GE and the myth of "safe blue-chip stocks"

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Valuethinker
Posts: 36322
Joined: Fri May 11, 2007 11:07 am

Re: GE and the myth of "safe blue-chip stocks"

Post by Valuethinker » Tue Nov 14, 2017 5:07 pm

nisiprius wrote:
Tue Nov 14, 2017 3:47 pm
Jack FFR1846 wrote:
Tue Nov 14, 2017 3:42 pm
...The price of GE is the lowest since the depths of the financial crisis of 2009. To her, this is a golden opportunity...
I wonder if there are any shares of Enron still extent? Just think how low the prices of Enron is. Perhaps there are some Enron employees that still have printed stock certificates tucked away in a drawer, that would still be legitimate of Enron ever bounces back.
The printed business school cases of the utility of the future and world's most admired company are worth real money. Because they were withdrawn from circulation by copyright holders. Ditto the McKinsey PowerPoints.

The legal entity went bust so share certificates are probably only collectible value.

TonyDAntonio
Posts: 427
Joined: Thu Mar 03, 2016 8:32 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by TonyDAntonio » Tue Nov 14, 2017 5:07 pm

Not to get too off track here but I can't resist: GE's last CEO, Jeff Imelt, made $17,000,000 in 2016. GE's board had 18 members overseeing this catastrophe. I know this is America and putting limits on salary is just unthinkable but GE's failure doesn't just point out that blue chip stocks may not exist anymore, it also points out the massive con job done by upper management and boards at some/most of these large companies. How much should a GE CEO have made while running the company into the ground? How effective was the board that couldn't see what was happening? And yet I'll bet every employee at GE is familiar with the corporate buzz-phrase, 'pay for performance'. And I'll bet this term was used thousands of times to keep workers' salaries under control while upper management made millions. Shameful.

Valuethinker
Posts: 36322
Joined: Fri May 11, 2007 11:07 am

Re: GE and the myth of "safe blue-chip stocks"

Post by Valuethinker » Tue Nov 14, 2017 5:09 pm

Jack FFR1846 wrote:
Tue Nov 14, 2017 3:42 pm
JCE66 wrote:
Tue Nov 14, 2017 8:39 am
Time for a contrarian view. Consider the quote below.
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
Yesterday, my wife took a long-term shot with some play money. Not a lot, mind you, but enough (for us). The price of GE is the lowest since the depths of the financial crisis of 2009. To her, this is a golden opportunity. I had joked with my wife back in 2009 that we should take 25K out of our HELOC and buy GE (it was roughly 8 bucks/share). But she quickly dissuaded me of that with a look. You know, the look only a wife can give.
Your wife should look at DEC in October of 87 (black Monday). How could the second largest computer company possibly not come back. The stock price never did and it never did. I took a bath on it. GE looks even less sure of where it's going at the moment to my amateur eyes.
Catch the falling knife.

Did it on Nortel at 25 bucks (down from 125 so cheap)

DrGoogle2017
Posts: 1322
Joined: Mon Aug 14, 2017 12:31 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by DrGoogle2017 » Tue Nov 14, 2017 5:24 pm

It turns out Buffet did sell GE back in June of 2017. He must know something about it.
https://www.cnbc.com/2017/08/14/buffett ... ctric.html

SrGrumpy
Posts: 703
Joined: Wed Aug 05, 2015 3:21 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by SrGrumpy » Tue Nov 14, 2017 5:42 pm

Caduceus wrote:
Tue Nov 14, 2017 4:37 pm
It's interesting that there's so much discussion about GE being a good or bad stock without any accounting language at all. Everyone's speaking at such a high level of abstraction about GE products and industries, etc. Has anyone actually done a deep dive into GE's financial statements? GE's pension assumptions? It's off-balance sheet liabilities?
GE has had 2 dreadful CEOs in a row. Welch was infamous for massaging the numbers, and god knows what Immelt got up to. It's surprising the stock did as well as it did over the years. The deep-dive numbers can't be pretty. Any purchase from now is a bet on Flannery righting the ship. He seems to be off to a good start.

iamlucky13
Posts: 1031
Joined: Sat Mar 04, 2017 5:28 pm
Location: Western Washington

Re: GE and the myth of "safe blue-chip stocks"

Post by iamlucky13 » Tue Nov 14, 2017 6:06 pm

Caduceus wrote:
Tue Nov 14, 2017 4:37 pm
It's interesting that there's so much discussion about GE being a good or bad stock without any accounting language at all. Everyone's speaking at such a high level of abstraction about GE products and industries, etc. Has anyone actually done a deep dive into GE's financial statements? GE's pension assumptions? It's off-balance sheet liabilities?
Deep dive, no. I've looked at high level numbers to make sure they make some sense. At the very highest level, they were paying out a dividend slightly higher than their net income. The cut in the dividend fixes that at least. Other initiatives at least seem reasonable as far plans to re-examine ways to reduce costs and focus spending on the segments likely to return the most revenue, but the details of those initiatives are a bit hazy so far, and not easy to really quantify their future results.

Anyways, I mentioned before my plan is to continue dollar cost averaging at least mostly out of GE, one of three remaining individual stocks I own. Even before this thread, I was keenly aware of the point nisiprius wanted to make when he started the thread.

Interestingly, when I have new cash to invest, it's very easy for me to put it directly into my index funds without reservations. When it comes to actually selling off another chunk of my GE to move it into index funds, however, it's difficult to accept that regardless of the fact that it was $30+ a share very recently and I think it's oversold right now, I don't truly know where it will go from here.

Selling off via DCA is supposed to be an easy way around that uncertainty, but since I didn't mentally commit to a specific schedule to follow, the temptation to time my incremental sales is hard to overcome. Not to mention a little voice in my head also wants to convince me this is actually a good time to buy.

User avatar
arcticpineapplecorp.
Posts: 3334
Joined: Tue Mar 06, 2012 9:22 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by arcticpineapplecorp. » Tue Nov 14, 2017 6:06 pm

Valuethinker wrote:
Tue Nov 14, 2017 5:09 pm
Jack FFR1846 wrote:
Tue Nov 14, 2017 3:42 pm
JCE66 wrote:
Tue Nov 14, 2017 8:39 am
Time for a contrarian view. Consider the quote below.
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
Yesterday, my wife took a long-term shot with some play money. Not a lot, mind you, but enough (for us). The price of GE is the lowest since the depths of the financial crisis of 2009. To her, this is a golden opportunity. I had joked with my wife back in 2009 that we should take 25K out of our HELOC and buy GE (it was roughly 8 bucks/share). But she quickly dissuaded me of that with a look. You know, the look only a wife can give.
Your wife should look at DEC in October of 87 (black Monday). How could the second largest computer company possibly not come back. The stock price never did and it never did. I took a bath on it. GE looks even less sure of where it's going at the moment to my amateur eyes.
Catch the falling knife.

Did it on Nortel at 25 bucks (down from 125 so cheap)

So the price of GE is the lowest since the depths of the financial crisis of 2009? Does that mean it's cheap now? Not according to the following:
Indeed, GE cut its guidance to $1 to $1.07 a share from the $1.60 to $1.70 the company had indicated following its second-quarter earnings release. Though it lowered the bar, the company still faces a share price that looks at least fully valued and probably a little overvalued even by standard metrics.

Even after another share plunge Tuesday, the stock still traded at nearly 21 times earnings. That's above the S&P 500's 18.4 times P/E and just ahead of the 19.3 P/E that the industrial sector is carrying.

source: https://www.cnbc.com/2017/11/14/why-gen ... -come.html
where's the screaming buy from a valuation perspective?
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

Nicolas
Posts: 1119
Joined: Wed Aug 22, 2012 7:41 am

Re: GE and the myth of "safe blue-chip stocks"

Post by Nicolas » Tue Nov 14, 2017 6:43 pm

arcticpineapplecorp. wrote:
Tue Nov 14, 2017 6:06 pm
So the price of GE is the lowest since the depths of the financial crisis of 2009?
Not so. GE dipped to $6.66 in March 2009 during the depths of the financial crisis. It closed today at $17.90.
This is the lowest it's been since the end of 2011.

User avatar
arcticpineapplecorp.
Posts: 3334
Joined: Tue Mar 06, 2012 9:22 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by arcticpineapplecorp. » Tue Nov 14, 2017 6:52 pm

Nicolas wrote:
Tue Nov 14, 2017 6:43 pm
arcticpineapplecorp. wrote:
Tue Nov 14, 2017 6:06 pm
So the price of GE is the lowest since the depths of the financial crisis of 2009?
Not so. GE dipped to $6.66 in March 2009 during the depths of the financial crisis. It closed today at $17.90.
This is the lowest it's been since the end of 2011.
right, but it's valuation that matters. The stock is not cheap now even though the price is lower than it's been since 2009.

The argument that the stock is a screaming buy because the price is cheap holds no water when you think about the following:

Say GE stock was $100 a share. Then they do a 5 for 1 stock split. Now the shares are selling for $20 a share. Is GE stock a better buy at $20 now then it was at $100 just because the price is lower?
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

hoops777
Posts: 2317
Joined: Sun Apr 10, 2011 12:23 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by hoops777 » Tue Nov 14, 2017 7:05 pm

WhiteMaxima wrote:
Tue Nov 14, 2017 1:21 pm
Air plane engine, healthcare, power genenator. That's the backbone of US economy. We can live without facebook, amazon, apple but can't live without GE. Slim down and sell off other business. It will take time to turn the big shp around. It's a long term play.
I know people who cannot live without Facebook,Amazon and Apple :happy
K.I.S.S........so easy to say so difficult to do.

User avatar
Tycoon
Posts: 1273
Joined: Wed Mar 28, 2012 7:06 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by Tycoon » Tue Nov 14, 2017 7:14 pm

avalpert wrote:
Tue Nov 14, 2017 2:55 pm
WhiteMaxima wrote:
Tue Nov 14, 2017 1:21 pm
Air plane engine, healthcare, power genenator. That's the backbone of US economy. We can live without facebook, amazon, apple but can't live without GE. Slim down and sell off other business. It will take time to turn the big shp around. It's a long term play.
Other companies do all of those things. We can most definitely live without GE.
Precisely. And there are other companies that do it better.
Appeal to Pity:When pity is envoked to support a statement | Appeal to Popular Sentiment:Appealing to unrelated prejudices and attitudes | Hasty Generalization:Too little evidence to support the conclusion

Nicolas
Posts: 1119
Joined: Wed Aug 22, 2012 7:41 am

Re: GE and the myth of "safe blue-chip stocks"

Post by Nicolas » Tue Nov 14, 2017 8:28 pm

arcticpineapplecorp. wrote:
Tue Nov 14, 2017 6:52 pm
Nicolas wrote:
Tue Nov 14, 2017 6:43 pm
arcticpineapplecorp. wrote:
Tue Nov 14, 2017 6:06 pm
So the price of GE is the lowest since the depths of the financial crisis of 2009?
Not so. GE dipped to $6.66 in March 2009 during the depths of the financial crisis. It closed today at $17.90.
This is the lowest it's been since the end of 2011.
right, but it's valuation that matters. The stock is not cheap now even though the price is lower than it's been since 2009.

The argument that the stock is a screaming buy because the price is cheap holds no water when you think about the following:

Say GE stock was $100 a share. Then they do a 5 for 1 stock split. Now the shares are selling for $20 a share. Is GE stock a better buy at $20 now then it was at $100 just because the price is lower?
I'm not saying anything about the value of this stock. That was someone else up-thread. It wasn't me.

I'm only saying that the statement that the price of the stock is "the lowest since the depths of the financial crisis of 2009" is not true. It was lower than today as recently as at the end of 2011.

Now you again state "the price is lower than it's been since 2009". This is false. Consult a chart of GE's price and you'll see that the price was lower than today in most of the last half of 2011. The correct statement would be that the price is lower than it's been since the end of 2011.

User avatar
CyclingDuo
Posts: 1774
Joined: Fri Jan 06, 2017 9:07 am

Re: GE and the myth of "safe blue-chip stocks"

Post by CyclingDuo » Tue Nov 14, 2017 10:13 pm

arcticpineapplecorp. wrote:
Tue Nov 14, 2017 6:06 pm
where's the screaming buy from a valuation perspective?
Around $11-12 if the stock had stopped falling, and was starting to base there if the forecast was for .96 - $1.07 in EPS.

:greedy
"Everywhere is within walking distance if you have the time." ~ Steven Wright

User avatar
nisiprius
Advisory Board
Posts: 36852
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: GE and the myth of "safe blue-chip stocks"

Post by nisiprius » Tue Nov 14, 2017 10:49 pm

WhiteMaxima wrote:
Tue Nov 14, 2017 4:08 pm
...As for the GE company, this is a very unique case. GE is much like an index fund...
No, it isn't. It isn't regulated by the Investment Company Act of 1940.
...it has no restrictions it has too many of business. You name it.
Like Litton Industries, ITT, and Ling-Temco-Vought.
During 2008, the GE capital almost killed GE. So they went back to their core business: infrastructure, power plant, health care and airplane engine. It is the core of US economy...
Very likely, in 2006, people would have said that GE Capital and Genworth were additional diversification.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

User avatar
snackdog
Posts: 342
Joined: Wed Nov 12, 2014 4:57 am

Re: GE and the myth of "safe blue-chip stocks"

Post by snackdog » Wed Nov 15, 2017 3:32 am

There is nothing sacred about the DOW. None of the original companies from 1896 are still around. Oh wait, one is - GE! It has actually been kicked out of the DOW twice before and risen from the ashes.

Anyhow, it has been struggling for years. They need to do something different, for sure, even if it is wrong. You all own it in your index funds. If the OP has owned a lot of the stock that may be a regret at this point. “Safe blue chip stocks” is a phrase from the 70s which has meant “meager performance” since the 90s or so.

Valuethinker
Posts: 36322
Joined: Fri May 11, 2007 11:07 am

Re: GE and the myth of "safe blue-chip stocks"

Post by Valuethinker » Wed Nov 15, 2017 3:52 am

arcticpineapplecorp. wrote:
Tue Nov 14, 2017 6:06 pm
Valuethinker wrote:
Tue Nov 14, 2017 5:09 pm
Jack FFR1846 wrote:
Tue Nov 14, 2017 3:42 pm
JCE66 wrote:
Tue Nov 14, 2017 8:39 am
Time for a contrarian view. Consider the quote below.
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
Yesterday, my wife took a long-term shot with some play money. Not a lot, mind you, but enough (for us). The price of GE is the lowest since the depths of the financial crisis of 2009. To her, this is a golden opportunity. I had joked with my wife back in 2009 that we should take 25K out of our HELOC and buy GE (it was roughly 8 bucks/share). But she quickly dissuaded me of that with a look. You know, the look only a wife can give.
Your wife should look at DEC in October of 87 (black Monday). How could the second largest computer company possibly not come back. The stock price never did and it never did. I took a bath on it. GE looks even less sure of where it's going at the moment to my amateur eyes.
Catch the falling knife.

Did it on Nortel at 25 bucks (down from 125 so cheap)

So the price of GE is the lowest since the depths of the financial crisis of 2009? Does that mean it's cheap now? Not according to the following:
Indeed, GE cut its guidance to $1 to $1.07 a share from the $1.60 to $1.70 the company had indicated following its second-quarter earnings release. Though it lowered the bar, the company still faces a share price that looks at least fully valued and probably a little overvalued even by standard metrics.

Even after another share plunge Tuesday, the stock still traded at nearly 21 times earnings. That's above the S&P 500's 18.4 times P/E and just ahead of the 19.3 P/E that the industrial sector is carrying.

source: https://www.cnbc.com/2017/11/14/why-gen ... -come.html
where's the screaming buy from a valuation perspective?
You'd have to do a Sum-of-the-Parts analysis. Because you have some quite high quality businesses (medical, aero engines) buried in a much bigger conglomerate. The sort of multiples private equity is paying for LBO, you could probably sell Medical for 18-21x (EV/ EBITDA).

It's not unusual for a new CEO to "kitchen sink" it on the bad news. Write down everything you can (big asset impairment charges coming?) and move the Street's estimate of your earnings down to a number you know you can make.

All the bad news up front. Buys him say 18 months to make things better.

Valuethinker
Posts: 36322
Joined: Fri May 11, 2007 11:07 am

Re: GE and the myth of "safe blue-chip stocks"

Post by Valuethinker » Wed Nov 15, 2017 3:54 am

nisiprius wrote:
Tue Nov 14, 2017 10:49 pm
WhiteMaxima wrote:
Tue Nov 14, 2017 4:08 pm
...As for the GE company, this is a very unique case. GE is much like an index fund...
No, it isn't. It isn't regulated by the Investment Company Act of 1940.
...it has no restrictions it has too many of business. You name it.
Like Litton Industries, ITT, and Ling-Temco-Vought.
During 2008, the GE capital almost killed GE. So they went back to their core business: infrastructure, power plant, health care and airplane engine. It is the core of US economy...
Very likely, in 2006, people would have said that GE Capital and Genworth were additional diversification.
And they did-- argue the financial side was valuable in diversification.

The problem is now it was tying up too much capital and regulatory costs have soared.

The company is a Conglomerate, but it's not an Investment Trust (Closed End Fund). It pays taxes like a normal corporation of that scale and diversity of international operations.

It's now a diversified industrial conglomerate. Think Siemens or United Technologies.

harrad
Posts: 27
Joined: Mon Sep 29, 2014 6:50 am

Re: GE and the myth of "safe blue-chip stocks"

Post by harrad » Wed Nov 15, 2017 7:37 am

Hoping not to derail the conversation but wanted to share a personal experience with GE which points to a larger decay in the company.

Was being interviewed for a research position at the global research center and met some of the most brilliant folks there. To get me excited they showed me Thomas Edison's desk and Langmuir's workspace. However at the end of what I thought was great interview, the hiring manager told me that even though this was a research center, fundamental research was discouraged by management! It was heartbreaking to see top graduates from schools around the world not being put to the best use. I still decided to accept the offer with abysmal pay with the idea that I get to work with fine colleagues, a personal setback forced me not to go through with it. It is a shame to see a great company dying slowly from within.

User avatar
AtlasShrugged?
Posts: 608
Joined: Wed Jul 15, 2015 6:08 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by AtlasShrugged? » Wed Nov 15, 2017 7:59 am

Bogleheads....You're a rough crowd; I have come to appreciate it. 8-)

I have a pretty simple philosophy when it comes to my wife's investing: Don't try to micromanage, always encourage.

As an aside: The overwhelming majority of her investments are concentrated in VTSAX (~90%). If she wants to take a shot, who am I to dissuade her? I cannot argue with her reasoning. But I will tell you what. Let's compare notes in 10-20 years. I plan to be around. :happy
“If you don't know, the thing to do is not to get scared, but to learn.”

User avatar
nisiprius
Advisory Board
Posts: 36852
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: GE and the myth of "safe blue-chip stocks"

Post by nisiprius » Wed Nov 15, 2017 8:34 am

snackdog wrote:
Wed Nov 15, 2017 3:32 am
...“Safe blue chip stocks” is a phrase from the 70s which has meant “meager performance” since the 90s or so...
As recently as 2009, Brent Arends in the Wall Street Journal was suggesting that they were an appropriate place to put emergency cash.

(To be fair, but what fun is that?, $10,000 invested in GE on the date of Arends' article, 9/24/2017 would, as of 11/14/2017, recent drop and all, now have grown to $13,638.65... for an annualized return of 3.89%).

Putting Your Emergency Money in Blue Chips

Here's the headline and subtitle, the WSJ seems to have ended the "Google exception" for their paywall.
Image
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

SGM
Posts: 2740
Joined: Wed Mar 23, 2011 4:46 am

Re: GE and the myth of "safe blue-chip stocks"

Post by SGM » Wed Nov 15, 2017 8:52 am

If world peace broke out and defense stocks plunged I would be a buyer. The difficult decision would be when to sell.

not4me
Posts: 428
Joined: Thu May 25, 2017 3:08 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by not4me » Wed Nov 15, 2017 10:30 am

JCE66 wrote:
Wed Nov 15, 2017 7:59 am
Bogleheads....You're a rough crowd; I have come to appreciate it. 8-)

I have a pretty simple philosophy when it comes to my wife's investing: Don't try to micromanage, always encourage.

As an aside: The overwhelming majority of her investments are concentrated in VTSAX (~90%). If she wants to take a shot, who am I to dissuade her? I cannot argue with her reasoning. But I will tell you what. Let's compare notes in 10-20 years. I plan to be around. :happy
Not to pick on your choice of words, but I'm curious if whether your wife views the 10% that is "non-VTSAX" as investments or trades? If trades, does she have a method that might be shareable? I confess this thread has about convinced me that I might want to find time to research more about GE & see if a trade looks profitable now or in near future....

edge
Posts: 3331
Joined: Mon Feb 19, 2007 7:44 pm
Location: Great Falls VA

Re: GE and the myth of "safe blue-chip stocks"

Post by edge » Wed Nov 15, 2017 11:52 am

People believe this because they have an inability to think over long periods of time. Strong companies take a while to die and it happens infrequently enough so that people operate as if it 'never happens'.


German Expat
Posts: 604
Joined: Fri Oct 16, 2009 10:49 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by German Expat » Tue Jan 16, 2018 9:09 am


livesoft
Posts: 62776
Joined: Thu Mar 01, 2007 8:00 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by livesoft » Tue Jan 16, 2018 9:24 am

German Expat wrote:
Tue Jan 16, 2018 9:09 am
Another bad news day for GE:
And appropriate application of the adjective "adverse" by analyst in the attached article.
Wiki This signature message sponsored by sscritic: Learn to fish.

User avatar
cfs
Posts: 4154
Joined: Fri Feb 23, 2007 1:22 am
Location: ~ Mi Propio Camino ~

Re: GE and the myth of "safe blue-chip stocks"

Post by cfs » Tue Jan 16, 2018 9:45 am

Good luck to GE investors, seriously. For some owning GE is like owning a mutual fund, a couple of weeks ago I was told the same about owning another well-known company. No, they are not mutual funds. Those who dare to ignore history . . . Good luck and thanks for reading / cfs
~ Member of the Active Retired Force since 2014 ~

Yohanson
Posts: 39
Joined: Sun Sep 25, 2016 7:16 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by Yohanson » Tue Jan 16, 2018 10:46 am

Artsdoctor wrote:
Tue Nov 14, 2017 2:33 pm
While posting a Wikipedia page is something I would generally not do, it can sometimes to helpful to take a walk down memory lane:

https://en.wikipedia.org/wiki/Historica ... 14.2C_1929

Nothing is forever.
I've been saying for years now that GE should be replaced with Allied Chemical and Dye (Honeywell). HON has actually outpaced the S&P 500 since they were removed from the Dow.

Nate79
Posts: 3574
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: GE and the myth of "safe blue-chip stocks"

Post by Nate79 » Tue Jan 16, 2018 11:00 am

Interesting that they called out one of their key issues is related to long term care insurance.

acanthurus
Posts: 372
Joined: Sun Aug 04, 2013 8:02 am

Removed

Post by acanthurus » Tue Jan 16, 2018 11:06 am

Removed
Last edited by acanthurus on Sun Apr 08, 2018 10:56 am, edited 1 time in total.

onourway
Posts: 1283
Joined: Thu Dec 08, 2016 3:39 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by onourway » Tue Jan 16, 2018 11:08 am

acanthurus wrote:
Tue Jan 16, 2018 11:06 am

I think it's simply too advanced for the vast majority of this board (myself included) since it requires some real accounting knowledge and financial modeling skills. I do not possess enough of either, but I still like to read 10Qs to get a better understanding of how a business works and read the statements by management about risks etc. I will also usually pop over to fairlyvalued.com and look at the aggregated historical data from SEC filings to understand the history of a company a bit better (you can easily get 20 years of SEC filing data graphically and in CSV format for free). I think most Bogleheads would benefit seeing someone build a real DCF model for something like this. They might start to appreciate those gambling active stock pickers who are determining their index fund share price a little more :wink:

I don't know of a good GE valuation to link to but here's some data if folks are interested:

https://fairlyvalued.com/company/GE
https://www.sec.gov/cgi-bin/browse-edga ... getcompany
And even people who have the experience to do this kind of analysis don't have much of a track record of out-performance. There are simply too many unknowns even when you have reams of data.

OkieIndexer
Posts: 385
Joined: Sun Aug 23, 2009 1:10 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by OkieIndexer » Tue Jan 16, 2018 11:12 am

Tootsie Roll?? :P Who woulda thunk? I didn't even know that was an individual company. I thought they were made by General Mills or Nestle or something.
"In bull markets, people say 'The more risk I take, the greater my return.' But when people aren't afraid of risk, they'll accept risk without being compensated." -Howard Marks, Oaktree Capital

User avatar
Doc
Posts: 8663
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Re: GE and the myth of "safe blue-chip stocks"

Post by Doc » Tue Jan 16, 2018 11:31 am

Mrs. Doc initiated a buy of GE on 3/10/2008 3/10/2009. A $10k investment has has grown to over $33k in the ~ten years since. :sharebeer

Corrected typo. Thanks abner kravitz,
Last edited by Doc on Tue Jan 16, 2018 5:39 pm, edited 1 time in total.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

acanthurus
Posts: 372
Joined: Sun Aug 04, 2013 8:02 am

Removed

Post by acanthurus » Tue Jan 16, 2018 11:35 am

Removed
Last edited by acanthurus on Sun Apr 08, 2018 10:56 am, edited 1 time in total.

User avatar
1210sda
Posts: 1408
Joined: Wed Feb 28, 2007 8:31 am

Re: GE and the myth of "safe blue-chip stocks"

Post by 1210sda » Tue Jan 16, 2018 11:43 am

Is this correct??

Vanguards Total Stock Market Index Fund (VTSAX) has only market risk.

GE (or any individual stock) has both market risk and Individual company risk (or unsystematic risk, or idiosyncratic risk).

1210

SrGrumpy
Posts: 703
Joined: Wed Aug 05, 2015 3:21 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by SrGrumpy » Tue Jan 16, 2018 12:37 pm

OkieIndexer wrote:
Tue Jan 16, 2018 11:12 am
Tootsie Roll?? :P Who woulda thunk? I didn't even know that was an individual company. I thought they were made by General Mills or Nestle or something.
There have been some funny stories about it, WSJ etc. in recent years. It was run very mysteriously by Ma and Pa Kettle, with a daughter in the Obama administration. I meant to buy some stock in expectation of death plus takeover but forgot.

ved
Posts: 698
Joined: Sat Jan 18, 2014 6:56 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by ved » Tue Jan 16, 2018 1:02 pm

1210sda wrote:
Tue Jan 16, 2018 11:43 am
Is this correct??

Vanguards Total Stock Market Index Fund (VTSAX) has only market risk.

GE (or any individual stock) has both market risk and Individual company risk (or unsystematic risk, or idiosyncratic risk).

1210
I don't think that's correct.

VTSAX has the individual companies in it - so, it has the idiosyncratic risk of the individual companies, along with the market risk. But, because the % of each company in the Total Stock Market Index is so small, that the idiosyncratic risk is not material.

User avatar
1210sda
Posts: 1408
Joined: Wed Feb 28, 2007 8:31 am

Re: GE and the myth of "safe blue-chip stocks"

Post by 1210sda » Tue Jan 16, 2018 2:39 pm

ved wrote:
Tue Jan 16, 2018 1:02 pm
1210sda wrote:
Tue Jan 16, 2018 11:43 am
Is this correct??

Vanguards Total Stock Market Index Fund (VTSAX) has only market risk.

GE (or any individual stock) has both market risk and Individual company risk (or unsystematic risk, or idiosyncratic risk).

1210
I don't think that's correct.

VTSAX has the individual companies in it - so, it has the idiosyncratic risk of the individual companies, along with the market risk. But, because the % of each company in the Total Stock Market Index is so small, that the idiosyncratic risk is not material.
Don't the individual company risks sort of cancel each other out?? In other words, diversify away unsystematic risk.
1210

ved
Posts: 698
Joined: Sat Jan 18, 2014 6:56 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by ved » Tue Jan 16, 2018 3:02 pm

1210sda wrote:
Tue Jan 16, 2018 2:39 pm
ved wrote:
Tue Jan 16, 2018 1:02 pm
1210sda wrote:
Tue Jan 16, 2018 11:43 am
Is this correct??

Vanguards Total Stock Market Index Fund (VTSAX) has only market risk.

GE (or any individual stock) has both market risk and Individual company risk (or unsystematic risk, or idiosyncratic risk).

1210
I don't think that's correct.

VTSAX has the individual companies in it - so, it has the idiosyncratic risk of the individual companies, along with the market risk. But, because the % of each company in the Total Stock Market Index is so small, that the idiosyncratic risk is not material.
Don't the individual company risks sort of cancel each other out??
1210
How? Let's say, there was no other market news, except that it's found that GE engines had a major flaw that would lead the FAA to ground all planes with GE engines. GE's stock will drop like a rock, so will the airlines'. Yeah, some local transportation companies / car rental companies will probably go up a bit, but not enough to compensate for the loss in GE and the airlines' market-cap (because the international travel cannot be replaced any other viable means)

So, the VTSAX will be down a bit - because of the % of the GE and the airlines' stocks allocation in it.

grog
Posts: 371
Joined: Sat Jul 20, 2013 1:09 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by grog » Tue Jan 16, 2018 3:14 pm

I find the idea of "blue chip" companies to be a somewhat useful concept as long as you realize that they are "safe" only relative to other stocks and recognize that they still carry uncompensated diversifiable risk. Certain funds like VIG (Vanguard Dividend Appreciation) have diversified exposure to blue chip type companies, and such equity portfolios are generally less volatile. I'm younger so I prefer to be more aggressive, but for conservative allocations I don't think it's outrageous to tilt defensive.
Last edited by grog on Fri Jan 19, 2018 10:30 am, edited 1 time in total.

User avatar
aj76er
Posts: 592
Joined: Tue Dec 01, 2015 11:34 pm
Location: Portland, OR

Re: GE and the myth of "safe blue-chip stocks"

Post by aj76er » Tue Jan 16, 2018 3:18 pm

ved wrote:
Tue Jan 16, 2018 1:02 pm
1210sda wrote:
Tue Jan 16, 2018 11:43 am
Is this correct??

Vanguards Total Stock Market Index Fund (VTSAX) has only market risk.

GE (or any individual stock) has both market risk and Individual company risk (or unsystematic risk, or idiosyncratic risk).

1210
I don't think that's correct.

VTSAX has the individual companies in it - so, it has the idiosyncratic risk of the individual companies, along with the market risk. But, because the % of each company in the Total Stock Market Index is so small, that the idiosyncratic risk is not material.
For all practical purposes, there is no idiosyncratic risk in VTSAX. If it's there, it is so small that it is immaterial (and likely unmeasurable). You can assume that VTSAX only has market (i.e. beta) risk associated with it. An international index (e.g. VTIAX) has beta + currency risk associated with it.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

German Expat
Posts: 604
Joined: Fri Oct 16, 2009 10:49 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by German Expat » Tue Jan 16, 2018 3:29 pm

ved wrote:
Tue Jan 16, 2018 3:02 pm
1210sda wrote:
Tue Jan 16, 2018 2:39 pm
ved wrote:
Tue Jan 16, 2018 1:02 pm
1210sda wrote:
Tue Jan 16, 2018 11:43 am
Is this correct??

Vanguards Total Stock Market Index Fund (VTSAX) has only market risk.

GE (or any individual stock) has both market risk and Individual company risk (or unsystematic risk, or idiosyncratic risk).

1210
I don't think that's correct.

VTSAX has the individual companies in it - so, it has the idiosyncratic risk of the individual companies, along with the market risk. But, because the % of each company in the Total Stock Market Index is so small, that the idiosyncratic risk is not material.
Don't the individual company risks sort of cancel each other out??
1210
How? Let's say, there was no other market news, except that it's found that GE engines had a major flaw that would lead the FAA to ground all planes with GE engines. GE's stock will drop like a rock, so will the airlines'. Yeah, some local transportation companies / car rental companies will probably go up a bit, but not enough to compensate for the loss in GE and the airlines' market-cap (because the international travel cannot be replaced any other viable means)

So, the VTSAX will be down a bit - because of the % of the GE and the airlines' stocks allocation in it.
You could also assume then that United Technologies UTX and Rolls Royce RR would go up since engine demand won't go down and there is huge business for them so in a well diversified portfolio this will cancel out.

ved
Posts: 698
Joined: Sat Jan 18, 2014 6:56 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by ved » Tue Jan 16, 2018 3:34 pm

German Expat wrote:
Tue Jan 16, 2018 3:29 pm
ved wrote:
Tue Jan 16, 2018 3:02 pm
1210sda wrote:
Tue Jan 16, 2018 2:39 pm
ved wrote:
Tue Jan 16, 2018 1:02 pm
1210sda wrote:
Tue Jan 16, 2018 11:43 am
Is this correct??

Vanguards Total Stock Market Index Fund (VTSAX) has only market risk.

GE (or any individual stock) has both market risk and Individual company risk (or unsystematic risk, or idiosyncratic risk).

1210
I don't think that's correct.

VTSAX has the individual companies in it - so, it has the idiosyncratic risk of the individual companies, along with the market risk. But, because the % of each company in the Total Stock Market Index is so small, that the idiosyncratic risk is not material.
Don't the individual company risks sort of cancel each other out??
1210
How? Let's say, there was no other market news, except that it's found that GE engines had a major flaw that would lead the FAA to ground all planes with GE engines. GE's stock will drop like a rock, so will the airlines'. Yeah, some local transportation companies / car rental companies will probably go up a bit, but not enough to compensate for the loss in GE and the airlines' market-cap (because the international travel cannot be replaced any other viable means)

So, the VTSAX will be down a bit - because of the % of the GE and the airlines' stocks allocation in it.
You could also assume then that United Technologies UTX and Rolls Royce RR would go up since engine demand won't go down and there is huge business for them so in a well diversified portfolio this will cancel out.
Not necessarily. It's not likely the airlines can/will dump all their planes / GE engines and just replace with competitor engines immediately in the short-term. It is more likely that GE will fix the flaw - but will take time (days/ weeks)

ved
Posts: 698
Joined: Sat Jan 18, 2014 6:56 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by ved » Tue Jan 16, 2018 3:38 pm

aj76er wrote:
Tue Jan 16, 2018 3:18 pm
ved wrote:
Tue Jan 16, 2018 1:02 pm
1210sda wrote:
Tue Jan 16, 2018 11:43 am
Is this correct??

Vanguards Total Stock Market Index Fund (VTSAX) has only market risk.

GE (or any individual stock) has both market risk and Individual company risk (or unsystematic risk, or idiosyncratic risk).

1210
I don't think that's correct.

VTSAX has the individual companies in it - so, it has the idiosyncratic risk of the individual companies, along with the market risk. But, because the % of each company in the Total Stock Market Index is so small, that the idiosyncratic risk is not material.
For all practical purposes, there is no idiosyncratic risk in VTSAX. If it's there, it is so small that it is immaterial (and likely unmeasurable). You can assume that VTSAX only has market (i.e. beta) risk associated with it. An international index (e.g. VTIAX) has beta + currency risk associated with it.
Agreed - and that's what I said in a post above - "the idiosyncratic risk is not material". But, it's because each company is a (very) small % of VTSAX - not because somehow the idiosyncratic risk disappears from the stock just because it is part of a well-diversified fund.

abner kravitz
Posts: 341
Joined: Tue May 05, 2015 7:42 am
Location: Beaufort County, SC

Re: GE and the myth of "safe blue-chip stocks"

Post by abner kravitz » Tue Jan 16, 2018 5:19 pm

Doc wrote:
Tue Jan 16, 2018 11:31 am
Mrs. Doc initiated a buy of GE on 3/10/2008. A $10k investment has has grown to over $33k in the ~ten years since. :sharebeer
Pretty sweet, but surely you mean 3/10/2009. Anybody who bought 3/10/2008 has taken a bath I think. The stock was trading well over $30 then.

User avatar
Doc
Posts: 8663
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Re: GE and the myth of "safe blue-chip stocks"

Post by Doc » Tue Jan 16, 2018 5:43 pm

abner kravitz wrote:
Tue Jan 16, 2018 5:19 pm
Doc wrote:
Tue Jan 16, 2018 11:31 am
Mrs. Doc initiated a buy of GE on 3/10/2008. A $10k investment has has grown to over $33k in the ~ten years since. :sharebeer
Pretty sweet, but surely you mean 3/10/2009. Anybody who bought 3/10/2008 has taken a bath I think. The stock was trading well over $30 then.
Thanks, I fixed it.

I kind of got mad at her for missing the bottom by one whole day so last week I doubled our GE position so she would forgive me.

(Just so anyone thinks we don't belong on the board that GE holding is the one and only single stock in our entire portfolio. :D)
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

uberational44
Posts: 73
Joined: Thu Jul 20, 2017 4:18 am
Contact:

Re: GE and the myth of "safe blue-chip stocks"

Post by uberational44 » Thu Jan 18, 2018 4:32 pm

I always think people assume that the longer something has been around the safer it is. GE has been a defensive stocks for the best part of a century, however will it be able to stay a secure investment for the next 20-30 years?

It reminds me of Louis XVII in France in 1788. If someone had asked him if there was going to be a revolution, he would have laughed at them. But it happened!

Personally, I think many "safe" and "defensive" blue-chip stocks will struggle in the age of disruption. I would rather stick with a robotics etf (provided it's safe)
Marketeer investing as a hobby. Interested in modern takes on value investing, passive investing and general contrarianism.

columbia
Posts: 979
Joined: Tue Aug 27, 2013 5:30 am

Re: GE and the myth of "safe blue-chip stocks"

Post by columbia » Thu Jan 18, 2018 6:59 pm

Setting aside individual stocks, while I don’t own it, I think that an ETF with blue chip stocks meets any reasonable standard of diversification. For example, MGC:
https://personal.vanguard.com/us/FundsA ... irect=true

In its lifetime, it’s had slightly less volatility than SP500.

One could do a lot worse.

User avatar
bottlecap
Posts: 5855
Joined: Tue Mar 06, 2007 11:21 pm
Location: Tennessee

Re: GE and the myth of "safe blue-chip stocks"

Post by bottlecap » Thu Jan 18, 2018 11:10 pm

I missed this before, but it's a great original post. Something to remember.

JT

Caduceus
Posts: 1728
Joined: Mon Sep 17, 2012 1:47 am

Re: GE and the myth of "safe blue-chip stocks"

Post by Caduceus » Fri Jan 19, 2018 4:39 pm

acanthurus wrote:
Tue Jan 16, 2018 11:35 am
onourway wrote:
Tue Jan 16, 2018 11:08 am
And even people who have the experience to do this kind of analysis don't have much of a track record of out-performance. There are simply too many unknowns even when you have reams of data.
Financial modeling is actually really hard work, so much so I'd probably prefer to be a farmer.

I think the qualitative side of things is much easier for people to discuss, so that's what people discuss. It just has very limited value without a valuation assigned.
I think the Bogleheads go to extremes in their beliefs about efficient markets. Many hedge funds or analysts don't have a long-term horizon. They have to update clients every quarter with how money is doing, so they are constantly chasing stocks or sectors that are designed to give superior short-term performance, which is very tough to do. It's possible to identify undervalued companies, but not based on financial 'modeling'.

Financial "modeling" doesn't work because if the input is garbage, the output is garbage. For many companies, there is no way to reliably forecast cash flows ten years into the future. With a conglomerate like GE, it is even more unlikely that one can do it. I think people have to ask themselves what the company is worth in a reasonable worst-case scenario, i.e. if profits don't grow, if particular lines get shut out completely, etc., and then ask what the company is worth in that scenario. Analysts who spit out sensitivity analyses with detailed modifications based on interest rate variables or revenue growth, etc. - most of that is useless.

In 99% of the cases, the market price wont be compelling no matter what numbers you plug in. But sometimes, just sometimes, you will find a stock that is trading at some extreme depressed value that doesn't make sense, and you don't have to know precisely if it's fairly valued at $100 or $80 or $60 if the market is offering it to you at $30. If someone was trying to sell you a diamond in the store, you wouldn't be able to tell if it was worth $1000 or $10,000, but if you could get it for $100, you'd likely win the bet.

The interesting thing about financial markets is that occasionally, you find companies like that. Last year, I found a company with 2.6x more cash than its market capitalization, and was trading at 0.4 of its book value. Understand what that means. It means a third-party seller could have paid the market price for the entire company, then immediately claim back the cash, and still be left with the company for free. It's like asking you if you would be willing to pay $100 for a wallet with $260 cash in it. Of course you would. And you'd get the wallet for free. This is an example of the markets not being efficient.

Why did no one on Wall Street buy the firm? Because no one was interested in such tiny companies! Analysts are confined largely to mid-cap and large-cap companies. So the individual investor is free to pick up small-cap bargains, and even better, they are less complex to analyze as they aren't big companies. And even when analysts follow smaller companies, they are trying to set a target price for a few months ahead - which is impossible to do.

Post Reply