Don’t fall in love with your stocks- a lesson from “The Staircase”

It’s 2001. A writer, Michael Peterson (played by Colin Firth) is convicted of murdering his wife Kathleen (Toni Collette), a high ranking executive at the troubled Canadian telecoms company Nortel which eventually went bankrupt. Their lives before her eventual death at the bottom of a staircase are told in a series of flash-backs.

The show is called The Staircase, a gripping eight part true crime drama currently streaming.

In one scene, Kathleen is called before the board of Nortel (which was being investigated for fraud at the time) , and the dialogue goes like this.

“ Director-  Thank you for joining us at such short notice, Kathleen. I wish I had better news, but it seems we won’t be giving year-end bonuses…

Kathleen- (starts half laughing half crying). Bonus?  I was sitting at my desk just now and saw our stock dropping 27% in under four minutes. It keeps going down. Who cares about bonuses?

I just lost my retirement.

All of it. Nearly a million dollars.

All my dreams, moving to Paris in ten years with my husband. All our dreams, they’re…. they’re dead.  ”

It makes you think. If you work at a company, get paid in its stock and a substantial part of your wealth is tied to the company, how much risk are you actually taking?

Put yourself in Kathleen’s shoes, and consider this even if it’s a really remote possibility. Imagine there was an accounting fraud at the firm you work at, confidence evaporated, the lenders called their loans in and it went bankrupt. The worst thing would not be losing your job and your income. You can find another job.

But how would your life change if you lost it all? Would it threaten your ability to retire when you want and maintain your lifestyle? If not and you believe in the firm, fine.

If yes,  is this a risk you are comfortable taking? Because you are taking this risk every day that you let a single stock holding dominate your investment portfolio.

All investments come with risks, so regretting any decision is never worth the energy over the lessons learnt. However, you can create a strategy to minimise the risk. This can include reducing your holdings over time, keeping in mind any capital gains tax liability and keeping a well-diversified portfolio. Each require careful planning and should be determined based on your personal needs and objection.

If you have built up significant exposure to your employer’s equity either through stock bonuses or options, get in touch with us for an initial discussion about your options, and tax consequences at our expense.

This guide is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.

 

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