Diversification of Portfolios
For this paper, the writer will have to read the two post and react to them in one paragraph each. The
writer will expand and constructively challenge each of this postings using a minimum of one scholarly
article to support his point. each posting respond must have a minimum of 250 words and APA must be
use . The writer will respond directly on the uploaded paper with the respond coming directly under each
posting as indicated. the references must be in APA format.
Diversification of Portfolios
Response to post 1
DIVERSIFICATION OF PORTFOLIOS 2
It is heart breaking for the many employees that have invested their stocks in Enron to
lose such substantial investments because of poor management. For this reason, I hold the view
that the company has to stick to the various laws and regulations such as Employee Income
Security Act of 1974 (ERISA) to meet the interests of employees (Purcell, 2002). Employees
should not always believe that fiduciary has their interest at stake. It is their obligation to
scrutinize hard information and data on the risks and returns to have a clear picture on the
company financial position before making the decision to invest. There is an option to diversify
their investments as opposed to investing in one entity. The good thing about diversifying ones
investments is that, it acts as a caution in case of such incidences that happened in Enron.
Therefore, this posting is telling all investors to be very attentive and take precautionary
measures when making investment decisions. Intense research on the company data is critical
before investing in any portfolio. The safe thing to do is to consider diversifying ones
investments.
Response to post 2
The company option of offering their employees and option of 401k supported by section
404 (c) Employee Retirement Income Security Act of 1974 (ERISA) to enable them self-direct
their investment was a noble idea. The problem is that the managers already knew the intention
behind this. It is evident that employees saw prospectus and an opportunity in investing in the
company stock. One thing they did not know is that the company books of accounts did not
represent the real market growth. The blame goes to the employer for misrepresenting the
financial books of accounts to woo employees to invest in the company. The repercussions on
the management of the company were therefore appropriate to help discourage such unethical
practices by other managers (Ross, Westerfield & Jaffe, 2013). To some extent, employees as
DIVERSIFICATION OF PORTFOLIOS 3
well are to blame for what begot them. It is important for any investor to scrutinize the books of
accounts and do due diligence by exploring financial statements of the company, calculate ratio
analysis, carry out risk analysis, compare the dividends/ share versus earnings per share and
calculate the time value of money to ascertain the performance of the company. Whether the
company gave them this information or not, they have the obligation to request for the same.
References
DIVERSIFICATION OF PORTFOLIOS 4
Purcell, P. (2002). The Enron bankruptcy and employer stock in retirement plans. Journal of
Pension Planning & Compliance, 28(2), 36-44.
Ross, S.A., Westerfield, R.W., & Jaffe, J. (2013). Corporate finance (10 th ed.). New York, NY:
McGraw-Hill/Irwin
