Looking at Busch’s allocation, he obviously has a disproportionate amount of Matrix Technologies company stock. DC participants tend to hold excess stock of the company they work for due to familiarity and a perceived endorsement by management. Familiarity refers to investors selecting stocks with which they are comfortable with or have a proximity to. If company stock is offered as an investment option in a defined contribution plan, participants may feel a sense of control or allegiance to the firm and hold more company stock than is sensible, which is an effect of familiarity. Note that Busch’s assets are not equally divided among investment options, which means the 1/n diversification heuristic would not seem to apply. Status quo bias is clearly not the best answer given the weight in company stock. |
