[CANSLIM] Enron (Again)

From: Spencer48@aol.com
Subject: [CANSLIM] Enron (Again)
Date: Wed, 29 May 2002 15:14:37 EDT
Next Article (by Date): Quotetracker was RE: [CANSLIM] Online trading "Mike Gibbons"
Previous Article (by Date): Re: [CANSLIM] Online trading KLall1112@aol.com
Articles sorted by: [Date] [Author] [Subject]
Canslimmers:

     Although this is off topic, I thought it would make for worthwhile 
reading.  The author (Ric Edelman who AOL uses as its Financial Guru) 
analyzes a complicated subject and situation very nicely:  

"Editorial:
Enron hurt their employees in the guise of helping them.
===============

President George W. Bush wants to change the 401(k) rules,
to help prevent a repeat of the Enron disaster. I hope
Congress passes legislation of this type.  But until that
happens, make sure you are not at risk.

And you are at risk if your 401(k) plan owns shares
of stock in the company you work for. I'm sure you think
highly of your employer, that you are convinced that your
employer's financial stability is strong, and that its future
is bright.  All of Enron's employees thought that about Enron, too.

And why not? Enron was ranked #7 on the Fortune 500, a list
of America's biggest companies. And yet, within one year,
the company was destroyed, and investors lost $30 billion.
Many of those investors were Enron's own employees,
meaning that people lost their jobs at the same time they
lost their investments.

The problem is that Enron is not alone according to the
Associated Press. At Proctor and Gamble, employees
have invested 95% of their 401(k) assets into P&G stock -
stock that has fallen 25% in value over the past two years.
It's even worse for Dell Computer. A whopping 88% of its
401(k) assets are in Dell stock, which has fallen 46% in the
past two years. At Coca-Cola, where employees have
invested 82% of their 401(k) in Coke shares, the stock is
down 15% for that period. At McDonald's, workers have placed
74% of their 401(k) into the company stock, and have suffered
a 35% loss since the end of 1999. The list goes on and on.
Apparently, workers handle their 401(k) assets with such
naivety that the president has concluded that laws are needed
to protect them from themselves.

Ok, so maybe I'm putting words into the president's mouth.
But it is the truth. That's because, despite what you've been
hearing about the travesties at Enron, its management of
the 401(k) was not horrendous. Yes, Enron is apparently
guilty of lots of things, and there's a big list of people there
(and at Arthur Andersen), who ought to go to prison. But not
for its handling of its 401(k).

No, as far as Enron's 401(k) is concerned, many of the workers
have no one to blame but themselves.

Here's why: Like other 401(k) plans, Enron's plan offered
a variety of mutual funds, and workers were free to invest
their contributions as they chose. But Enron also offered
company stock as a choice, and many workers selected that.
Freely. Voluntarily. The workers were permitted to sell the
stock, and move the money into any of the other choices.

But many of them failed - refused? - to do so. Whose fault was that?

Some people say it was Enron's fault, because they've
read press reports which have stated that Enron matched
employee contributions in stock and prohibited employees
from selling that stock prior to age 50. Sorry, the employees
were still to blame. For one thing, when an employer
contributes to your 401(k), that contribution is a gift. It costs you
nothing. So, if the giver chooses to levy restrictions on that gift,
so be it. If the gift later proves to be worthless, you haven't lost
anything - you've simply failed to profit. (Think about that ugly,
poor-fitting sweater Aunt Ida gave you for Christmas. You'll
never wear it, but have you lost anything?) Besides, many of
those workers were over age 50 and had the ability to sell - but didn't.

Don't get me wrong. I disapprove of the corporate practice of
contributing stock instead of cash, and I would not want to work
for an employer that engaged in this practice. But unless the
employer prohibited me from selling the stock that I chose to buy,
how can I hold the employer responsible?

Easy, you'll say - because you've read other press reports that
Enron had shut down the 401(k) plan, effectively prohibiting
workers from selling the stock.

Sorry, but this is not exactly accurate. Yes, Enron did close
the plan. It did this because it was moving the 401(k) plan from
one outside administrator to another. And although this process
can cause 401(k) accounts to be frozen for months, Enron's was
closed for just 11 days. And before that plan was frozen, Enron
issued four - count them, four - notices to employees, warning that
the plan would be frozen and telling them to execute any desired
transactions prior to the deadline. By the time Enron closed the plan,
its stock had already fallen from $90.00 to close at $33.84 on
October 16. So employees certainly can't claim that they didn't
know the stock was in trouble. During the 11 days, when employees
couldn't sell Enron shares, the stock fell to $13.81. At that point,
employees were again allowed to liquidate stock in their 401(k) plan.
Is Enron solely to blame for employee losses here?

I'm annoyed at Enron - and its hapless employees - because I have
been talking about this for the past 15 years. I warned about
buying employer stock in a 401(k) plan in The Truth About Money,
published in 1995, and I warn about it again in my latest book,
Discover the Wealth Within You.

Do not put your money in the same place you put your time.
That's all there is to it.

Yet people do it all the time. I call it the "Proud Papa" syndrome.
Why do people buy stock in Coke? Because they work there -
that's the only reason they don't buy stock in Pepsi. Those working
for Dell don't own shares of Compaq, and Ford employees don't
own stock in GM.

Such people put in eight or ten hours a day at the company and
then take a chunk of their paycheck and use the money to buy
company stock. They might think they are being loyal, but they
are really just being foolish. And foolish is exactly how an awful
lot of former Enron employees feel right now.
Make sure you are never among them.

I'm not suggesting that you should never own stock in the
company you work for. Just make sure you don't own too much -
and if you're not sure how much is "too much" for your situation, call us.
We'll help you."

jans

- -
- -To subscribe/unsubscribe, email "majordomo@xmission.com"
- -In the email body, write "subscribe canslim" or
- -"unsubscribe canslim".  Do not use quotes in your email.
Go to Jeff Salisbury LWGate Home Page.