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  • Writer's picture Treavor Dodsworth CFP®, CPA, CKA®

#169 - Is the Risk Worth It?

Is the Risk Worth It?

It is not uncommon for investors to intentionally or unintentionally end up with a large holding in a single stock.

This frequently happens when an employee is receiving equity in the company they work for. For example, companies may give out RSUs, the ability to participate in an ESPP program or purchase stock via options, etc. Many of these are very good benefits and I am not saying you shouldn’t take advantage of them but I do want you to be aware of how much exposure you are having to individual stocks.

A couple of weeks ago I heard a story of an employee that owned hundreds of shares of his employer that he accumulated while working there. His employer had a market cap at around $2 billion until late 2016.

Chart from Macrotrends.

From late 2016 to early 2017 the stock was obliterated and continued down from there.

This story is unfortunately not unique. Companies do fall. Even ones that we don’t expect. General Electric, AIG, Ferrellgas, Lehman Brothers, First Republic Bank, Bed Bath & Beyond, Sears, and many many more have all had declines of 80% or more.

Is the risk worth it? I would love it if I never had to hear another story like this because investors have chosen to diversify.

  • “I let the market pick those winners for me. It’s boring but effective.”

  • The headlines are saying the S&P 500 is officially in a bull market because it has risen 20% or more since its most recent low. Have you ever wondered where the terms bull and bear come from? Take a look at the article above.


Thank you for reading!

Images from Pexels: photographer Skitterphoto


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