This advice is usually "Don't (only) invest in the industry you're employed in".
See e.g. the dot-com bubble and how people who worked in IT and had invested their money mainly in IT were screwed, whereas it wasn't so bad if you just got fired and say invested in an S&P 500 index fund.
But yes, investing only in your employer is a particularly bad version of that.
...investing only in your employer is a particularly bad...
Haha when I worked for Lucent long ago they actually had a program set up exactly for that, so my more foolish colleagues received vastly-overpriced stock in place of some percentage of their salary. Thinking back, the managers must have had some kind of incentive because they hyped it in unseemly fashion.
ESPP programs are fairly common, and usually a great decision because they yield a minimum 15% return on the final value of the investment at the end of the program period whether the stock goes up or down. If you sell immediately, you realize a minimum of 90% ARR over the program period. [1]
No need to keep it there if you just want to take your gains and walk.
In some cases one would be better served to run rather than walk. I remember advising colleagues as to the riskiness of this program in late 1999. Three years later LU had lost 98% of its value.
ESPP is guaranteed to make money for employees. Everyone should sell ESPP shares immediately, of course, and most don’t, so functionally you’re right, they’re dangerous, but if you can be mildly disciplined, I don’t think there’s a better investment in the world than taking your employer up on discount ESPP shares then selling the moment they’re in your account.
...functionally you’re right, they’re dangerous, but if you can be mildly disciplined...
It's interesting that these schemes aren't viewed in the same light as e.g. credit card incentives. Getting 0% interest for the first 6 months is a deal good enough to put the credit card bank out of business, but somehow enough credit card borrowers are getting screwed to pay for the incentive overall. TANSTAAFL. Why is that harder to recognize in some circumstances? Is it a class thing? Anyone can get a credit card, while only high-quality people like ourselves can get a job at Acme Inc?
Anyway credit card companies might be evil, but they receive enough scrutiny to be extremely lawful in their evil. (If you actually pay off the debt they won't forget about your payment.) Can we really make the same statement about employers, in general? One might have a standing order to sell these shares at regular intervals, but one has seen enough HR shenanigans by this point to realize that they DGAF about employee interests... "Oh gosh we're sorry that got changed at the beginning of the year and we didn't tell you about it for 9 months while you lost all the money you've ever made in this program! Our recent stock slump has been difficult for everyone! There's nothing we can do about it now! I guess you should have been mildly disciplined..."
Agreed it’s a similar psychological principal, but the threat model you’re describing from HR is silly.
ESPP is only for publicly traded companies, and when the purchase goes through, you get shares at a discount on the more advantageous of the starting and ending stock prices.
HR has no power to prevent you from selling that stock, it’s held in a stock account over which you have full control and HR has none.
If you're really lucky, as I'm sure you well know, you can ever put your pension into the company, and then when Enron goes bust you've got no job, no investments, no pension!
That is not necessarily true. As an employee, you may be in a good position to judge whether a firm is likely to succeed, with perspectives not available to the market. This is why markets often react when CEOs buy/sell their own stock.
That's not strictly true. Depending on the company, it's very possible for mere engineers to have access to material non-public information. There's a reason many companies impose broad blackout dates on trading.
That's self-evidently false. Engineers have insight into the internal culture of a firm and how it may differ from public perceptions, not to mention their own opinions on the quality of the back end technology and awareness of future plans or possibilities.
The advantage of the employee isn't insider knowledge - it would be illegal to deal based on it - but understanding what the company does and which market it works in in the first place. This purely technical knowledge might give investment decisions some better factual support. But
Sure, but until those options vest you’re still doubly exposed. I’m in this position right now. A fixed amount from my pay goes into buying options which vest in 3 years time. Fortunately I could afford to lose that money if it came down to it, but it’s a real issue and in a worst case scenario that’s money I might need. It’s certainly a consideration.
