The perils of single stock investing in action: Or, #1 complains about PG&E

Back in the 1980s, from what I understand, Ronald Regan made it beneficial for investors to set up gift trusts for their children.  Apparently my father took advantage of this tax loophole and bought some PG&E stock.

Sometime in 2001, right before or shortly after PG&E had declared bankruptcy, he transferred that PG&E stock to me and I found out I would have to pay taxes on the dividends it had put out that year despite not having had the benefits of those dividends.  For Christmas that year I demanded at the very least the money to pay the taxes, because we didn’t have the money to pay them (note:  today that probably wouldn’t be an issue because we would have been in the 0% tax bracket for dividends, but taxes were different back then), and he handed over one of the final dividend checks.  PG&E would not spit out another dividend until 2005, at which point I was no longer on a graduate student salary.

Maybe I should have sold the stock the minute it was transferred, but it had lost so much value and I didn’t really know how to go about selling, that other than dealing with that year’s taxes, I pretty much just pretended that I’d never gotten the stock.

When it started throwing dividends again, it was a lovely surprise.  I have two types of stock:  regular stock and preferred stock.  I set up the preferred stock to drip into the regular stock and then the regular stock would deposit a few hundred dollars into my savings account every quarter.  By the end it had gotten up to around $800/quarter which was a nice treat.  I used to do mental calculations about how much we’d need to have invested in order for the quarterly dividends to pay all of our monthly expenses.

And then PG&E discovered it might be found liable for California wildfire damages and all dividends stopped.  Thankfully we don’t need the quarterly returns, and if I’m not going to be paying taxes to an administration, this is a good one to not be paying taxes to.  But imagine if I were fixed income and this were a large part of my portfolio?  Diversification of income streams is so important!

I’m not getting rid of this stock… all the online things say it’s a bargain right now for people who are willing to be patient.  And it never really felt like my money to begin with.  But we’re definitely keeping all our own invested money in broad-based low-cost index funds.

Do you own any single stocks, or are you sticking to index funds like a smart person?

25 Responses to “The perils of single stock investing in action: Or, #1 complains about PG&E”

  1. bogart Says:

    Yes. Mine were left to me by my grandmother (actually, gifted to me very shortly before her death when I was a teenager, which is a relevant detail in terms of cost basis should I ever sell them) and were bank stocks that at the time were somewhat varied but are now all Bank of America. I’ve never dripped them or anything because it just seems to complicate the basis issue in a way that’s not worth fooling with; they’ve paid me quarterly dividends that vary from enough-to-buy-me&DH-a-nice-dinner-out-once-a-quarter to enough-to-buy-us-one-soda-to-share-from-a-vending-machine. I’ve pretty much just ignored them because I’m not sure what to do about them (except in moments of glaring hindsight). To the extent that I think about them at all I figure maybe I’ll donate them to some charity or other, some day.

  2. Katherine Says:

    I don’t own any individual stocks. My and my husband’s IRAs are all in a vanguard life cycle fund. My TIAA doesn’t have the life cycle funds as an option (or maybe it does but the fees were weirdly high, I don’t remember) so I picked some index funds similar to the ones in the lifecycle fund and matched the allocation to the lifecycle fund. Now the allocation is a little out of balance due to varying investment gains, but I’m not motivated to rebalance now, or probably any time soon. It’s a small balance compared to my IRA anyway.

  3. becca Says:

    Yeah, I inherited some Bristol Meyers stock, because my Mom used to work there. It can’t drip because it’s such a small amount, so we get a check for e.g. $4.80 a quarter. She also had some Zimmer stock which I never got transferred to my name, so I keep getting ~$0.42 checks from them.
    It’s by no means a rational asset to keep. But… inertia.

    • nicoleandmaggie Says:

      Dealing with cost-basis can be a huge PITA. What’s terrible is when another company buys the company or the company goes out of business etc. (especially if you don’t have enough stock for a single new share) and you’re forced to deal with cost-basis.

  4. Jenny F. Scientist Says:

    I think I have some coca cola stock because… my mother gave it to me. (I have been trying to reach her about the joys of mutual funds!) I should probably sell it and put it in our vanguard account. To be honest I’d forgotten about it until now.

  5. Jenny F. Scientist Says:

    P.S. my uncle got a zillion dollars of Oracle options back in the day, failed to diversify, and lost almost all their value as a result. Even at that time – I was 16- I thought it was pretty dumb.

  6. Cloud Says:

    The only time we own individual stock is when one of us is working at a company with an employee stock purchase plan. The discount on the purchase price in those plans usually makes it a good deal, assuming we stay on top of things and sell off the stock and move it into our general savings mix periodically. Since it is usually my husband who is working at a company with stock, he has been handling this. I don’t remember the details, but I think he has a rolling schedule of when to check and decide whether to sell during the next trading window. I think he tries to hold until it switches to being taxed at the long term instead of short term rate and then sells if it will make money or if we need to diversify and can use a loss to offset some other gain.

    This is never a large portion of our savings. Our main non-retirement savings are split between an index fund and our emergency fund which we keep in the best paying money market or savings account we can find. We hold more than most people in the liquid emergency fund because of the volatility of my industry and the high cost of living in our part of the world, so we haven’t yet accumulated enough money to need to start looking at other options. Right now, if we have extra money to save it tends to go towards paying down our mortgage.

  7. gasstationwithoutpumps Says:

    Almost all my investment is in mutual funds or bond funds, but only a little of it is in index funds. I decided I could afford the small hit (mostly due to fees) for socially responsible mutual funds. Because those funds are generally lower diversity, I spread my retirement investment into different socially responsible funds from different companies, to try to get back some of the diversity.

    My mother-in-law has a lot invested in GM, which has been pretty volatile lately.

  8. Leigh Says:

    Neither of us own any individual stocks. Our friends think we’re crazy. I’ve done the math on how much more my net worth would be if I’d kept more employer stock, but honestly, I can’t handle the swings and we’ve done pretty well with diversifying out of it too. We’ve talked about adjusting the plan around employer stock once we have hit financial independence. Unsure if we’ll actually do that, but that’s the point at which we would both be comfortable with that.

    A relative in my grandparents’ generation had a ton of employer stock. At an employer who went bankrupt (or at least their stock became useless). And I’m pretty sure most of their net worth was in it. It went bankrupt-ish when they were dying, so at least they didn’t know and they didn’t have any kids. That story sold me on index funds instead of scaring me off the stock market entirely, which is good!

    Our portfolios are entirely in index funds. We own different ratios of bonds, but otherwise are in the same funds!

  9. Revanche @ A Gai Shan Life Says:

    I’ve been buying individual dividend stocks for ten years because I wanted an income stream aside from our jobs as a hedge against another prolonged job loss (my recession related layoff lasted almost a year) and against illness flaring up and preventing me from working. All but one of my holdings have made strong gains over the years and that porfolio makes up 15% of our whole investing portfolio. I make about $2000-3000 a year in dividends but I’m currently thinking over whether I want to carry on with this particular strategy or plow everything into index funds. Most of our holdings are index funds at this point and it’d be neater for everything to be in two places (Vanguard and Fidelity). Having this portfolio doesn’t stress me out, I don’t spend an undue amount of time staring at the market day to day or … any time at all. I just don’t care about the ups and downs short term. I keep it pretty simple – buy when it’s at a price point that I like and record dividends when they come in. More time is spent on writing up the quarterly posts than on the investing itself. That might be a mistake emboldened by the bull market but we’ll see, I suppose. There has to be a pretty good reason for me to sell them now and take the tax hit since they’ve all appreciated a lot since I bought them.

  10. Debbie M Says:

    Most of my investments (87%) are in index funds, as diversified as I can make them (stocks/bonds/REITS, US/other developed/developing).

    A small amount (5.5%) are in dividend growth stocks (a few stocks that always pay dividends and generally increase the dividends each year). I don’t earn much from these stocks, but the amount generally increases way faster than my raises ever did, so it’s fun to watch. (Example: last year I started with 27.50/month and ended with 29.69/mo, an 8% raise.)

    Another small amount (7%) are in a speculative stock (Tesla) (which may go private soon). (About half is worth 22% more than what I paid for it in 2014 and half is worth 960% more than I paid in 2011.)

    A tiny amount (0.5%) are in US savings bonds, all I-bonds except for one regular bond I got as a reward for something. (I got in on I-bonds back when they were 3% + inflation, but haven’t gotten many more since then.)

    I’ve never calculated those percentages before and surprised at how high those dividend-growth and speculative-stock percentages are; I don’t think they’ve always been that high. So I’m 87% a smart person, maybe a B+ average, yeah, that sounds like me. :-)

    Company stock is so scary because then both your job and your investments are in the same basket. (And if you’re in a company town and own a house, that’s in the same basket, too.) Which doesn’t mean I don’t love stock options, but I’d either sell it instantly or develop some more sophisticated strategy like Cloud’s.

    • nicoleandmaggie Says:

      Growth tends to get percentages out of balance!

      My sister really does need to sell her company stock regularly because she is in a company town and she does own a house. I think it’s only 20% of her retirement each paycheck, but still.

      • Debbie M Says:

        Glad it’s only 20%. It’s nice to have the default for not taking action to not be too scary.

  11. chacha1 Says:

    I’m as diversified as I can get while still being strongly risk-averse. We really can’t afford to lose much of anything at this stage of the game, so I’ve got a lot in ‘capital preservation’ type vehicles. Of course this also means that I’m not likely to get any big gains, but … oh well.

  12. Array Says:

    I agree with the article. Investing in company stock is just too risky. There is too much manager risk and the risk that your portfolio will fail to meet its benchmark. I listened to Dave Ramsey’s show where a caller he had lost $14k in Lehman Brothers when it went under during the recession of ’08. I’d keep no more than 5% of my portfolio in any one name no matter how good that name is and no more than 20% of your money in any one sector. The key to succeeding with investing is to buy diversified investments.

  13. The Obvious Investor Says:

    “Do you own any single stocks, or are you sticking to index funds like a smart person?”

    I’m sticking to index funds as I have for over 30 years. A long with bonds, gold, REITs and P2P investing of course. Here’s how I build my portfolios

    So good to see someone else showing just how single-stock investment is not the brightest thing to do. So many people learn the hard way!

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