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This is absolutely the right way to think about this. However if you have options the situation is different. There may also be tax considerations. Another v
by YZF 9y ago
This is absolutely the right way to think about this. However if you have options the situation is different. There may also be tax considerations.
Another variable is whether your personal effort materially affects the outcome for the company. If you think your work will dramatically increase the value of the company you may want to own more stock ... presumably though if this is the case it's already reflected in your compensation (and maybe part of that is stocks/options as well).
The way I tend to think about this is that if you're working for the company you're already invested in it to some degree so from a diversification perspective I'd tend to want to own less stock of the company I work for.
- abalone 9y ago> Another variable is whether your personal effort materially affects the outcome for the company. Well no, the question supposes you work for the company in either case. If you held $1M in cash, would you invest it all in the company you work for because maybe you can affect the outcome? If not then probably you shouldn't hold onto $1M in equity... if you're perfectly rational that is.
- jjeaff 9y agoThere is one reason that it might behoove you to keep everything invested in the company you work for. It may be that you have insider information that no one else knows.
- abalone 9y agoThat's fine. The question is not "are there good reasons to invest in your employer." It's "are you rational enough to treat $1M equity and $1M cash the same." Also, it is uncontroversially a bad idea to invest "everything" you have in one company.
- YZF 9y agoTechnically if you buy the stock based on insider information you're breaking the law. If you get stock and don't sell it I don't see how that can be considered insider trading...
- jjeaff 9y agoYes, which is why I said "keep" the stock. If you're buying and selling based on insider info, you could be in trouble (thought unlikely as an employee that isn't an executive). But no one could be prosecuted for just not selling stock they receive as compensation.
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