The Mother Ship has broken down by the side of the Galaxy.GE missed their numbers, toned down the guidance, had problems with their finance business and their healthcare business.
The way this is being portrayed is that they really did not see it coming until very recently.
This is a perfect example of how an ETF can be a better proxy for a sector than a stock. I have never owned the stock in my time as an investment manager.
The thought process all along has been quite simple. Earlier this decade, so early in the bull market, the stock had the headwind of it being the wrong time for mega caps, then as the time that mega caps should lead came upon us my thoughts focused on whether or not a huge complex conglomerate was the best way to access the industrial sector and again my answer was no.
Part of it is that I don't like media which ironically was a bright spot but more importantly I have not been a fan of financials for ages.
We are hearing that infrastructure was strong so maybe that is a reason to own the stock. Well maybe, and of course at some point the stock will at a minimum ride the coattails of a bull market (maybe it'll even provide leadership?), but wouldn't make more sense to own a purer infrastructure name?
There is going to be billions and billions spent over the next decade or two on infrastructure globally, this is not debatable, so it is reasonable that stocks in this space will do very well over that time period (note this does not really create urgency right here right now).
I can't rule out luck for having avoided GE but it has been a woeful laggard and despite so many people coming on CNBC who have talked it up I think the best it can hope for over the next few years is riding the market's coattails.
19 comments:
I bought some GE at $34.65 for the kid's accounts this year - I may have to take them out for ice cream tonight - heh. I still believe that their potential in the future has little to do with their current performance, however. They outperformed coming out of the 80-82 and 90-91 recessions - though obviously lagged following the 01-03 bust. IMO, GE's 12% drop today is providing leadership for the market...
one difference between now and then is that GE was much smaller relative to the market back then than it is now.
don't know if it matters but it is a difference.
In the long run, I doubt that any combination of sector or country ETFs will beat ACWI.
that comment is probably worded incorrectly.
Go long the five best sectors (of the ten in the spx) and short the worst five would be one of many infinite ways to beat a broad based index.
picking the top three countries would be another.
what you probably mean is you don't think any investor can beat ACWI which may or may not end up being true but if you believe that you are totally wasting your time with this blog.
Where is the guy who told me GE was one of 3 stocks I could hold for 50 years! Can I get a refund on the promise.
There are no guaranties in stocks. ETFs are small investors best friend IMO.
ETFs are a great tool but i have to say that whatever the, let's say, five best stocks for the next 20 years end up being, all five of them will have periods of time far uglier than what GE is enduring now.
ditto the best five for the next ten years.
Okay, so here is a (somewhat market related and VERY newbie question) based on the market turmoil of late and the assumtion that even "good" stocks (and indexes) have ups and downs. With April 15th coming up fast(the deadline for opening Roth IRA for last year), what would you (Roger et. al.) put it in? (figure you are holding it 20+ years)
giving that type of opinion here is a huge compliance issue and taking advice from a stranger is a bad idea.
i think there is a misconception about an IRA. you don;t need to buy by tax day you just need to get the money into the account by tax day.
generically speaking the stock market, based on history has better than a 95% chance of being higher 20 years and if it is higher it will likely be much much higher.
the issue is not whether it should go into your normal equity target allocation but whether or not bad timing (if that is what it turned out to be) would cause you to sell at the wrong time.
if you really are looking at 20 years then the result of the next fill in any short time period should not matter.
So you need to know yourself and how you would react if you bought something and the first 20% was down.
"ETFs are a great tool but i have to say that whatever the, let's say, five best stocks for the next 20 years end up being, all five of them will have periods of time far uglier than what GE is enduring now.
ditto the best five for the next ten years."
Roger,
You are not a small investor.
I am sure there will be 50 stocks that beat the averages over the next ten years. I am also sure no one can guarantee the names of 5 of them.
For small investors with limited time and resources, ETF' are wonderful.
How can anyone be shocked by this? G/E still has not written down any meaningful non-performing loans or leases - what are they going to do take back a 5 year old 747 engine? They consolidated their annual reports and went on a road show which THEN made the stock go up even though things were as cloudy as ever! Wall Street is lazy, how can someone own this stock when you print out 5 pages of financials with 43 pages of footnotes? How can you say it is fairly priced if you can't see the risk?
http://tinyurl.com/4ebjgw
Roger,
this is very interesting take on 3, 4, and 5% spend rates in retirement and success rate. You may want to reconsider your 4% comments
While stocks have not been a losing proposition over any 20 year period and virtually everyone accepts that the market will be higher 20 years from now. What we don't know is: Will the US be a world leader? Will the US be in a major war that it doesn't ultimately win? Will the environment be intact?
Since no one can answer these questions, we had better keep our eyes wide open and don't follow all the pundits giving advice.
I don't think anyone would be overtly shocked if the Dow plummented 5000 points next week. I don't think any of this will happen, but...
anon 3:20 this is something i have written about many times over. it is why it is very important for all of us to learn more about foreign investing.
i believe that the US will become a generally less attractive place to invest compared to its history and compared to other countries.
i do not think it will be dramatic by any means just a little less than it was in terms of returns.
we will need our 10%-11% but we will simply need more foreign exposure to get it.
"we will need our 10%-11% but we will simply need more foreign exposure to get it."
Amen!!
Roger:
I have the GE annual report in my hands, and the opening letter from Mr. Immelt, written on February 20, 2008, does not relate at all to the statements made today on earnings. The following are quotes from page 2:
We should hit all of our financial goals "revenue growth by 10%", ROTC of near 20%, return $18 billion to shareholders through dividends and share buyback. "No exposure to CDO's or SIV's".
Now in todays compliance world, this is pretty strong stuff to put in writing, and either the bean counters missed a decimal place before the letter, and found it after February 20, 2008, or there was a miscommunication to the press. I can't believe that Mr. Immelt would deliberately mislead his shareholders within two weeks of releasing a missed earnings quarter, with a lowered projection for the coming year.
On the other hand, I'm surprised you don't consider GE a core holding. They are in the themes you love, they have a strong foreign market share, they pay a consistent and growing dividend, and they are a leader in their chosen markets. I would have expected that these criteria would work for you, since you really tend to be a buy and hold investor unless there is a fundamental change. Whats wrong with a 4% dividend and 6-8% real growth a year?
Sam
BWJR
I am a GE share holder and here is the bottom line. The market at this point in time will not tolerate this type of behavior. If you are not up front and open about your current business, when the dirt come out the stock will be punished to the tune of 12% GE. What GE lost in share holder value in one day may take the company a year to recover. what they lost in share holder confidence they may not recover for many years. In life your reputation is your most valuable asset, one that is more difficult to replace than the almighty dollar. I will hopefully see some uptick in the stock in the near future and then I will probably consider selling it and buy some Apple. Life's lessons are always tough, hopefully the right people on Wall and Main Street will learn from these lesson.
BWJR
"Where is the guy who told me GE was one of 3 stocks I could hold for 50 years! Can I get a refund on the promise."
Just since 1988 $1000 of GE stock would be worth over $9100. Since you have held it since 1958 I wouldnt think you would have anything to complain about.
BWJR
Not me!!!!!!
I bought the stock about a month ago at 33.50. You must have me confused with someone else. I'd like to get Rogers view point on this.
BWJR
BWJR, I don't think anyone is saying you are the person who made the hold forever comments about GE.
FWIW I don't think that this one event forever changes GE. Ugly report yes, longtime fallout maybe, but forever would shock me.
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