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But the best learning experience actually comes from a 50 years old secretary in one of my previous firm. Her stock dividend alone is $20,000 a year, to her this is her tour package fund. She will use this amount of her dividend to travel to Europe and Australia.

So I ask her what is her investment strategy. She said buy blue chip stocks in market downturn and wait patiently. Then she will list down the buying price of all her blue chip stocks, all of them are in super low price. When blue chip stocks make money, they will pay out good dividend. And good companies will increase their dividend payout year after year.

Recently I had heard some of my friends saying that they will not invest in stocks anymore. It seems like they have lost hope on stock investment. Then they will lose the biggest money making opportunity of their life time.

Retail investors should adopt a very long-term horizon to benefit from the stock investment.The best opportunity of major stock investment is during bad times. Always try to start major investments during a recession, a global market crisis, a banking crisis or when nobody is interested in stocks, such as now.

When fear and panic happens and people sell irrationally, fundamentals and intrinsic value are thrown out the window. This is when good companies get dumped together with the bad. Even stocks that are not directly related to the financial crisis are being sold at ridiculous prices.

Bull and bear markets always repeat themselves, just like summer and winter. We all know from history and common sense that the market will eventually recover and go to even higher highs.

If you want to emerge a winner, then stay calm, keep your logic and hold and invest in solid companies that are generating free cashflows, low in debt, and has to ability to recover after a recession.

I am calling for a bottom when S&P500 goes down to 800 or when STI goes down to 1200. At that time it would be the time for investors to commit “big”. I am sure our investment will pay off handsomely 2 – 3 years down the road.

If you dont have a broker account yet, send an email to me at metal.commodity@gmail.com, I will recommend my broker to you.

Disclaimer:

The material on this article has no regard to the specific investment objectives, financial situation, or particular needs of any visitor. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments.The author accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this material.

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As investors, we know or should know that we need to be as rational as we can be when it comes to investing. After all, investing is about taking measured risks and looking at the numbers. Unfortunately for many of us it is quite difficult, if not impossible, to remove emotions from our decision making. And when it comes to investing, our emotions can sometimes have a detrimental effect in our portfolios.

Why People Do It

Aside from the myths that were mentioned in the introduction (yes they are myths) there are many reasons why people invest and sometimes invest heavily in their company’s stock. For one, companies sometimes allow employees to purchase shares at a discount in the form of stock options or through discount stock purchase plans. Other times employees receive a match on their retirement contributions not with cash but with company stock. And sometimes, depending on your position you may be expected to invest in your company stock.  It makes sense for the employer; they not only gain your loyalty but may also be able to reduce their payroll. And if you are working for a startup it is an easy way to get you to work hard for less because you hope to make it big later when the company goes public or it becomes a huge success.

The question is, does it make sense?

Why You Should Not Do It

There is a reason why financial planners and investment advisors recommend not putting your eggs in one basket. It is simply too risky. The more you invest in one stock, the more at risk your retirement account will be. You may be saying to yourself, “but my company is in fact a good investment”. That may be so, but think for a moment: if your company runs into trouble, not only could you lose your job but the value of your retirement account is bound to shrink if not disappear altogether. Is it worth the risk when you can easily diversify your portfolio? I do not think it is.

We all know what happened to Enron and to the 401Ks of their employees and if you don’t here it is:  57.73% of employees’ 401(k) assets were invested in Enron stock as it fell 98.8% in value during 2001. In one single day, they were locked out to sell any of their stock, they lost their job, and they ultimately lost most of their retirement money.   

The latest victims of this are employees of Bear Stearns and Lehman Brothers, who saw their net worth erode if not disappear in a matter of days. Given the current economy, it is likely that we will see this scenario play out again.

According to a study done by the Employee Benefits Research Institute and the Investment Company Institute 33% of employees who have the opportunity to invest in their company’s stock do so, and as much as 9% of these employees have 80% or more of their 401(k) assets invested in their employer’s stock.  Employees in their sixties had almost 20% of their 401(k) savings in their company’s stock and almost 12% have more than 90% in their employer’s stock.  What is wrong with this picture?

It is bad enough to put your retirement at risk when you are young (presumably you can still make it up if it goes bust), but to do so in your sixties or so close to retirement is criminal and foolish.

How Much is Too Much

There is no one answer to this question. There are good ethical companies with competent management teams and healthy balance sheets, but even these can suffer from economic downturns, lawsuits, or miscalculations. My thoughts, you should step out of yourself and study your company just as if you were an outsider. If you determine that this is a good investment you should still diversify your account and probably not invest more than 2%-5% into your company. Lastly, if  you own mutual funds you may already be investing in your company, so make sure you don’t invest more than you should.

It’s Your Retirement

Owning your company’s stock can make you feel good; after all you are a “part of the team”.  But this feeling comes at a high risk. No one cares or should care more about your retirement than you (not even your current employer). Diversify your portfolio and do not feel guilty about it. No one has to know how much company stock you dumped, and I can assure you, you will sleep better at night.