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For most investors, it's recommended that you minimize the amount of stock you own in your own company such that you reduce the risk of having both your job and

For most investors, it's recommended that you minimize the amount of stock you own in your own company such that you reduce the risk of having both your job and your stock drop at the same time. When a company or industry gets hit hard, you often hear tales of people who lose their jobs and find their company stock has also tanked, and it's devastating. Whether you work for Zynga or Valve, I'd recommend taking money off the table and diversifying. Berkshire Hathaway is special in that it's a holding company with extremely diverse holdings. It is, in essence, already internally making the sort of investments that I would recommend others make externally. Point being, regardless of what you think of Pincus, he's doing what sensible investors should be doing at any company except for a Berkshire-type holding company.

runako 14y ago
I generally agree with your comment, but this >> Berkshire Hathaway is special in that it's a holding company with extremely diverse holdings. was not true when Berkshire was as old as Zynga is today.
- lotharbot 14y ago
  I guess the question is whether we're talking about B-H the textile company, or whether we're talking about Buffett's holdings in general. Buffett didn't have anything to do with the textile company when it was Zynga's age (5 years); B-H merged in 1955 and Buffett didn't start buying until 1962. He's actually called buying it his biggest investment mistake, as he chose not to sell the textile company over a perceived slight, but probably could have made a lot more with the money if he'd invested it in better industries. As for the holding company, Buffett started BPL in 1956, had several partnerships running by 1960, and merged them in 1962; at that point (a similar age to Zynga) the holdings were already quite diverse, just not under the B-H name. It wasn't until the late 1960s that he started using B-H as his general holding company. So, if we're going to hold up Buffett as an "old-school CEO" who doesn't sell shares of his own company, let's remember that he's called not selling B-H (textiles) his biggest investment mistake, and let's remember that it's different to hold on to stock in a diversified holdings company (whether it was called BPL or B-H at the time) than it is to hold on to stock in a single-purpose company.
anon808 14y ago
minimize? what does that mean, how much? and who recommends? where are these rules written you're talking about? usually people hold onto things they think are valuable and sell those they don't. sometimes those that sell that which they don't think is valuable will use weasel words like 'diversification' and 'minimize exposure' to explain their actions so they don't have to admit they don't think what they're selling is very valuable.
- marvin 14y ago
  It's about decreasing risk and volatility. If you're an insider in Zynga or Facebook, you might have slightly more information than the stock market...but probably not a lot. You can't expect to out-guess the market considerably. All else being equal (in other words, unless you have information that the rest of the market does not), your expected return will be the same if you own one stock in a certain industry as if you own a lot of different stocks in the same industry. If you roll one dice, the average number of eyes is the same as if you average over 100 dice rolls...but the probability of ending up at the extreme end of the scale is much higher. This is why investors want to diversify. What is best, in practical terms, for an average person: getting a guaranteed 2 million dollars or having a 1 percent chance of getting 200 million dollars?
  - anon808 14y ago
    "If you're an insider in Zynga or Facebook, you might have slightly more information than the stock market" What if you're the guy running the entire company? Will this mythical 'market' you keep referring to run your company better than you can?
    - marvin 14y ago
      That I have no idea about; you'd have to do a survey and get honest results from CEOs which have run companies that tanked. CEOs have much more insider information than "this mythical market", but I'm sure primary insiders have occasionally been blindsided by a crash in the stock value before it was obvious that anything was wrong with the company. Regardless, Pincus & co. will probably be investigated by the SEC after this. Illegal insider trading is punished very harshly.
ChuckMcM 14y ago
Personally I suspect that once you have 100M in a treasury ladder or similar investment you've got the 'oops I've been fired' part covered. Sure you might have to sell off the high maintenance things but you can live a comfortable life indefinitely :-)

runako 14y ago

I generally agree with your comment, but this >> Berkshire Hathaway is special in that it's a holding company with extremely diverse holdings. was not true when Berkshire was as old as Zynga is today.

lotharbot 14y ago
I guess the question is whether we're talking about B-H the textile company, or whether we're talking about Buffett's holdings in general. Buffett didn't have anything to do with the textile company when it was Zynga's age (5 years); B-H merged in 1955 and Buffett didn't start buying until 1962. He's actually called buying it his biggest investment mistake, as he chose not to sell the textile company over a perceived slight, but probably could have made a lot more with the money if he'd invested it in better industries. As for the holding company, Buffett started BPL in 1956, had several partnerships running by 1960, and merged them in 1962; at that point (a similar age to Zynga) the holdings were already quite diverse, just not under the B-H name. It wasn't until the late 1960s that he started using B-H as his general holding company. So, if we're going to hold up Buffett as an "old-school CEO" who doesn't sell shares of his own company, let's remember that he's called not selling B-H (textiles) his biggest investment mistake, and let's remember that it's different to hold on to stock in a diversified holdings company (whether it was called BPL or B-H at the time) than it is to hold on to stock in a single-purpose company.

anon808 14y ago

minimize? what does that mean, how much? and who recommends? where are these rules written you're talking about? usually people hold onto things they think are valuable and sell those they don't. sometimes those that sell that which they don't think is valuable will use weasel words like 'diversification' and 'minimize exposure' to explain their actions so they don't have to admit they don't think what they're selling is very valuable.

marvin 14y ago
It's about decreasing risk and volatility. If you're an insider in Zynga or Facebook, you might have slightly more information than the stock market...but probably not a lot. You can't expect to out-guess the market considerably. All else being equal (in other words, unless you have information that the rest of the market does not), your expected return will be the same if you own one stock in a certain industry as if you own a lot of different stocks in the same industry. If you roll one dice, the average number of eyes is the same as if you average over 100 dice rolls...but the probability of ending up at the extreme end of the scale is much higher. This is why investors want to diversify. What is best, in practical terms, for an average person: getting a guaranteed 2 million dollars or having a 1 percent chance of getting 200 million dollars?
- anon808 14y ago
  "If you're an insider in Zynga or Facebook, you might have slightly more information than the stock market" What if you're the guy running the entire company? Will this mythical 'market' you keep referring to run your company better than you can?
  - marvin 14y ago
    That I have no idea about; you'd have to do a survey and get honest results from CEOs which have run companies that tanked. CEOs have much more insider information than "this mythical market", but I'm sure primary insiders have occasionally been blindsided by a crash in the stock value before it was obvious that anything was wrong with the company. Regardless, Pincus & co. will probably be investigated by the SEC after this. Illegal insider trading is punished very harshly.

ChuckMcM 14y ago

Personally I suspect that once you have 100M in a treasury ladder or similar investment you've got the 'oops I've been fired' part covered. Sure you might have to sell off the high maintenance things but you can live a comfortable life indefinitely :-)