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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