You’re working for a company that is doing good and you’re offered a chance to buy stock when it goes public. Or your company all ready is a public company and your interested in buying stock. You are seeing the company grow and the top management seems like they are making tons of money; and you want to get in on the action.
You need to do your homework on your company; even though you work there. I have seen people take out second mortgages on their home to buy their company stock; figuring, it worked for the management so it should work for them, then they lost it all. The first thing I want to point out is: if you’re investing money in the company you work for, what happens if your company heads South, a big law suit hits the company or the company product no longer sells and so on. If you are making a large personal investment in this stock, you might be taking a big risk, because you could lose your investment and your job. It can be a lot smarter to invest in other companies out there, that way you will have other investments that will protect you for lost income, in case you lose your job. I have even seen CEO’s loose 100’s of millions investing in their own company, I hope they were diversified? You can find a number of companies that are doing just as good as your company or greater. It is a very good strategy to own no less than 5 stocks in your portfolio. This way you could possibly loose on two stocks and still make money on the other three.
If you still want to invest in your company ask yourself this question. Why are they going public with the stock if it is so great? Is it because they see financial trouble in the future so they want the stock public, so management can start selling their shares? Or maybe it is more positive, for instants, their product is selling faster than they can expand and they need extra money to make expansions. This is just a couple things that you need to look into.
A long time ago I worked for an automotive supply company that had public stock. The stock was selling for about $60.00 per share at the time. One day I was talking to a co-worker, he told me his parents died a little while ago and he inherited $100,000.00 from them. He took all this money and invested in the company that he worked for. This was back around the year 1972, this was a considerable amount of money that he invested back then. He was making good money at that time; well anyways, after he invested his money they promoted him into management, he doubled his wages! The stock even paid a great dividend. Later the company did a couple of 2 for 1 stock splits and the stock price continued to rise. Then many years later the company was bought out.
I thought that was really great how that turned out for him. Here he received a promotion and doubled his wages. This alone turned his investment into a winner. The CEO told him, that he liked the way he took personal ownership in the company he worked for. This is what led him to his promotion. The stock paid a very high dividend, I believe the dividend was 8% and the stock continued to go up. Did he take a big risk taking his inheritance from his parents to invest the way he did? Maybe not, he could have had a lot of other investments that he personally owned that would have diversified his risk to even it out: then, he would have made a really good investment with little risk. If he did not have other investments or assets on his own: then, that would have been a very big risk to take. It goes to show that one person’s investments can have a totally different risk then another person. So don’t just invest like this because someone else did it. He could have lost everything or just simply lost on this one investment.