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Sell Your Employer's Stock. Now.

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.

Reader Comments

Byron Griffin

March 29, 2008 3:08 AM

Wow! You certainly motivate every employee in America to remain loyal to their company. Not! You also imply that companies only issue stock to employees to fatten their own wallets at the expense of the employee (..."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...")
The following is from a CNNMoney article date November 10,1999 ( Googled "UPS IPO" because I thought they had given their employees stock-opitions prior to the IPO. BTW CNN good job on the SEO...))
"UPS had more than $2.6 billion in cash or equivalents on hand at the end of the last quarter and the best debt rating of any corporation, so it did not need the money from the IPO. Its officials said it wanted to be able make acquisitions using stock rather than cash and create a market for shares held by employees and retirees."
I haven't followed the market or UPS lately but I think the employees came out pretty good on that one. Now, on the flip side, I personnaly held company stock in Day Runner at about that time. Imploded. Lost some bucks. Company bought by MEADWESTVACO and employees got the door.
No, the Bear/Stearns fiasco is simply Wall Street doing Wall Street. Think these folks didn't see it coming? Not broke and on the street I'm sure as some of their employees are or soon will be. Probably not a day in jail either.
As the well-coined phrase goes Mr. Steverman "What have you got in your wallet?" Maybe BusinessWeek ought to investigate you for market manipulation or at the least causing dissention among the employees who have faith that their companies offer for stock is in the employees interest. Loyal employees produce more. More production equals business growth.
I still have faith in comapny stock options. I've never had faith in the greedy, uncaring market manipulators. Cripes! the CEO, CFO, CIO and every other 3 or 4 letter acronym at Bear/Stearns probably got a huge severance and were laughing there assess off at the investors party to celebrate the demise of the company.


October 6, 2008 2:00 PM

byron griffin,

what the writer is trying to convey is not to put all your eggs in one basket,those being
1.salaried income
2.investment income.

No need to blow off the top

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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