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Diversification of Portfolios

Enron employees were heavily invested in Enron stock through their 401(k) plans. While companies frequently provide a match in the form of company stock, employees are typically free to move the money to an alternative investment. This was true at Enron as well, but most employees chose to leave their money in company stock.

Many investment experts contend that despite all of the legal and ethical lapses by those in charge of Enron, they were responsible for inflicting suffering on relatively few employees when the company failed. It was not the company's fault if employees did not choose to diversify.

QUESTION

Do you agree with the above statement?
Please justify your answer using at least one journal article

Solution Preview

I do not agree with the investment experts' contention that lack of diversity in the portfolio of Enron's employees was the cause of losses for their losses and the company was not at fault.

Even though it is absolutely true that the investment approach pursued by Enron's employees was highly risky and inefficient due to lack of diversification in the portfolio and the employees failed to capitalize on the option of investing in other companies, employees cannot be held responsible for their lack of ...

Solution Summary

Discusses whether lack of diversification in the portfolio of Enron's employees was the cause of their losses or not?

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