Company insiders often possess only the illusion of knowledge, not the real thing

The most painful perversion of Lynch’s rule occurred in corporate retirement plans. If you’re supposed to “buy what you know,” then what could possibly be a better investment for your 401(k) than your own company’s stock? After all, you work there; don’t you know more about the company than an outsider ever could? Sadly, the employees of Enron, Global Crossing, and WorldCom—many of whom put nearly all their retirement assets in their own company’s stock, only to be wiped out—learned that insiders often possess only the illusion of knowledge, not the real thing.