Again, Do Not Own Equity in Your Firm
I read a disturbing article in the WSJ this morning that cited a rise in employees investing their 401(k) dollars in their own firm. As I stated a couple months ago, this is a VERY BAD IDEA because you do not want your 401(k) returns to be highly correlated with your employment and pay increases. In addition, I’m a firm believer that you should not own any individual stocks EVER because of the heavy risk associated with doing so and that this does not prove to offer any additional return over time compared to a highly diversified investment strategy.
Repeat after me - I will not voluntarily own any of my firms stock!
i couldn't disagree more. time & again, insider investing has rewarded employee awareness with substantial returns. information is power, and those who use position and circumstance to their advantage arguably DESERVE their bigger cut of the prize. most naysayers are those typically too slow to capitalize.
now i'm not implying you should put all your eggs in one basket by any means — diversify, diversify, diversify. i'm saying you should keep your eyes and ears open to the information at hand (excluding CNBC), which more often than not happens to be right under our noses 40 hours a week.
and before we cower in fear at the mention of "insider trading" (martha stewart rings a bell), consider the SEC's simplified definition: [folks involved] who own more than ten percent of the company's equity." mkay, who among us is ballin like that? great, not me!
follow timeless investing advice: stick to what you know. if you're an expert in your field, invest in it. stay vigilant & informed of your company's place in the market… just don't be blinded by it.
Let me simplify my post – Don’t buy any individual stocks (including your own firm).
To understand why I give this advice we must digress into how the price of a stock is set. Stock prices are not set by individuals like you and I buying and selling shares, but they are set by large institutional investors who buy and sell thousands upon thousands of shares. Institutional investors are advised by analysts who are experts in the sectors they cover and often times will cover a company full time. These analysts are not only 100% focused on assessing the value of these companies, but they also have access to people and information that the average person doesn’t have.
So I get caught up when I hear advice to buy the stocks of companies that you know a lot about or industries that you are close to, because unless you know more than the average analyst covering that specific company or industry (and it would be foolish to think you do) than you are playing a game with the odds stacked against you.