Vol. 12, No. 2,856W - The American Reporter - March 18, 2006

Market Mover

by Mark Scheinbaum
American Reporter Correspondent
Lake Worth, Fla.

BOCA RATON, Fla. -- Any political scandal since Watergate has the suffix "gate," and any financial chicanery since Enron will be dubbed "itis" as in Enronitis.

Floridians will soon find, depending on where they work, Tyco-itis, Motorola-itis, and most immediately BellSouth-itis.

A 26 year veteran of Bellsouth, we'll call him "Joe," watched his 401k plan drop more than $200,000 in value in the past five years. Upon reviewing his account a few eeks ago, with Bellsouth shares in the mid-$30 range, I computed 85 per cent of his net worth was tied up in his employer's stock in his 401k Plan.

At age 49, Joe is far from retirement age, but he additionally has purchased more shares of the once pristine "Baby Bell" in a stock option plan. While the CWA (Communications Workers of America) contract negotiated with Bellsouth has long allowed him other options to deversify, he and his colleagues felt "loyalty" and "a sure bet" dictated loading up on the company product.

"I don't understand these things, and no one really sits you down and explains it," he lamented, with his wife looking on. Like Enron and other companies, Bellsouth changed plan "administrators" recently, and notified employees of a "black out" period during which changes could not be made.

Joe and many of his colleagues read the notice wrong -- or perhaps didn't read it at all - and waited from April 26 until May 1 to make some long-overdue changes for better diversification in broader, investment-grade funds. It turns out the blackout period actually was initiated from May 1 until May 7, and their changes were delayed another week.

During this period some interesting things happened int he telecom world:

The head of MCI/WorldCom quit with stock shares 95 per cent off their highs and bonds lowered to junk status; Ericcson and Nokia both warned of more economic woes; Motorola announced 7,000 more layoffs and abandonment of its global distribution business, and many former AT&T spin-offs and tracking stocks hit new recent lows. Oh yes, a key Bellsouth competitor in many communications areas, Adelphia Communications, also seemed to be on the brink of disaster.

With Bellsouth down to $29 per share, Joe was on the phone again, "well, it's down so far, don't you think it will come back big time, so my friends and I should just shift everything to a 'guaranteed' account (at 3 percent)?"

My reply was calculated and cruel, and I stand by it whether you work for Winn-Dixie or General Motors:

"Who would have thought MCI could go bust? Or Enron? Or Penn Central? Can Bellsouth go to zero? Yes. Is it likely, no. Will there be a rebound? Maybe. Or maybe probably. I'm not a fortune teller.

"It's not about whether one single stock -- which has split many times, and been good to investors in the past, will one day trade at $40 or $50 again. It's about prudence. It's about improving your overall investment strategy so that no single stock or sector clobbers you.

"The only reason you had $200,000 to lose in Bellsouth holdings was because it soared fantastically at one period in time. If you are young enough to lighten up to no more than 15 per cent in one company, you could be surprised that a diversification in the years to come will make up for that paper loss.

"You can still hold your stock option shares and reinvest dividends, and hope to retire with a few hundred shares. Then you can take possession of the shares, deposit them at a broker, and pay your utility bills by writing covered calls against your position. At least those shares will serve a purpose.

"The time to sell your over-weighted position in your own company's stock was yesterday!"

Mark Scheinbaum is chief investment strategist at Kaplan & Co., a former UPI newsman, and political scientist who taught at the University of Florida and University of South Florida.

Copyright 2006 Joe Shea The American Reporter. All Rights Reserved.

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