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Author: telegraph Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76421  
Subject: Re: Allocation in a Portfolio Date: 6/10/2004 2:03 PM
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One of the big 'gotchas' turns out to be greed.

People have a pile of options, which they could exercise. They see the stock price climbing, and figure they'd rather have a bigger profit, and pay tax on that, instead of gradually selling some options each year, and reducing their exposure to company stock to less than 20% of net worth...so they sit and sit on the options...

Then 2001 happens, and ALL of the options, and 80% of their net worth vaporizes in 3 days...... an ENRON, bio-tech, computer firm that falls on hard times, dot.com, WCOM, or accounting firm that had a scandal, etc...... IBM fell 75% in a few years....GE is half of what it was at the peak.....

SO greed keeps you from selling, and reducing exposure.....and worse yet is holding the stock, since you'd paid for it, and now it is real money at risk.

Options can be 'real money'. It is not real and diversified money till it is money in the bank, or money invested in something else...other than company stock.

I had options at one time....I didn't sell any of them along the way.....I left the company and had to sell them. The stock was still going up..year after year...but I had no choice....... also had some other stock, which I sold part of. The company was WCOM. Turned out it was at the peak.....a year later, the stock was worth 1/64th of what I sold it for. If I had stayed at the company, I would have taken a bath. I had friends who lost a million bucks on options they didn't exercise..knew it was going to 'come back'. Greed tends to make one make foolish decisions (or avoid making any).

t.
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