) if you wish to diversify.
I didn’t define the term in my OP, but CBA = Collective Bargaining Association. They basically function as our union - they renegotiate our contract every few years and we can file grievances with them and they have the power to overrule management decisions or reinstate employees who’ve been wrongly terminated, but we don’t have to pay dues to them like a traditional union. Every store elects 8-10 employees amongst themselves to serve as the CBA board for that particular store.
Like I said, I also have a 401k which I currently contribute 10% of my wages to, but my company stock has consistently outperformed it and it’s likely going to be a smaller part of my retirement package. I don’t anticipate our company pulling an Enron or collapsing any time in the next few decades - in a world where Amazon and Walmart are battling for dominance in the grocery industry, we’re targeting a niche that neither of them are really interested in, and if anything we actually do better during recessions, because our whole thing is no-frills shopping with the lowest prices possible and when people have less money to spend on groceries they tend to spend it with us, since we can almost always beat Walmart and Kroger and Safeway/Albertsons on prices.
Agreed. It represents poor diversification because as you say, layoffs and stock tanking are highly correlated. My point was that’s doubly true when you work for a criminal enterprise.
For years investing in my various large employers’ stock was a choice within their respective 401K plans. Post-Enron they put strict limits on how large a fraction of your account that stock could be. I just checked this morning and sometime in the last few years they dropped the stock as an investment option altogether. I vaguely remember getting emails about that when it happened.
My personal limit for investing in my employers’ stock has always been “zero”. Mostly because they’ve been companies which might or might not have been long-term stable, but for sure their stock was a dog in good times and bad. What few small stock grants I’ve received have been cashed out within a month or two. It’s amazing how often the next quarter’s stock performance sucks just after they’ve “motivated” the employees by a stock grant.
You’re right of course, but the problem is that (I assume) the vast majority of Enron employees didn’t know (and probably had no realistic way of knowing) that they worked for a crooked company. So you may as well be saying that the smart time to sell (any) stock is just before it crashes.
To be clear, I’m not ragging on you, as you have also correctly identified the practical way to deal with this issue (in any circumstances), which is to not be overexposed to any one investment (especially your employer). Another way to look at a grant of stock options worth (say) $20,000 is to think “If I had an extra $20,000 to invest, would I use 100% of that to buy shares in my employer?”. It’s very rare that the correct answer to that is “yes” - which implies you should cash in some or all of the options as soon as you are allowed to do so - as you indeed said in other posts.
No offence, but of course you don’t - nor does anyone else right now, if they did the stock would already be close to worthless. The point of diversification is to try to protect yourself from unanticipated events. The stock price may well continue to outperform the S&P500 in the future, but it’s important to be aware that there is a higher risk associated with this.
As noted, I don’t really have a choice in the matter - I can’t sell my company stock except to the CBA, and only then when I leave the company or get old enough to diversify (57) or retire (62). I just turned 40, so for the next few decades I’m just along for the ride.
My apologies, I think I’d (on rereading, unjustifiably) somehow inferred you had a choice between paying into a 401k, or acquiring more company stock.
No point in worrying about something you can’t (yet) control, but it looks like you’re in a good place.
It was worse than that. According to this article
https://digitalcommons.law.seattleu.edu/cgi/viewcontent.cgi?article=1266&context=sjsj
Enron employees, though they had other options, were strongly encouraged to invest their 401K money in Enron stock. Worse, all of Enron’s matching contributions were in Enron stock. (If I understand the article correctly.)
You might recall that there was a freeze on selling or moving the money from stock to other places as the price crashed.
Top management sold their stock right before this, of course.