Personal Finance Essentials
Proud Papa Bias
This occurs when you overvalue something or see excessive potential merely because you created or are closely associated with it.
The classic example is the parent who believes their child is exceptional in every way. People tend to think the stock of the company they work for is a better investment than competitors’ stocks – merely because of where they work. If you suffer from this bias, you risk rejecting useful information, investing in failing ideas and making bad investment decisions.
The Company Stock Danger
Concentrating your retirement savings in your employer’s stock is among the most dangerous expressions of Proud Papa bias. One executive accumulated $500,000 in company stock over 30 years of service. The month he retired, the company filed for bankruptcy. His life savings vanished along with his career. The risk is compounded: if the company struggles, you could lose both your job and your retirement savings simultaneously. Investing your money in the stock of the company that employs you is not diversification – it’s concentration, and concentration is the enemy of financial security.