Tuesday, September 6, 2016

What Every Retirement Investor Must See (and Take Note) from the Recent EpiPen Saga

What Every Retirement Investor Must See (and Take Note) from the Recent EpiPen Saga

Mylan Pharmaceuticals, the maker of EpiPen, has been in the news lately regarding some astronomical increases in the price of its life-saving drug. My mission with this column is not to opine about the details of that move one way or the other. No doubt, a lot has been said in recent days to that end.

What I want to point out is a valuable lesson that every stock market investor must glean from this story. There is a fundamental principle to building a prudent investment portfolio that we can all learn from this situation – and I really do hope that people will not get complacent and ignore this lesson.

What exactly am I talking about? What does a decision by some company fatcats to jack up prices have to do with your retirement portfolio? Allow me to explain myself. Since you do not and cannot control any bad business decisions and/or actions that company executives might take which could, in turn, lead to serious stock price and revenue repercussions, it behooves you to pay particular attention to the good old rule about prudently diversifying your investments. Most of us tend to get carried away and ignore this rule.

But the fact of the matter is that on any given day, we may wake up to news of some event that could potentially depreciate a company’s stock price or even wipe it out all together – and with it could go our hard-earned wealth. In this particular case involving Mylan Pharmaceuticals, you may have heard reports that the company’s stock value sank by somewhere in the neighborhood of 3 billion dollars in just a matter of days; what you must understand is that every cent of that loss represents somebody’s wealth. My hope is that those folks have properly diversified their portfolios, rather than dedicating significant portions of their investments to this one company’s stock.

Is your portfolio heavily dependent on just one or a few companies? No company is inoculated from an event that could be catastrophic for its stock price. It does not matter how large, smart, or long any such company has been around. And it certainly doesn’t matter whether several generations of your family have been employed by this company.

What do WorldCom, Enron, Global Crossing, Washington Mutual, and Lehman Brothers have in common? They were all wiped out. It is however extremely crucial to note that right up until the very day and very moment that each of them basically evaporated from this planet, they were considered large and stable.

I hope that I’ve made my case. My very best to you.
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