Myth Dispelled:  Investing in Cool
Sometimes cool doesn't work out so well

I worked for Enron from 1996 to 2001.  Whereas I worked for Enron Europe, the now-notorious US company’s European subsidiary, location didn’t matter in the end.  

What most readers probably don’t know, particularly the younger ones, is that leading up to the 2000 internet bubble, Enron was the ultimate cool stock.  We could do no wrong.  We were creating new businesses left and right and the company did have true competitive advantages – mostly tied up around its trading capabilities, strong asset position and technology.  

There have been books, movies, even a Broadway show written about the demise of Enron so I’ll just add a few additional & personal data points:

  • From ultimate in cool, from $20 / share when I joined to a peak of $90 / share in March 2000 to mere pennies / share by December 2001.  
  • Even Enron’s strong competitive advantages – and it really did have them – was no match for very bad, senior management in Houston. 
  • Most employees learned the hard way about the value of diversification.  And the value of investing all of your money outside of your employer.  Because if your employer runs into trouble and lays you off, there is a good chance your company stock value has taken a severe hit as well. 
  • Paper millionaires nearing retirement realized that they would have to work for the rest of their lives as their retirement savings, stock investments and jobs all vaporized on that dark day in late 2001.

Now don’t get me wrong, I like cool as much as the next guy.  And some folks can make serious money investing in cool (a certain hybrid car company or an innovative products company whose founder has recently passed away both come to mind).  But two lessons stand out to me:

  1. Diversification is critical – particularly if you work for the cool company 
  2. For your long-term wealth creating vehicle, stick with the bluest of blue chip companies who have been around a long time, have a huge competitive advantage (some call this a moat), ideally has smart people like Buffett or others as large shareholders and, perhaps most importantly of all, has a history of not only paying dividends, but increasing the dividends year after year, decade after decade.  THIS is the secret of wealth creation

Not this....

› Enron
Bloomberg Businessweek

Myths Dispelled

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