For most investors, it's recommended that you minimize the amount of stock you own in your own company such that you reduce the risk of having both your job and your stock drop at the same time. When a company or industry gets hit hard, you often hear tales of people who lose their jobs and find their company stock has also tanked, and it's devastating. Whether you work for Zynga or Valve, I'd recommend taking money off the table and diversifying.
Berkshire Hathaway is special in that it's a holding company with extremely diverse holdings. It is, in essence, already internally making the sort of investments that I would recommend others make externally.
Point being, regardless of what you think of Pincus, he's doing what sensible investors should be doing at any company except for a Berkshire-type holding company.
Personally I suspect that once you have 100M in a treasury ladder or similar investment you've got the 'oops I've been fired' part covered. Sure you might have to sell off the high maintenance things but you can live a comfortable life indefinitely :-)
minimize? what does that mean, how much? and who recommends? where are these rules written you're talking about?
usually people hold onto things they think are valuable and sell those they don't.
sometimes those that sell that which they don't think is valuable will use weasel words like 'diversification' and 'minimize exposure' to explain their actions so they don't have to admit they don't think what they're selling is very valuable.
> "usually people hold onto things they think are valuable and sell those they don't."
Usually, investment strategies are more complex than this, involving risk management of various sorts.
You've no doubt heard the phrase "don't put all your eggs in one basket"; or, as the Bible says, "Divide your merchandise among seven or even eight investments, for you do not know what calamity may happen on earth" (Ecc 11:2, NET). The naive investment strategy of simply buying whatever you think is the "best deal" or "most valuable" carries with it considerable risk -- if your whole net worth is in widgets and the market shifts to sprockets, all of a sudden you're stuck with a bunch of widgets nobody wants. Or if your whole net worth is in crops and then there's a storm that wipes them out, now all you've got is dirt. The naive investor thinks that because they work for a profitable company, they should invest everything in their company -- but if their company suffers (whether due to fraud like Enron or a simple market shift like many real estate companies in 2008) they lose their job and their investments all at the same time.
The idea behind diversification is to target things that are valuable and which are not strongly correlated to each other, such that even if you're wrong or conditions change in some areas, your losses can be offset by gains elsewhere. Diversification is not a "weasel word" (though some may occasionally misuse it); it's a widely understood concept that's described by pretty much every personal finance writer out there.
(Note that I'm not specifically saying Pincus is a good guy. Just that it makes a lot of sense for CEOs and others to swap some of their equity for equity in non-correlated assets.)
> You've no doubt heard the phrase "don't put all your eggs in one basket"
Buffett and Munger's response to that is to "put all your eggs in the same basket, and watch that basket".
At various times both men have been very heavily concentrated in their best ideas (Buffett was once about 75% into GEICO many decades ago -- admittedly that's extreme even for him, but many value investors aim for less than 10 investments). They say that diversification is often "diworsification" (I think that's a Peter Lynch phrase... or maybe Phil Fischer) because it's impossible to know that many companies well enough to have high confidence, and because your 20th best idea will never be nearly as good as your best and second best ideas, so it's often better to just add more to your best ideas.
Of course, the caveat of this is that you must know what you are doing. Diversification is insurance against not knowing what you're doing, and index funds are probably the best strategy for someone not putting in the time (which is most people). But if you take investing seriously, high diversification is not always necessary or even desirable.
I can understand the reasoning if one is an outside investor with no ability to influence the company, but anytime I see active managers selling stock it is a bad sign. They can give any reason they want, but most owner operators will keep as much ownership as they can if they feel comfortable with the direction of the company. Of course I'm not talking about starving and living in a motel room because you don't want to lose ownership. In these cases where existing cash wealthy managers sell off parts of their ownership they're saying that they think cash/other investments are worth more than their company's stock; actions speak for themselves.
It's about decreasing risk and volatility. If you're an insider in Zynga or Facebook, you might have slightly more information than the stock market...but probably not a lot. You can't expect to out-guess the market considerably.
All else being equal (in other words, unless you have information that the rest of the market does not), your expected return will be the same if you own one stock in a certain industry as if you own a lot of different stocks in the same industry. If you roll one dice, the average number of eyes is the same as if you average over 100 dice rolls...but the probability of ending up at the extreme end of the scale is much higher. This is why investors want to diversify.
What is best, in practical terms, for an average person: getting a guaranteed 2 million dollars or having a 1 percent chance of getting 200 million dollars?
That I have no idea about; you'd have to do a survey and get honest results from CEOs which have run companies that tanked. CEOs have much more insider information than "this mythical market", but I'm sure primary insiders have occasionally been blindsided by a crash in the stock value before it was obvious that anything was wrong with the company.
Regardless, Pincus & co. will probably be investigated by the SEC after this. Illegal insider trading is punished very harshly.
No matter how promising you think any particular stock or investment is, there's always a chance that you're wrong. Are you willing to play russian roulette with your entire net worth?
I guess the question is whether we're talking about B-H the textile company, or whether we're talking about Buffett's holdings in general.
Buffett didn't have anything to do with the textile company when it was Zynga's age (5 years); B-H merged in 1955 and Buffett didn't start buying until 1962. He's actually called buying it his biggest investment mistake, as he chose not to sell the textile company over a perceived slight, but probably could have made a lot more with the money if he'd invested it in better industries.
As for the holding company, Buffett started BPL in 1956, had several partnerships running by 1960, and merged them in 1962; at that point (a similar age to Zynga) the holdings were already quite diverse, just not under the B-H name. It wasn't until the late 1960s that he started using B-H as his general holding company.
So, if we're going to hold up Buffett as an "old-school CEO" who doesn't sell shares of his own company, let's remember that he's called not selling B-H (textiles) his biggest investment mistake, and let's remember that it's different to hold on to stock in a diversified holdings company (whether it was called BPL or B-H at the time) than it is to hold on to stock in a single-purpose company.
Berkshire Hathaway is special in that it's a holding company with extremely diverse holdings. It is, in essence, already internally making the sort of investments that I would recommend others make externally.
Point being, regardless of what you think of Pincus, he's doing what sensible investors should be doing at any company except for a Berkshire-type holding company.