You Never Know What Will Affect Your Returns

I have been buying shares of Stryker Corporation for a while.  With the BabyBoomers entering their sixties and seventies, it made sense that a maker of artificial hips and other such medical devices would do well.  Or so I thought.

The stock has not really done well, despite some fits and starts.  See the 2-year chart here.

Then today, on the front page of my Wall Street Journal was a story about the CEO of the company whom apparently was forced out of the position due to a relationship he was having with a former employee of the company while he was going through a divorce from his wife.  In this case the CEO had asked permission from the board of directors to date the employee, who agreed he could if she quit her job, which she did.  Apparently this still didn’t sit well with some of the investors, however, and eventually he was asked to resign.

I don’t know in this case if the relationship or all of the issues it caused contributed to the stagnant behavior of the shares.  Perhaps it had no affect on his decisions or performance as CEO.  Maybe it did.  Maybe investors who heard fo the relationship going on sold off because they were worried it would affect his performance.

My point here is that even in good companies, things can happen to cause the shares to decline or simply go nowhere.  There could be a lawsuit – baseless or with merit.  There could be factors that affect the performance of critical officers.  There could be fraud or theft.

You should therefore never keep more money in a single company than you are willing to lose.  This is especially true if you also work for the company, since you are then setting yourself up for both losing your investment and your job.  If you receive a large amount of stock – more than you would go out and buy today if you had the cash, sell some shares.  If a stock goes way up and becomes a dominant portion of your portfolio, sell some shares off and buy into other companies.

Even the best companies sometimes hit an obstacle.  You could see your shares disappear, or simply fall and be down for a decade or more.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Picture Credits: Kurhan, Downloaded from stock.xchng


  1. I agree with this. My girlfriend bought a big chunk of RIM when it dipped, thinking it would bounce back. Now it is down another 50%! One should never have more than 5-10% in one stock.

    BTW. Typo “Event he best companies sometimes hit an obstacle”

    • Buying a stock during a fall is called “Catching a falling knife” and is always risky because you never know where the bottom will be. I’ve also found that after significant drops many stocks tend to stay down for a long time. For example, Pacific Sunwear (PSUN).

      Thanks for reading!

      • I bought BP after their big oil spill. Once they plugged the hole, the price went back up and I sold for a nice quick profit. It can work sometimes, but is a gamble.

      • I bought Diamond Offshore (DO) about three months before the oil spill. They are a medium and deep water driller, like Transocean. They weren’t even involved, but they still got hammered (down about 50%. They remain down, although they have recovered slightly (maybe 20% of the loss). Maybe the right thing to say is that buying a stock who is declining because their business is declining is a bad idea. Buying a stock that falls because of some event may not be such a bad idea.

      • Ya, I think of the Canadian banks that were down 50% when the American banks were getting bailed out. The Canadian banks had nothing wrong with them and were up 50% 6 months later. That’s what we have to look for. Good companies getting unfairly punished.

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