Jason Zweig: Are You Stuck On Your Company's Stock ? FYI: Copy & Paste 7/4/14: Jason Zweig: WSJ
Regards,
Ted
Workers are cutting back on the stock of their own companies. It is a welcome sign of investment maturity.
Trimming your exposure to your employer’s shares is one of the most important decisions—but toughest psychological challenges—any investor can face. The wisdom of such a move has been made stunningly clear by the demise of companies like Enron, Bear Stearns and Lehman Brothers. In order to cut back, you will have to set your emotions aside and think hard about risks you otherwise might not be willing or able to recognize.
Even some people who work for Warren Buffett—arguably the best investor of our time—have gradually been reducing their holdings of Berkshire Hathaway’s stock.
Financial disclosures filed at the Securities and Exchange Commission at the end of June show that the 401(k) plans for employees of Burlington Northern, one of Mr. Buffett’s largest holdings, had slightly more than 10% of their assets in Berkshire’s stock at the end of 2013, down from nearly 22% in 2009. Employees at General Re, the reinsurer Mr. Buffett bought in 1998, shaved their discretionary Berkshire holdings to 4.6% from 5.1% over the same period. (The SEC requires companies to file these disclosures only for retirement or savings plans that hold the company’s stock.)
According to two people familiar with the matter, Mr. Buffett doesn’t set policy on retirement plans for Berkshire’s subsidiaries, and employees make their own decisions on where to put their money.
If you worked for Warren Buffett, why would you not want to put as much of your money alongside his as you could? No one can say for sure, but his employees are probably influenced by the nationwide trend to cut back on company stock.
The collapse of Enron in 2001 and Bear Stearns and Lehman Brothers in 2008 brought out tragic tales of employees who had nearly all their retirement assets riding on those firms’ own shares. The Pension Protection Act of 2006 imposed new restrictions on companies offering their stock in their retirement plans.
As a result, companies have steadily been making it harder for employees to load up on their own stock in 401(k)s. Burlington Northern, for instance, doesn’t permit its staff to invest more than 20% in Berkshire’s shares.
Between the end of 2005 and mid-2011, the most recent data available, more than one-third of companies that offered their own stock either removed it from the retirement plan or stopped permitting new investments in it, according to fund giant Vanguard Group. And none of the more than 1,350 companies tracked by Vanguard during that period launched any new company-stock funds in their plans.
A decade ago, 36% of companies offering their own stock as an investment option in their 401(k) plans required that matching contributions be initially invested in their own shares, according to Aon Hewitt, the benefits-consulting firm. Today, only 12% do.
While the problem of holding too much company stock has dwindled, it hasn’t disappeared. As of 2012, according to the most recent available data from the nonprofit Employee Benefit Research Institute and the Investment Company Institute, a fund-industry trade group, 12% of employees who could invest in company stock had at least half of their 401(k) assets in it. And 6% had 90% or more of their money in company stock.
The company you work at is so familiar to you, it can be hard to think objectively about it.
Meir Statman, a finance professor at Santa Clara University, points out that familiarity isn’t the same as superior insight.
You know quite a bit about your company because you work there. But that doesn’t mean you know more about its customers, suppliers, products, technologies and competitors than the 100 million people who collectively price its stock every day.
Familiarity also “fools people into thinking their company is safe,” says Prof. Statman.
In 2002, right after Enron’s bankruptcy, I urged an audience of individual investors to “avoid the next Enron” by diversifying out of their own companies’ shares. One person protested that he knew with his own eyes and ears that his company was safe—while diversifying into other stocks would inevitably expose him to owning at least some of the next Enron.
You might be right that your company is the next Google or could never be the next Enron, says William Bernstein, an investment manager at Efficient Frontier Advisors in Eastford, Conn., but “the consequences of being wrong are dire.”
By diversifying out of company stock, you forgo the hope of a spectacular gain, but you also eliminate the risk of being wiped out if something goes disastrously wrong at your company.
You might dismiss the risk of an Enron-type implosion as ridiculously far-fetched. But bankruptcy isn’t the only risk that your company faces, nor the most probable.
Far more likely is what Daniel Egan, director of behavioral finance at Betterment, an online financial adviser, calls “tectonic risk”—the chances that your company could be hurt by new competitors, regulations or technologies that fundamentally alter the profitability of the business.
These risks tend to blindside everyone, including chairmen and chief executives; they can surely blindside you, too. Having more than a tiny sliver of your retirement money in your company stock is an idea whose time has come—and gone.
The Risk OF Short Term Bond Funds So this is what I'm reading.
At the time everyone was touting short term bonds with their reasoning, there is no evidence this gentleman said anything. Few years later if things did not work out that way he is writing "I told you so". Why did he not make the argument few years back if horizon is "long term" (sic) then keep invested in intermediate bonds? Maybe because it was NOT popular opinion back then, but now, after the fact, it might be?
Or is this another case of "invest for the long term bond-style" article? Yes I think it is.
Much is written about investor behavior. About them buying and selling at the wrong time. Yes, I'm sure some people invest without taking time to learn anything about it. I've admitted to doing it when I had hair and possibly losing it because of my mistakes. There is something to be said about making decisions acting on data available in the PRESENT. It is not always about the future. On paper it is always about it, but not in real life.
It is not always about "if you invested 10000 in this fund 25 years back you would have 200.000". That's not intelligent writing. That is putting salt on investors wounds. It would seem all individual investors are stupid idiots. It would be nice to see someone write about intelligence demonstrated by investors. I guess I would settle for "Bill Gross fund has seen 60 billion dollars of outflows" as a sign of investor aptitude because in this case Bill Gross is the target, not the investor. In 5 years if Bill Gross proved right, another article would pop up about how stupid investors were to sell PTTRX. And given short memories, it might even be the same person.
Don't hate me because I'm celebrating my independence today.
finding the greater fool: Bill Miller, Bill Miller's investors or the guys who write about them "Since the horrible losing streak, Mr. Miller has read a pile of books and research papers about crises in hopes of getting a better grip on what happened."
LMAO. That's hysterical. Maybe not being a robotic bull cheerleader might help. Of course, all these managers who got obliterated in 2008 go, "Whocouldaknown?"
Josh Brown's terrific, really best thing about CNBC at this point. I just wish there was something besides CNBC where Brown could say something like he does in the article. If Brown actually said anything on CNBC like the above linked article, they'd probably quickly go to one of those "We're Having Technical Difficulties" screens.
From the article: "There’s very little downside for everyone involved. Except the investors."
That's what I feel like on CNBC, as well. "Gosh, don't question anyone!" Gartman can have a terrible ETF that closed, another two or three that closed (although I think those were just lack of interest) and no one ever even dares ask about it. No one even really tries to debate someone or question someone on CNBC unless it's some silly game-like thing.
There's been times where Gartman has been on Fast Money talking some nonsense about how he's "Long gold in Yen" or some other ridiculous trade that will likely reverse shortly and you see the traders looking like they want to say something but can't. Miller did terribly during the crisis and after and people throw money at him again until next time is robotic auto-bullishness gets his investors in trouble.
"In The Big Short, author Michael Lewis recounts a similar episode. On a Friday morning in March 2008, Miller was invited to present the bullish case for investment bank Bear Stearns, which had traded at $
53 the previous day. During a Q&A session after his presentation, an audience member asked Miller a question: "Mr. Miller, from the time you started talking, Bear Stearns stock has fallen more than 20 points. Would you buy more now?" Miller's answer: "Yeah, sure, I'd buy more."
By the following Monday, Bear Stearns had been sold to J.P. Morgan for $2 a share."
http://www.cbsnews.com/news/bill-miller-large-cap-stocks-represent-a-once-in-a-lifetime-opportunity/Would love to see Josh Brown on a show with former CNBCer Jeff Macke.
finding the greater fool: Bill Miller, Bill Miller's investors or the guys who write about them By squinting carefully, a writer for the WSJ was able to conclude that Bill Miller's Legg Mason Value Trust had the best performance of any fund for the 1
5 years before the market's crash and the fund's ultra-crash. The fund flopped around like a fish tossed on the pier, investors left, Miller left, and the fund was rechristened. Now, because Miller is more talented and sees more deeply than any other, his Legg Mason Opportunity fund has the best record of any comparable fund over the past several years. That's the story told in "
Mutual-Fund King Bill Miller Makes a Comeback." (Note: not my hyphen.)
Josh Brown's dissection of the article and Mr. Miller's performance,
"Here's Everything That's Wrong With Investor Behavior, In One Article" is thoughtful, wry and corrosively critical. You might enjoy it.
David
The Risk OF Short Term Bond Funds Hi Guido and others,
About a year ago and in the belief that interest rates would be rising I looked for ways to reduce the duration within my fixed income sleeve within my portfolio and I switched out some intermediate term bond funds for some with a shorter duration. Overall I still have received decent income and returns from the sleeve.
My income sleeve currently consists of six funds. They are ITAAX, LALDX, THIFX, LBNDX, NEFZX and TSIAX. The sleeve produces a yield of 3.53% with a duration reading of 3.17 and the year-to-date total return has been 4.59% as I write. The one, three and five year annual returns score at 9.11%, 6.38% and 9.20% respectively.
In comparison, a bond index fund that I follow has a yield of 2.53% with a duration reading of 5.21 and a year-to-date total return 3.22%. It's one, three and five year annual returns score at 3.42%, 2.98% and 3.97% respectively.
I’ll gladly take this and move on without any regrets; and, also in belief when interest rates start rising … I’ll still have a good performing fixed income investment sleeve.
And, with this, Old_Skeet plans to keep on keeping-on with a short duration orientation.
I wish all … “Good Investing.”
Old_Skeet
DSENX and RGHVX, seriously
DSENX and RGHVX, seriously Well, you should consider that with their rather short track record there is no indication of how they might perform in a downturn. Given the current market values, I think that the chances of some sort of market downdraft are pretty good right about now. I'd consider putting maybe 10 to 25k in each, and letting that ride until we see how they do in rough water.
DSENX and RGHVX, seriously Thanks to MFO / Snowball / partner researchers, I've been tracking these two 'new' mutual funds since last Nov, and they are matching or outperforming everything else, pretty smoothly (including early Feb dip) except for some niche equity funds.
What gives? I am seriously thinking of transferring the majority, nonsmall, of retirement moneys to DSENX and RGHVX, 50-50. What could go wrong? (I know, if you have to ask....) I mean compared with what other funds?
Interesting fund - Event Driven Opportunities - FARNX FLVCX is a great fund can get in for $2500 in retirements. Or $ 10000 in regular accounts. Also have to dance with it for 90 days or pay the 1.5% penalty.
At no time did I say anything about Thomas Soviero. I stated the facts about FLVCX fund that I did not like.
As for Putnum I do not like their fee structure.... I was not looking at Putnum funds I was directed to look at them by TSP TRANSFER. - I DID - and - did not like what I saw.
JUST THE FACTS as I see them!!!
Ban On US Investors Overseas From Buying Mutual Funds (VIP) Perhaps an insight here in this
recent article from The Economist.
Excerpts from the article:
America is the only large economy to tax its citizens on everything they earn anywhere in the world. [The] new law requires banks, funds and other financial institutions around the world to report assets held by American clients or face a ruinous 30% withholding tax.
The law is also having unfortunate unintended consequences. The 7m Americans living abroad now wear a scarlet letter... Many have been rejected by foreign providers of banking services, insurance and mortgages because, given the amount of paperwork needed to satisfy Uncle Sam, American clients are simply too much hassle.
Note: This article is from the "Leaders" section of The Economist, which corresponds to an editorial commentary in "US English".
