It's Time for Industry Insiders to Diversify

Your paycheck and your portfolio shouldn't depend on the same company, especially in telecom.
Author:
Publish date:

I suppose it's the once-sexy and cutting-edge nature of the telecom business. Maybe it's the fact that very few industry outsiders actually understand anything about it. Whatever the reason, why do people who work in telecom invest in nothing but telecom? Or better yet, why do people who work in telecom invest in telecom at all?

It never fails when I talk about personal investments with people in the telecom industry. They inevitably start the conversation with something like, "Gosh, my portfolio is trashed," or, "My 401(k) is a small fraction of what it was 18 months ago." And I always reply the same way: "Your livelihood, your paycheck, already depends on the telecom industry. Why does your portfolio depend on it, too?"

Heck, it's the same in any industry. If you're a programmer at

Yahoo!

(YHOO)

, you certainly don't need to hold

Macromedia

(MACR)

,

DoubleClick

(DCLK)

and

eBay

(EBAY) - Get Report

as your largest positions.

Diversification is your friend. And I don't mean diversifying into equipment-vendor stocks if you work at a component supplier. More than ever, the teleconomy is truly bigger than any one company or sector. All of the service providers, such as

SBC Communications

(SBC)

,

Metromedia Fiber

(MFNX)

and

Level 3

(LVLT)

, are suffering as the economy has softened (the latter two suffering for a rash of other reasons, too).

Equipment vendors, such as

Tellabs

(TLAB)

,

Sycamore

(SCMR)

and

Lucent

(LU)

, are suffering from the collapse of the teleconomic bubble. Component suppliers, including

Applied Micro Circuits

(AMCC)

,

JDS Uniphase

(JDSU)

and

Avanex

(AVNX)

, are suffering from the drop in demand for their products. Hundreds of thousands of jobs have been lost in the telecom industry this year, and many of the people affected have no savings because they were wiped out when the telecom stock bubble popped. Needlessly.

It doesn't matter if this is the business you know. It doesn't matter that your friend who works at XYZ Telecom tells you that insiders are really buying there. And it really doesn't matter that your 401(k) is completely made up of stock in

Qwest

(Q)

,

AT&T

(T) - Get Report

or whatever company you used to work for. So what if your holdings were once worth $300,000 and now they're valued at about $45,000? It's time to get diversified.

Telecom stocks have really ramped in recent weeks. I've been buying, but that's part of my job. If you work in telecom, then buying telecom stocks isn't part of your job. Whether you're in the cable business or the wireless business, sell your telecom stocks. Resist the temptation to buy them back. Get diversified.

Cody Willard is president of TelEconomics Consulting, a financial and technology consulting firm. He is also founder of

TelEconomics.com, a Web site devoted to news and analysis of telecommunications stocks. Previously, he was senior analyst for a venture development company, and before that was a partner at the Lanyi Research division of CIBC World Markets. At time of publication, Willard was long Tellabs, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Willard appreciates your feedback and invites you to send it to

cody@teleconomics.com.