I met a friend of my wife’s at the garden center this past Monday morning who retired a few years ago after 30+ years at a local MegaCorp. We were talking about the negative fortunes both our former employers have shown in their stock price. Both companies have seen much better days – down 25-40% from their peak a few years ago.
He knew a lot about the stock performance of both companies because he spends a lot of time day trading – buying & selling stocks within relatively short trading windows. He said he trades stock of his own former MegaCorp quite a bit – when he was working he was actually ‘investigated’ because he was trading the stock so much (he was a scientist, not an executive or officer of the company).
Even after being retired a few years, he said he still traded his MegaCorp often because he had “worked there so many years” he felt like “he knew exactly how the company was doing” – better than others in the market.
Frankly, my experience couldn’t be farther from his. Even when I was an executive officer of a large MegaCorp – and sharply restricted by insider trading requirements – I had a very hard time predicting the movements of the company’s stock price. While I might have been close to the details of our operating performance in a given quarter, there were always accounting adjustments, pension requirements, foreign exchange, and other hard-to-predict financial dynamics that made predicting stock performance difficult.
On top of that, investor sentiment is impacted by what experts call ‘second-level chaos’ theory. That is, the outcome of it is influenced by what people predict the outcome will be. Unlike the weather – that is what it is – stock prices sometimes run up in advance of an announcement (‘buy on the rumor’) and then sink even though the results are positive – but maybe not as positive as what people predicted (‘sell on the news’). Imagining how predicted results & actual results will line up is second-level difficult.
For these reasons, and the fact that your retirement, pension, and health insurance may already be counting on your former MegaCorp’s stock performance, I feel it’s too risky to spend too much time playing day-trader on your employer. If the whole company was in sudden chaos, you’d be in big trouble. So, I prefer to keep it simple with a low-cost equity index fund that captures all of the markets successes (that hopefully overcome the markets shortcomings).
How much focus do you put on trading your employer’s / former employer’s stock?
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11 thoughts on “MegaCorp Stock – Trading on the Familiar”
With exception of personal relationships, I keep everything about former employers in my rearview mirror – especially financial investments. I divested as quickly as permitted (as I think you are). As much as is humanly possible, investments should be devoid of emotions. That’s why index funds are ideal for many.
Absolutely. Sold my shares the day I left and exercise options as they expire.
I absolutely agree with you. Even the CEO of a company has a hard time predicting stock movements, hard to imagine that a scientist would have an edge. There may be some situations where an edge exists… perhaps for small cap companies where a new product or breakthrough has yet to be announced, but that would be “illegal” to make use of the edge.
Perhaps price movement of a consumer staple stock may be more predictable? I am from high tech where a company’s valuation doesn’t seem to have a lot of correlation to earnings. I was a very early employee at what is now a MegaCorp. I would never have predicted that the stock would go up 20,000% since going public, and just 3 years ago the CEO thought the market cap could increase to 1/4 of where the market cap actually is today so it’s far surpassed his most optimistic expectation.
Wow – that’s an incredible payday!
It would have been an incredible one if as an employee I had any idea where the stock would end up. I still hold some shares and did extremely well, but the stock I sold to buy my house would be worth over $100 million now. 😀
Again, Wow!! I always say “live a great story” and that is a whopper. You can’t look back – half of life is chance and as long as you did extremely well with what you kept, you still came out ahead. (Easy for someone else to say, I’m sure!). 😉
That was only the stock for the house, I had a lot more than that. You are right about it being a whopper of a story, but it’s one I very rarely share. I don’t think many people would be sympathetic towards it, lol. Who wants to hear a rich guy talking about the hundreds of millions he missed out on? I laugh uncomfortably at myself just thinking about having a conversation like that.
Thank you for the kind advice. I have been enjoying early retirement for over 10 years.
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Couldn’t agree with you more. Company stock is an awesome opportunity for employees in well positioned companies. But one should never have all their eggs in one basket. As a former executive in a large Megacorp, I divested Megacorp stock “purchased” (with my monies) as soon as it was capital gains eligible (we were able to buy at 85% market price, twice per year). Stock options were a different story, as I suspected we would eventually be acquired at some point, which we were. I was fortunate enough to get out at very near the top ($68/share), after the acquisition, and today it’s less than $20/share! Thank God I sold and bought real estate with all those stock option gains. But it was “found money”, and I was in a good position to take on that risk level. My retirement funds were (fortunately) not in Megacorp stock, so fully index invested on that side. I’ve seen too many colleagues wait too long and lose, not only share value, but their jobs (and incomes) in the corporate world (often with their 401k tanking on company stock too). My advice…Take the gifts and run…divest gains in indexes (or whatever you know best…in my case multi-unit rentals). I’ve got lots of former colleagues out of work (not on their terms) and licking their wounds from their losses. Don’t be one of those people…
“Take the gifts & run” is the perfect advice. We’ve sold everything as quickly as possible, although are exercising the options in the last 2 years of their exercise windows. I don’t pretend to understand what is going on at MegaCorp now that I’m long gone.
I have the opposite story. Over many years, I diversified out of 99% of my company stock, the remaining 1% still accounts for more than half of my liquid assets, which means current market price is ~30x my average sales price (after subtracting for taxes). It takes steel cohones to get billionaire rich!
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