All Financial Wisdom

Managers and employees should not hold shares in their companies

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A quick word because, although I cant disclose details, the timing of this is important. When an executive sells shares of his company, is he betraying his own or indicating to the market that things are going wrong? The general opinion is usually that yes. Some say no.

The most important commitment to the company in which managers and normal employees work is to invest the most important thing that normal people have to invest – their human capital. As this is the most important asset that a normal worker has throughout a working life, these are already more than well invested in their companies, just by virtue of the fact of working for it.

It is called diversification of investments. If we follow the most basic rule of investment theory, that of diversification, workers must also follow these rules with all their investments, both those of their financial capital and those of their human capital (their labor).

The lack of this diversification results in a concentration of all its capital in a single investment and, if the company suspends payments, the worker loses both, his work and his savings. I do not think this is a very smart financial strategy.

This same analysis should be done with the worker’s pension funds. Under no circumstances should you invest in the shares of the company where you work .

Pension funds of the company, often managed by the same company, are often heavily invested in the shares of the company itself. This is a big mistake and has nothing to do with the worker’s loyalty to the company. We have seen many cases of workers who have lost their jobs and their savings when their businesses have closed.

Today, when an executive sells shares in his company, the market concludes that there is a problem and the price of the stock suffers. If sales were more normal and more common, this would not be the case. Workers must sell all shares of their company as soon as possible .

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