DON'T invest in your employer! 5MF043
The Meaningful Money Personal Finance Podcast
Pete Matthew
4.9 • 1.7K Ratings
🗓️ 26 April 2019
⏱️ 6 minutes
🧾️ Download transcript
Summary
It can be dangerous to invest too much money in the same company that pays your wages. This week I tell a story of a client who lost a LOT of money this way, and why you should be careful not to fall into the same trap
Transcript
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| 0:00.0 | My friend Carolyn sent me an email and asked me if I would speak to the pros and cons of owning |
| 0:05.6 | shares in your employer. |
| 0:07.9 | spoiler, it's generally a terrible idea. My views on the whole subject of owning shares in the company you work for |
| 0:20.0 | have been colored by a very practical experience with one of my first clients that I met when I moved to |
| 0:26.0 | Kormor now nearly 17 years ago. So let me tell you that story, but first let's put five minutes on the clock down here. |
| 0:32.0 | Say a quick thank you to my friends at 7 Investment Management down here for continuing to sponsor the show and let's crack on. |
| 0:38.0 | So my client was a telecoms engineer and he worked for cable and wireless all his working life and all around the world. |
| 0:45.4 | Down here in Cornwall is where the cable comes in from across the Atlantic and so there was a big |
| 0:50.2 | cable and wireless presence here. |
| 0:51.9 | Now he'd worked all his life for cable and |
| 0:53.8 | wireless and had built up a significant shareholding. By the time he retired |
| 0:58.1 | those shares were worth around 180,000 pounds. Now after my client retired the world changed the management of the company |
| 1:06.0 | changed and my client saw his shares go from a hundred and eighty thousand |
| 1:10.8 | pound valuation down to wait wait for it, 8,000 pounds. Something like a 95% loss in the value of those shares. By any |
| 1:18.8 | measure that's catastrophic. Now fortunately this client had provided for himself and his family he had money elsewhere so it wasn't |
| 1:26.9 | Financially catastrophic, but it really hit him hard as you can imagine after my client passed away I eventually sold the shares for 28,000 pounds or thereabouts. |
| 1:36.6 | Now my predecessor who had also advised a client had repeatedly advised him to sell the shares. Please sell them down. This is too much money in |
| 1:44.9 | one company, but he never did to his regret. So let's unpack why this happened and |
| 1:50.9 | why it shouldn't have. Firstly, people amass shares in their employer |
| 1:55.0 | usually due to things like share safe scheme, |
| 1:58.3 | save as you earn, |
| 1:59.7 | or for higher earners and executive level employees, things like long-term incentive plans. |
... |
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