Should investors buy stocks in the companies they serve?Many people must have thought about this question, especially now that the technology industry is almost certain to issue stocks. I suggest you take a look at my blog article “Why successful manager usually not a good investor?” , and another blog post, “Changes in company insider and institution shareholding ratio“.
Lesson learned from Enron scandal
The Enron scandal in 2001 exposed the company’s years of false accounting, insider trading, bribery, money laundering, and fraud, which caused great vibration in the American society at that time. Anderson, one of the big five accounting firms that conducted financial report audits for Enron, has severely damaged its credibility as a result of the case and announced that the company has shutdown and closed its business.
More importantly, it gave birth to the “Sarbanes-Oxley Act”, which is regarded as the most important amendment to the U.S. securities law since the 1930s. Interested readers can watch the famous documentary film “Enron: The Smartest Guys in the Room” to learn about the whole event.
Stock might become wall paper
Because Enron was generally sought after by the American financial community as a highly innovative group at the time, the company’s senior management also whitewashed the peace and encouraged employees to buy company stocks. After the outbreak of the Enron case, in addition to making the Enron stocks of many investors a wallpaper, countless Enron employees bought the company’s stock and lost their life savings.
Then it triggered a debate about whether investors should buy the stocks of the companies they serve. The wealth management industry often expressed their opposition; the reason held by the opponents is that the employees working in a company have already overwhelmed the main net worth. In order to diversify the risk, don’t invest your hard-earned money again.
Never just own one stock
But my personal opinion is quite different. We shouldn’t knock everyone down at once; is it because driving may cause a car accident, so we don’t drive? I only need to cite Microsoft or countless other successful companies as counterexamples; and in theory, companies listed on the stock market are likely to have corruption cases similar to Enron, but the probability is high or low.
Investors should treat all listed companies equally, including the companies they serve, that is, after in-depth research, they judge that the company they serve is indeed a suitable investment target, or even better than the holdings in their own investment portfolio. If it does, there is no reason to deliberately avoid it because it wants to diversify the risk. The point is whether this company is worth your investment? It does not depend on whether you are an employee.
The crux of the problem is that this is a highly competitive company? Don’t just bet on the stocks of a single company at any time (in Enron’s case, the main reason is that employees only invest in Enron’s stocks), you can keep you safe. In terms of the companies I have served, I myself have also invested in the stocks of two of these companies, and both have received very good returns.
Take advantage of employee stock plan
Both Taiwanese and American companies provide opportunities for employees to subscribe for shares at preferential prices in the market (this is a good topic, and I will share it if I have an opportunity). Most employees can only make ends meet on salary and cannot get rich because of it. If it is a good investment target, on the contrary, it should seize the opportunity to become rich.
But as far as I know, regardless of Taiwan or the United States, even if the company that they serve is a highly competitive company, the performance of the stocks in the market is not bad, but most of the employees are looking for distance and giving up the opportunity to get rich around them; they would rather use market prices to invest in the stocks of other listed companies. This is a phenomenon that I have been puzzled by for many years. I think this is human nature!
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