Posted by: Ben Steverman on March 19, 2008
Maybe this is, indeed, blindingly obvious, but after the Bear Stearns (BSC) fiasco I need to get something off my chest:
It is never, ever a good idea to own stock in the company where you work. Never.
Unless you’re CEO or an executive at the very top who makes a material impact on the company’s performance, you should sell those stock options and grants as soon as you can. All of them.
Bear Stearns, like Enron and countless other corporations that have melted down, apparently had a lot of employee owners. (Employees reportedly owned a third of Bear Stearns’ stock.) Not only have these people lost their jobs, they’ve lost their life savings too.
Companies give employees stock to give them an incentive to work harder (or at least that’s the theory). That’s fine, but know that this is in the best interest of the employer but not the employee. Obviously you should accept the stock if it’s granted to you, but you should then turn around and sell it as soon as you’re free to do so. (There are all sorts of rules that can lock up an employee’s selling of shares, which is another reason not to buy your employer’s stock.)
In the investing world, buying and holding your employer’s stock involves what’s called uncompensated risk — risk that doesn’t pay off with higher returns over the long-term. You’re putting too many eggs in one very fragile basket.
Don’t mind a little risk? There are a multitude of other ways to take risky bets in a way that leaves you properly diversified and probably will pay off long-term.
Yes, it’s unlikely that your employer will go under. But if your company encounters any trouble at all, the stock price will fall just as you’re more likely to lose your job or at least see a smaller pay raise. No company or sector is immune to this trouble. And if you think you can see this trouble coming better than the stock market can, you’re fooling yourself.
Sorry. I’m not usually this opinionated, but this drives me crazy.