Short Answer
Buying stock in the company you work for is usually but not always a bad idea.
Emotional Objectivity
You have to evaluate the prospects/value of the company. If you work there, you will be sucked up in the emotion of your work environment. In short, you may not have a clear head.
Diversification
If the company has a 401k plan, they will often match your contributions with shares of their own stock. If so, you are already heavily allocated to their stock. Adding more would cause you to concentrate your risk. A best practices portfolio is diversified not concentrated.
Corporate Risk
Ten years ago, I completed a tax return for an old man. He worked his life as a utility lineman. He was part of the employee stock ownership plan and acquired a substantial amount of company stock. The utility company was then acquired by Enron, which was then widely considered to be one of the strongest firms in the USA. Capital losses can only be deducted to a network max of $3,000 per year. I had the privilege of telling an 80 year man that his $200,000 loss (a lifetime on a utility pole) could be deducted at $3,000 per year over the next 66 years.
Cost
On the positive side, there is often a 15% discount through the employee stock ownership plan. My father (of blessed memory) was a poor investor. But he always made a profit on his own company.
As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. If you would like to submit a post to my blog, please contact me.
If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.
E-Book Download
Questions for the comments
Did my explanation make sense? Do you agree or disagree with what I said?
