Here’s a Stock to Avoid

When you’re looking to buy a stock, it’s best to stick with what you know. If you don’t have a good understanding of banking or biotechnology, for example, look elsewhere. Even Warren Buffett has explained, “You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”

That said, though, there’s one particular company that you probably know very well — and that you might avoid investing in anyway. That company is your employer.

Why think twice before loading up on your company’s stock? Well, remember that it’s already providing much, if not all, of your income. You’re already quite dependent on it. If you add lots of stock in the company to your portfolio, you are placing even more eggs in that single basket. Should your employer fall on hard times, your salary might be in jeopardy, and your stock shares might shrink in value as well.

Don’t think it can’t happen to your company. Remember the beginning of the pandemic, for example, when many travel companies saw their businesses implode. Remember, too, that even large and well-known companies can go out of business or declare bankruptcy. That happened to Brooks Brothers, General Motors, GNC, Gold’s Gym, Hertz, J. Crew, JC Penney, Revlon and Texaco.

Some business disasters, such as that of Enron, are tied to scandals. At one point, according to Forbes, Enron’s workers had almost 60% of their retirement assets invested in shares of the company. One lawsuit alleged that a group of more than 20,000 employees lost over $1 billion.

You might invest a small portion of your stock portfolio in your company — or you might receive some shares as part of your compensation. If so, keep an extra-close eye on your employer and any potential threats it faces.