{"id":289,"date":"2015-12-30T23:44:37","date_gmt":"2015-12-31T07:44:37","guid":{"rendered":"https:\/\/erisa-experts.com\/blog\/?p=289"},"modified":"2016-01-01T01:05:36","modified_gmt":"2016-01-01T09:05:36","slug":"401k-plan-investors-should-take-notice-of-j-p-morgan-report-on-concentrated-stock-risk","status":"publish","type":"post","link":"https:\/\/erisa-experts.com\/blog\/2015\/12\/30\/401k-plan-investors-should-take-notice-of-j-p-morgan-report-on-concentrated-stock-risk\/","title":{"rendered":"401(k) Plan Investors Should Take Notice of Recent Report on Concentrated Stock Risk"},"content":{"rendered":"

By Joseph A. Garofolo<\/a><\/p>\n

Although not everyone agrees<\/a> about the value of diversification,\u00a0401(k) investors would be wise to take notice of a J.P. Morgan\u00a0report relating to concentrated stock risk.\u00a0 See<\/em> Michael Cembalest, The Agony and the Ecstasy: The Risk and Rewards of a Concentrated Stock Position<\/em>, Eye on the Market Special Edition, J.P. Morgan (2014).\u00a0 The J.P. Morgan\u00a0report highlights how\u00a0risky investing in\u00a0even large companies can be and emphasizes the risk that\u00a0investors take when they fail to diversify.\u00a0<\/span><\/span><\/span><\/span><\/p>\n

According to the J.P. Morgan\u00a0report, 40% of all stocks that had been a part of the Russell 3000 suffered a catastrophic loss from 1980 to 2014.\u00a0 Catastrophic loss was defined as “a decline of 70% or more in the price of a stock from its peak, after which there was little recovery such that the eventual loss from the peak is 60% or more.”\u00a0 Id.<\/em> at 4.<\/p>\n

The report also makes clear that even the largest public companies were not immune\u00a0to large losses\u2014since 1980, 320 companies have been deleted from the S&P 500 due to significant distress.\u00a0\u00a0The 320\u00a0“deletions . . . were a consequence of stocks that failed outright, were removed due to substantial declines in their market value, or were acquired after suffering such a decline.”\u00a0 Id.<\/em> at 3.<\/p>\n

The report identifies 10 factors, including government policy changes, that are outside of\u00a0company control.\u00a0 And it concludes with the following:\u00a0\u00a0“The factors outside management control . . . are a formidable list, and have grown in complexity since we first drafted this report 10 years ago.\u00a0 This is perhaps the most important epiphany we gained from the study: that exogenous forces may overwhelm the things we can control.”\u00a0 Id.<\/em> at 36 (emphasis omitted).<\/p>\n

The J.P. Morgan report\u00a0serves as\u00a0a good reminder of the importance that 401(k) plan participants\u00a0should place on\u00a0modern portfolio theory and its emphasis on diversification.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Joseph A. Garofolo Although not everyone agrees about the value of diversification,\u00a0401(k) investors would be wise to take notice of a J.P. Morgan\u00a0report relating to concentrated stock risk.\u00a0 See Michael Cembalest, The Agony and the Ecstasy: The Risk and Rewards of a Concentrated Stock Position, Eye on the Market Special Edition, J.P. Morgan (2014).\u00a0 … <\/a><\/span><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14,15],"tags":[],"class_list":{"0":"entry","1":"post","2":"publish","3":"author-jgarofolo","4":"post-289","6":"format-standard","7":"category-401k-plans","8":"category-plan-investments"},"_links":{"self":[{"href":"https:\/\/erisa-experts.com\/blog\/wp-json\/wp\/v2\/posts\/289","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/erisa-experts.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/erisa-experts.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/erisa-experts.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/erisa-experts.com\/blog\/wp-json\/wp\/v2\/comments?post=289"}],"version-history":[{"count":8,"href":"https:\/\/erisa-experts.com\/blog\/wp-json\/wp\/v2\/posts\/289\/revisions"}],"predecessor-version":[{"id":297,"href":"https:\/\/erisa-experts.com\/blog\/wp-json\/wp\/v2\/posts\/289\/revisions\/297"}],"wp:attachment":[{"href":"https:\/\/erisa-experts.com\/blog\/wp-json\/wp\/v2\/media?parent=289"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/erisa-experts.com\/blog\/wp-json\/wp\/v2\/categories?post=289"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/erisa-experts.com\/blog\/wp-json\/wp\/v2\/tags?post=289"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}