Certain Lessons Are Hard to Learn

Today’s Wall Street Journal has a story about retirees of General Electric who have lost a sizable chunk of their retirement savings. Over the past 12 months GE has lost $140 billion in market value. It was a blue chip stock that most people thought was safe. They were wrong.

It’s happened before — major losses incurred by employees and retirees stemming from their decision to hold all or most of their personal savings in their company’s stock. Enron, Valiant, GM, Lehman, and Bear Stearns were mentioned in the WSJ article. But the list is much longer than that.

On the one hand, it’s easy to see how it happens. Confidence in one’s company builds up over a career. Loyalty. You become part of the family. It’s hard to be objective about the risks you’re taking. Why sell the stock that has treated you so well over the years?

On the other hand, there is the matter of history. And history tells us why we should sell. It highlights the risks of concentrated stock portfolios. And the benefits of diversification. Yet history is often ignored.

And so it’s happened again. As a result, some retirees with depleted retirement savings are returning to the workforce. Lives are being turned upside down.

You hate to see it happen. But it’s not that the risks were kept secret. To the contrary, they were in plain sight.

It makes me wonder what risks I might be taking that are in plain sight. What lessons from history am I ignoring?

There’s probably something.

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