On Not Following Your Own Advice

A Bloomberg article by Michael J. Moore shows that finance and investment employees frequently commit the cardinal sin of failing to diversify their personal holdings by holding too much of their own company’s stock:

Current and former Morgan Stanley employees, who receive company shares to match their 401(k) contributions, held 24 percent of retirement assets in the firm’s stock before last year’s decline, the highest percentage of any of the banks. They lost $570 million in 2011 as the shares plunged 44 percent.

Bank of America Corp. (BAC) employees lost the most, $1.37 billion, as the lender’s stock dropped 58 percent last year. Workers at JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C), both based in New York, also lost hundreds of millions of dollars.

JPMorgan employees, some of whom received stock in the company until last year to match retirement contributions, devoted 18 percent of their funds to the lender’s shares at the end of 2010. Bank of America employees put 13 percent of their assets in the bank’s stock, while the figures for Citigroup and New York-based Goldman Sachs Group Inc. (GS) were 8 percent and 2 percent, respectively.

This quote is worth reading:

“You’re already relying on that company for your job, your income, benefits and everything else,” said Chris Baker, co- founder of Carmel, Indiana-based Oaktree Financial Advisors Inc., which manages $100 million and primarily advises employees of drugmaker Eli Lilly & Co. “It’s not just another stock. It can magnify the impact on your personal finances if your portfolio takes a beating and your employer isn’t doing well.”

It is always interesting to note how good we humans can be at not following our own advice. I think of all the doctors you see (or used to see, at least) huddled around on the sidewalk, smoking cigarettes. Most powerfully (and humbling), I think of behaviorist-king Danny Kahneman‘s admissions that he himself falls prey to the planning fallacy and other behavioral missteps.

Who else can you think of that fails to follow his own advice?