In 2001 and 2002 the news was literally covered by the story of the Enron Corporation. Workers and shareholders lost nearly everything in one of the biggest financial scandals of our lifetime. Those who invested in Enron saw their stock plunge fro nearly 80 dollars a share down to a few cents. Those who were working for the company as well as investing lost their jobs as well as any financial security for the future. Even after the Enron scandal, people who work for large companies are still investing quite heavily in their own company stocks. This is quite dangerous and can spell disaster should anything happen to the corporation.
Investing in company stock is dangerous. When you practice value investing, you should attempt to diversify your portfolio. The old adage, don’t put your eggs all in one basket has never been more true. Companies however, will try to entice new employees to invest in their stocks, many times matching what you invest. However, what happens if the company goes under or suffers a major setback. You could end up loosing your job and be left with stock that is worthless. It can happen and quite often does.
Many employees feel more confident when they invest in their own corporations. They think that they know this company better than others and will have first hand knowledge of new products and opportunities coming their way. However, stock price is figured using a wide array of factors, not just company growth. There are also many unforeseen events that can greatly influence the stock market. If you do invest in company stock, try to diversify into others as well. If the corporation has a matching program, make sure they are investing in other stocks rather than their own.
There is no such thing as a corporation that can’t go under. Bill Gates is a great example. He even sells of large shares of Microsoft to diversify his holdings, even with all of the security that Microsoft brings.
Be very careful of investing in company stocks. They should not be more than 10 percept of your stock portfolio. Remember, Value investing is about making money; it isn’t about showing faith in your company.