Should GM Retirees Buy Company Stock?

Via Mark Kleiman, I see that the New York Times has an article about GM retirees weighing "one of the toughest, and unexpectedly emotional, questions of their retirement: after seeing their G.M. stock wiped out in bankruptcy last year, do they dare put the reorganized company's stock back in their nest eggs?"

Like Mark, my reaction is that this is not a tough question.  You should never buy a significant amount of stock in the company on which your livelihood, or your retirement depends, unless you are already so wealthy that you will not be devastated by a total loss.  Yes, if you work for an Apple or a Google this means that you might miss out on some appreciation.  On the other hand, GM, Bethlehem Steel, and Enron were the Apples and Googles of their day.

Moreover, GM is no Google.  In the case of this stock, it is a no-brainer to pass up the exciting opportunity to plunge more of your hard-earned dollars into the firm.  We're talking about a company with a few quarters of profitability under its belt, and all sorts of uncertainties on the horizon.  The company is certainly more viable than it was before the bankruptcy, but that doesn't mean it's a good investment.  It wasn't a good investment for the US government, and there's every chance that it would be a poor investment for these retirees--people who can't really afford to take more risks with their savings right now.

If we're going to have the government owning car companies, it seems to me that the least they could do is discourage this sort of thing.  This is elementary portfolio management.  Of course, the very fact that the government owns the auto company--and wants to minimize its losses--probably means that it is not going to go around telling potential stockholders to put their money away.