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

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

Post by nisiprius » Mon Nov 13, 2017 8:37 am

This isn't really about GE, and it isn't a prediction--either that GE will cut its dividend, or that GE will be dropped from the Dow. But according to today's headlines, people are speculating about, even anticipating both of these things. The Dow has no mechanical rules for inclusion; as I understand it, GE is ripe to be dropped from the Dow, but it is expected that Dow, Jones will be very patient and give them a lot of time before they do anything drastic.

But it is reminder never to be lulled by the idea that there are some household-name companies that are so obviously great that there it is safe to hold their individual stock, as part of a big core holding of just two or three great stocks.

In 1999, in their book Dow 36,000, Glassman and Hassett went beyond giving a mathematical demonstration of why the Dow was certain to reach 36,000 before 2005. They also recommended three specific stocks that "illustrate the Dow 36,000 theory in practice." Chosen according to criteria like "1) show consistent increases in earnings, 2) high growth in earnings, 3) high profit margins, 4) low debt, 5) managers who own stock," they identified GE, Microsoft, and Tootsie Roll as the three to buy. Since then, of the three, only Tootsie Roll has outperformed the S&P 500, and not by much. Of GE, they said "GE is increasing its dividends at twice that pace... [in mid-1999] it was by our conservative standards trading two-thirds below its perfectly reasonable price."

But let's look specifically at GE (orange), compared here to the S&P 500 as represented by the Vanguard 500 index fund (blue, VFINX) and the Dow (green, as represented by the DIA). In all cases, dividends are included. The starting point is the publication of Dow 36,000. If you push it back to 1976, GE doesn't look that bad.

Source
Image

As you see, starting from the publication of the book, GE (orange, and includes dividends) briefly outperformed the S&P (represented here, in blue, by VFINX, the S&P 500 index fund); it plunged 77% in 2008--much worse than the S&P. Up until the end of 2016, it paralleled the S&P without making up any of the lost ground, and during 2017 it has lost 33% while the S&P was gaining 17%.

Someone who invested $10,000 in GE on 6/30/1999 and reinvested dividends today has $9,744.

Now, the green line represents the DIA ETF, which tracks the DJIA; again, reinvested dividends are included. A portfolio corresponding to the Dow has in fact slightly outperformed the S&P 500 (and, yes, had a higher risk-adjusted return as measured by the Sharpe ratio.) I don't think DIA as one's big core stock holding, or any other portfolio of 15-30 individual stocks, is a good idea, but it's certainly not crazy

My point is if you have decided that there is something to the strategy of investing in dividend stocks, or blue chips as a category, and diversifying widely within that category, fine. It's not Boglehead orthodoxy, but it's defensible.

But
  • do not allow yourself to be lulled into the idea that there are certain household-name companies that are just so obviously "great companies" that their individual stocks are perfectly safe.
  • Do not convince yourself that their safe dividends are a substitute for bonds.
  • Do not try to improve your returns by focussing your holdings into a handful of two or three great companies, whether it be "Dogs of the Dow" or "FAANGs" or "GE, Microsoft and Tootsie Roll."
  • Do not let anybody brush off single-stock risk by saying "Come on, Apple" (or GE or Eastman Kodak or Sears... which indeed haven't gone anywhere, other than down in price... or Pan American World Airways, American Motors, and Digital Equipment Corporation, which have...) "isn't going anywhere."
Last edited by nisiprius on Wed Nov 15, 2017 10:58 am, edited 9 times in total.
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Re: GE and the myth of "safe blue-chip stocks"

Post by jebmke » Mon Nov 13, 2017 8:46 am

There have been plenty of invulnerable companies knocked off the pedestal. I remember when IBM could do no wrong. They nearly didn't survive.
(Reuters) - General Electric Co (GE.N) chopped its quarterly dividend in half on Monday, new Chief Executive John Flannery’s first move in an overhaul of the conglomerate he is due to announce later in the day.
Last edited by jebmke on Mon Nov 13, 2017 8:56 am, edited 1 time in total.
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Re: GE and the myth of "safe blue-chip stocks"

Post by Caduceus » Mon Nov 13, 2017 8:55 am

Well, this was already true of lots of blue-chip companies (like many oil companies after 2015) that were borrowing in order to keep up with their dividend policy. Last quarter was the first quarter that most of Big Oil managed to cover dividends from operating cash flow.

On the other hand, Berkshire Hathaway, which does not pay out a cent in dividends, is drowning in money. It has received so much cash from its various subsidiaries that it now has more than 100 billion in cash ... just think of all the companies it could buy tomorrow with zero financing.

Buffett sold GE after GE divested its financial subsidiaries (Synchrony Financial) and then turned around and bought Synchrony instead.

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

Post by TD2626 » Mon Nov 13, 2017 9:05 am

Good points. Individual stock investing is incredibly risky, and few are able to manage it. The time requirements and difficulty, coupled with the availability of low cost, broadly diversified mutual funds, is such that most individual investors in general should not look to individual stock investments as a core strategy in my opinion. There can be small benefits - like greater tax loss harvesting opportunities, potentially greater tax efficiency, and lower fees (if using free trades) but these should only be considered by very experienced investors for a small portion of large portfolios. Any sensible strategy would require long holding periods and very broad diversification - buying at least ~15-30 stocks in many different industries, enough stocks that a single stock's failure to preform would not have a severe impact. Those who attempt to buy 2-3 stocks that seem "safe" are taking unreasonable excess risks. Note that many decades ago, before index funds and especially before reasonable mutual fund options, a broadly diversified individual stock portfolio was the "go-to" investment method for most sensible individuals. Some people may still be dealing with "legacy" holdings from that time period.

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

Post by Boglegrappler » Mon Nov 13, 2017 10:32 am

I own some GE, and they've announced that they're going to drop the dividend in half. It's not a big deal since its a small part of my portfolio. Plus you could see that possibility coming since the market was pricing the stock so that the previous dividend was creating a high 4% ish yield.

In this interest rate environment, any stock that is yielding in that neighborhood is either in a gradually declining business environment, or the dividend payout is too high and likely to be cut, or at least not increased any time soon. The so-called "dividend growth" stocks in this rate environment are not likely to have yields above about 2.5%. It is axiomatic that the current yield number will tell you the market's forecast of the dividend growth, but novices need to remember that it is inverse. Costco (which is a bit of special case because of "special one-time" dividends) yields in the 1s on its regular quarterly. JNJ yields about 2.4%. UnitedHealth is 1.40 and ATT is above 5. So of these, the implicit growth forecast by the market is highest for Costco and United health, and lowest for ATT.

The best practice for people who don't want to index, but who want dividends is actually to avoid the highest yielding stocks. The market isn't stupid. There is a reason the stock price hasn't been bid up to "match" the dividend. Good luck. Don't chase yield.
Last edited by Boglegrappler on Mon Nov 13, 2017 12:10 pm, edited 1 time in total.

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

Post by CULater » Mon Nov 13, 2017 11:56 am

YOU---------->THE CHOIR :)
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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

Post by Dandy » Mon Nov 13, 2017 11:59 am

At one time Blue Chips usually paid a higher dividend and could last for decades. Now current Blue Chips are likely to turn into Cow Chips in a much shorter time. The pace of and magnitude of change is so great that the concept of Blue Chip is basically gone.

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

Post by Spirit Rider » Mon Nov 13, 2017 1:14 pm

I have some great GM bonds I can sell you.

My infamous last words; "GM isn't going to go bankrupt."

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

Post by Valuethinker » Mon Nov 13, 2017 1:19 pm

Caduceus wrote:
Mon Nov 13, 2017 8:55 am
Well, this was already true of lots of blue-chip companies (like many oil companies after 2015) that were borrowing in order to keep up with their dividend policy. Last quarter was the first quarter that most of Big Oil managed to cover dividends from operating cash flow.

On the other hand, Berkshire Hathaway, which does not pay out a cent in dividends, is drowning in money. It has received so much cash from its various subsidiaries that it now has more than 100 billion in cash ... just think of all the companies it could buy tomorrow with zero financing.

Buffett sold GE after GE divested its financial subsidiaries (Synchrony Financial) and then turned around and bought Synchrony instead.
Berkshire Hathaway buys back billions of dollars in stock. Analytically this is identical to paying dividends.

An insurance business tends to have big cash balances because these are premiums paid and held in reserve against future claims. Profits come from investing those premiums.

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

Post by Valuethinker » Mon Nov 13, 2017 1:20 pm

jebmke wrote:
Mon Nov 13, 2017 8:46 am
There have been plenty of invulnerable companies knocked off the pedestal. I remember when IBM could do no wrong. They nearly didn't survive.
(Reuters) - General Electric Co (GE.N) chopped its quarterly dividend in half on Monday, new Chief Executive John Flannery’s first move in an overhaul of the conglomerate he is due to announce later in the day.
GE looked highly diversified and "bomb proof".

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

Post by skepticalobserver » Mon Nov 13, 2017 2:02 pm

nisiprius wrote:
Mon Nov 13, 2017 8:37 am
Dow 36,000,
Overlooked issues: misfeasance, malfeasance and people change their minds.

And, oh, the back-up jets.

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

Post by arcticpineapplecorp. » Mon Nov 13, 2017 2:13 pm

Nisi, it's worse than you thought:
GE shares plunge 8% for biggest decline since housing recession after turnaround plan unveiled

General Electric announces it will cut its dividend in half as part of a broader corporate restructuring.
It plans a renewed focus on health care, aviation and energy.
CEO John Flannery apologizes on investor day for the company's performance and says GE would be "more focused."
The shares dropped 8 percent for their worst single-day decline since April 2009.

source: https://www.cnbc.com/2017/11/13/ge-anno ... units.html
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Re: GE and the myth of "safe blue-chip stocks"

Post by iamlucky13 » Mon Nov 13, 2017 2:21 pm

I still have some GE (mostly bought right in the very depths of the recession) I sat on too long after the economic recovery and missed some great sales opportunities. The plan as I became more focused on mutual funds and especially index funds has been to dollar cost average out of it, but for various reasons including real-world work, I never got around to putting a fixed timeline in place, so I still have a majority of what I had a year ago.

Had I made a clear plan then to exit over 12 months, I think that investment would have been net roughly on par with the S&P 500. Had I sold it all back a couple years earlier, I would have been well ahead.

I can take that knock though. I knew there was a risk of something like the current situation happening. It's just a a reminder of something I already knew.

It was still obnoxious to watch the big drop this morning, despite nothing happening that was unexpected (current dividend was high than their cash flow). It seems like the analysts had taken a roughly 50% dividend cut as a given as of the last quarterly reports.

Now I've just got to talk myself into ignoring the current price and continuing the last couple installments.
Last edited by iamlucky13 on Mon Nov 13, 2017 2:35 pm, edited 1 time in total.

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

Post by iamlucky13 » Mon Nov 13, 2017 2:33 pm

A thought I had while browsing their investor presentation today:
Key imperatives: Granular diagnostic of each GE business
As a conglomerate, a big part of GE's challenge right now is similar to that of an individual stock investor. They have to decide what each of their segments is worth and how much to invest in it. That includes buying and selling some of the subsidiary businesses. In a way, it's almost like I bought a small industrials ETF.

It sounds like their partial buyout of Baker-Hughes earlier this year under the previous leadership is not looking particularly brilliant so far, but I guess they're going to hold onto it. On the other hand, they're planning to sell off an estimated $20 billion worth of other businesses.

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

Post by Caduceus » Mon Nov 13, 2017 2:50 pm

Valuethinker wrote:
Mon Nov 13, 2017 1:19 pm
Caduceus wrote:
Mon Nov 13, 2017 8:55 am
Well, this was already true of lots of blue-chip companies (like many oil companies after 2015) that were borrowing in order to keep up with their dividend policy. Last quarter was the first quarter that most of Big Oil managed to cover dividends from operating cash flow.

On the other hand, Berkshire Hathaway, which does not pay out a cent in dividends, is drowning in money. It has received so much cash from its various subsidiaries that it now has more than 100 billion in cash ... just think of all the companies it could buy tomorrow with zero financing.

Buffett sold GE after GE divested its financial subsidiaries (Synchrony Financial) and then turned around and bought Synchrony instead.
Berkshire Hathaway buys back billions of dollars in stock. Analytically this is identical to paying dividends.

An insurance business tends to have big cash balances because these are premiums paid and held in reserve against future claims. Profits come from investing those premiums.
Actually, that is not correct. Berkshire does not buy back billions of dollars in stock. Its last buyback was in 2012 through a private placement, and to process that buyback, the board had to change its previous rule (that buybacks would not occur until share price was less than 110% of book value) to 120% of book value. It would be more accurate to say that Berkshire retains its earnings and reinvests them; it does not issue dividends, nor has it participated in buybacks of any significance in recent times.

Although insurance businesses need big cash balances, Berkshire's desired goal is 20 billion in liquidity; that goal is 10 billion more than the minimum liquidity (10 billion) it has said it will keep. Berkshire does not need 109 billion dollars sitting in its coffers for reserves. Surely the profits that come from investing its float does not depend on its investing that float in cash or cash-like equivalents; Berkshire can get away with it because it has in most years experienced an underwriting profit (many companies, like State Farm, experience an underwriting loss). Essentially, Berkshire is paid interest to hold other people's money. In a truly competitive insurance industry, that moat will not be sustainable, because companies should be motivated to lower the premium quotations as long as the underwriting loss is less than the cost of long-term borrowing it can obtain from other institutions. But Berkshire's super-cat segment and GEICO's direct-to-consumer model has so far performed very well.

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

Post by killjoy2012 » Tue Nov 14, 2017 12:09 am

1) Never fool yourself into thinking you know so much about a company & their products that you can see further ahead than the market. The reality is only handful are in a position to do so with any precision or adequate lead time, and as such, are limited in their ability to act. And the rest of us are just fooling ourselves if you think you're all knowing. No one really had the foresight that GE stock getting as hammered as hard it has in the past year.

2) GE has several things working against them at the moment, and Jeff spoke to them this morning. IMO, the big ones are that several of the recent acquisitions (e.g. Alstom, Baker Hughes) were large bets and they're not performing or paying off as expected. GE probably paid too much for them to begin with, and their current performance is below expectations. The other biggie was that Jeff's strategy to sell off most of Capital was a simplification play -- he felt the post-2009 financial market was too regulated & complex, and the margin wasn't there to justify managing that complexity/risk. He may have been right, or wrong. Either way, the problem is that when you pull Capital out, it leaves just your long-cycle, somewhat-cyclical industrial manufacturing businesses, and you now no longer have the relatively steady & significant Capital performance to help smooth out the quarter-to-quarter financial performance bumps that are going to occur on the industrial side.

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

Post by Valuethinker » Tue Nov 14, 2017 8:18 am

Caduceus wrote:
Mon Nov 13, 2017 2:50 pm
Valuethinker wrote:
Mon Nov 13, 2017 1:19 pm
Caduceus wrote:
Mon Nov 13, 2017 8:55 am
Well, this was already true of lots of blue-chip companies (like many oil companies after 2015) that were borrowing in order to keep up with their dividend policy. Last quarter was the first quarter that most of Big Oil managed to cover dividends from operating cash flow.

On the other hand, Berkshire Hathaway, which does not pay out a cent in dividends, is drowning in money. It has received so much cash from its various subsidiaries that it now has more than 100 billion in cash ... just think of all the companies it could buy tomorrow with zero financing.

Buffett sold GE after GE divested its financial subsidiaries (Synchrony Financial) and then turned around and bought Synchrony instead.
Berkshire Hathaway buys back billions of dollars in stock. Analytically this is identical to paying dividends.

An insurance business tends to have big cash balances because these are premiums paid and held in reserve against future claims. Profits come from investing those premiums.
Actually, that is not correct. Berkshire does not buy back billions of dollars in stock. Its last buyback was in 2012 through a private placement, and to process that buyback, the board had to change its previous rule (that buybacks would not occur until share price was less than 110% of book value) to 120% of book value. It would be more accurate to say that Berkshire retains its earnings and reinvests them; it does not issue dividends, nor has it participated in buybacks of any significance in recent times.
We are arguing semantics. They *have* bought back lots of stock. I'd have to check how much over the lifetime of the company. You said "never pays a cent of dividends" -- I was pointing out that there is a return to shareholders, via buybacks.
Although insurance businesses need big cash balances, Berkshire's desired goal is 20 billion in liquidity; that goal is 10 billion more than the minimum liquidity (10 billion) it has said it will keep. Berkshire does not need 109 billion dollars sitting in its coffers for reserves. Surely the profits that come from investing its float does not depend on its investing that float in cash or cash-like equivalents; Berkshire can get away with it because it has in most years experienced an underwriting profit (many companies, like State Farm, experience an underwriting loss). Essentially, Berkshire is paid interest to hold other people's money. In a truly competitive insurance industry, that moat will not be sustainable, because companies should be motivated to lower the premium quotations as long as the underwriting loss is less than the cost of long-term borrowing it can obtain from other institutions. But Berkshire's super-cat segment and GEICO's direct-to-consumer model has so far performed very well.
I agree with that analysis of their business. Again, I don't think it contradicts what I said? They have to hold liquid reserves against their insurance business.

Buffett's problem is too much cash, not enough attractive opportunities. Hence Precision Castparts acquisition ($30bn from memory). And electric utilities and railways (big consumers of capital). His preference for "moats" means, in turn, those investments throw off lots of cash.

Markets are cyclical. He is no doubt waiting for the next bear market. But his scale makes that difficult -- he needs to spend billions to "move the dial".

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

Post by Valuethinker » Tue Nov 14, 2017 8:23 am

Dandy wrote:
Mon Nov 13, 2017 11:59 am
At one time Blue Chips usually paid a higher dividend and could last for decades. Now current Blue Chips are likely to turn into Cow Chips in a much shorter time. The pace of and magnitude of change is so great that the concept of Blue Chip is basically gone.
I think this is wise.

Tesla may be another bubble BUT it reached a market cap bigger than Ford or GM. In 10 years?

And we have not even begun to see the impact of Artificial Intelligence (Machine Learning, etc.) and Robotics on the world (also 3D printing) etc.

Even dead steady business models such as electric utilities, banks (literally centuries old) are now under threat.

Forbes cover 10 years ago "Nokia: 1 billion phones" when Nokia passed that benchmark. And yet it was roadkill in the tech sector.

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

Post by JCE66 » 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.

This time, it was different. My wife had some cash in her Roth, asked a few questions, and then boom - bought up GE with her cash position. She could care less about the short term, she is thinking ahead to when we have grandkids (a long way off). Her reasoning was quite simple. Here was the gist of her thinking: We are talking about GE. This company was a part of the original Dow Index. It has been around for over 150 years, and has gone through multiple financial crises, competitive threats, business climates. Yeah, it is beaten down today, but in time, it will come back. Why? Do people stop getting sick? Stop flying? Stop needing power? Ain't happening anytime soon, and maybe not ever, considering how they have adapted over the last 150+ years to these different things.

My wife is an immigrant from South America, and has a pretty simple and no-nonsense view of things. I leave it to Bogleheads to make their own choices, but thought I would post something contrarian for the group to think about, and consider.

Sometimes, a 'myth' has some truth to it.

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

Post by Ethelred » Tue Nov 14, 2017 9:00 am

JCE66 wrote:
Tue Nov 14, 2017 8:39 am
Sometimes, a 'myth' has some truth to it.
But your post just says that you hope that is true, without providing evidence. Do you have any comparable examples of blue-chip companies that did fully recover in the way you expect GE to? Others in the thread have already provided names for companies that did not.

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

Post by knpstr » Tue Nov 14, 2017 9:08 am

Their are many "blue-chip" stocks that are no more, for one reason or another. Companies usually don't last forever.

That being said: Bogleheads should rejoice, GE CFO says the dividend cut is to focus more on "total return" for shareholders.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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

Post by Wakefield1 » Tue Nov 14, 2017 10:40 am

Upon GE's selling off part of its best performing business,didn't Mr. Buffet sell his GE and buy into the business that was just sold off from GE? If so,sounds like Mr. Buffet didn't think too optimistically about GE's management decision

Where GE goes now is up in the air,I hope they can recover. Could go either way,perhaps active fund managers are watching closely. Hard to believe that management could have messed up so badly with such assets that dominated things ranging all of the way from leading the locomotive development,manufacturing and financing businesses to leading the commercial airliner engine business

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

Post by CyclingDuo » Tue Nov 14, 2017 10:45 am

Valuethinker wrote:
Tue Nov 14, 2017 8:18 am
Markets are cyclical. He is no doubt waiting for the next bear market. But his scale makes that difficult -- he needs to spend billions to "move the dial".
And individual stocks experience their own bear markets where somebody like a WB steps in when value meets his metrics. GE is obviously in the middle of a nasty bear market (and has been on the longer term chart since 2000). It wouldn't surprise many to see it flirt with the lows it hit in 2009 ($10-$11) and build some sort of a base in the $11 - $17 range (based on typical overshoots to the downside until the forward PE drops to lower than even historical averages) for a longer period of time before the CEO's time target of a 3-5 year turnaround either comes to fruition, or somebody else takes over at the helm.

Either way, the sum of its parts, or the company in its current form - something will survive out of it. The current throwing in the towel and rush to sell certainly illustrates what happens at or near washouts. Obviously, we all own it our index funds which is less painful than those who own it on an individual basis.

Obviously, a portfolio of stocks mitigates the underperformance of one. It will be interesting to see how the company is managed, and how it performs over the next 3-5 years and beyond.

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

Post by iamlucky13 » Tue Nov 14, 2017 1:04 pm

Funny. I can't imagine anybody had much hope the dividend wasn't going to get cut.

Yet the price was bid up slightly on Friday ahead of the announcement. They announced a cut pretty much exactly the size expected, and heavy selling started immediately (double the average volume). It's down almost 14% due to confirmation of what everybody knew.
Valuethinker wrote:
Tue Nov 14, 2017 8:18 am
Buffett's problem is too much cash, not enough attractive opportunities. Hence Precision Castparts acquisition ($30bn from memory).
Interestingly, a company heavily involved in some of the same markets as GE.

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

Post by DrGoogle2017 » Tue Nov 14, 2017 1:10 pm

I don’t think it just the stock, GE products have been going downhill for years. People used to think of GE appliances as reliable products to own, not any more, so I’m not surprised GE stock didn’t go up.
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Re: GE and the myth of "safe blue-chip stocks"

Post by WhiteMaxima » 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.

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

Post by TonyDAntonio » Tue Nov 14, 2017 1:27 pm

GE may die but it is far from it. IBM has been 'dead' before. Services saved them and now they are back on the 'dead' watchlist. Phone company has been dead before. Wireless and then TV saved them. Now they are declining again. Apple almost died. Home Depot was run into the ground by Nardelli. I think the bottom line is that if you are going to hold individual stocks you better have a Buffet-like ability to analyze the business and the management. All of the companies listed above rose from the dead due to great CEOs (and some luck). But determining great CEOs is sort of like figuring out what money mgr is going to beat the stock market. The new GE CEO seems like a straight shooter and I could see throwing some play money into GE. But I wouldn't bet my farm on him/them/it even at bargain basement prices, which GE hasn't hit yet.

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

Post by CyclingDuo » Tue Nov 14, 2017 1:49 pm

Wakefield1 wrote:
Tue Nov 14, 2017 10:40 am
Upon GE's selling off part of its best performing business,didn't Mr. Buffet sell his GE and buy into the business that was just sold off from GE? If so,sounds like Mr. Buffet didn't think too optimistically about GE's management decision

Where GE goes now is up in the air,I hope they can recover. Could go either way,perhaps active fund managers are watching closely. Hard to believe that management could have messed up so badly with such assets that dominated things ranging all of the way from leading the locomotive development,manufacturing and financing businesses to leading the commercial airliner engine business
Buffet loaned GE $3 Billion at the depths of the financial crisis, and received shares in return in 2013. After selling those, and combined with the dividends received for those years - he made a tidy $1B on his GE loan for his investors.

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

Post by Broken Man 1999 » Tue Nov 14, 2017 2:16 pm

I am collecting GE stock right now. I'm up to 300 shares, I'm shooting for 1,000. It is my second rodeo with GE.

In 2008 and 2009 I bought GE for $10/share, and $7.74/share.

In 2015 I sold GE for $26 and $28 per share. My gains on individual stocks (not just GE) financed my first 6 months of retirement, plus some house improvements.

I have had a great run, but I did get burned not once, but twice on Cisco. Sadly I made a decision based on my knowledge of my industry's love affair with their routers. Unfortunately stock buyers were not as enamored with Cisco stock as the Cisco customers were with their routers. Lesson learned.

I have extreme patience, so I can wait for years. It has paid off nicely in the past, I think it will pay off in the future.

In the past I have only invested 5% or less in individual stocks. Though, at the current valuation of my stock portfolio' it is a not unsubstantial amount of dollars. I doubt I will break even 3% on individual stocks during this latest accumulation effort. Wouldn't be prudent

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.
.

Those are exactly my thoughts.

Broken Man 1999

ETA: Well, I'm not so sure people can live without Apple, but, no problem. I bought some Apple stock for $93.55 January of last year, so I'm covered either way. Should have bought much more than my measly 100 shares. :oops:
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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

Post by nisiprius » Tue Nov 14, 2017 2:29 pm

arcticpineapplecorp. wrote:
Mon Nov 13, 2017 2:13 pm
Nisi, it's worse than you thought:
GE shares plunge 8% for biggest decline since housing recession after turnaround plan unveiled

General Electric announces it will cut its dividend in half as part of a broader corporate restructuring.
It plans a renewed focus on health care, aviation and energy.
CEO John Flannery apologizes on investor day for the company's performance and says GE would be "more focused."
The shares dropped 8 percent for their worst single-day decline since April 2009.

source: https://www.cnbc.com/2017/11/13/ge-anno ... units.html
Indeed.

"What a difference a day makes." I said: "Someone who invested $10,000 in GE on 6/30/1999 and reinvested dividends today has $9,744."

Updating, someone who invested $10,000 in GE on 6/30/1999 and reinvested dividends today has $9,045.52.
Last edited by nisiprius on Tue Nov 14, 2017 3:26 pm, edited 1 time in total.
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Re: GE and the myth of "safe blue-chip stocks"

Post by WhiteMaxima » Tue Nov 14, 2017 2:31 pm

I am DCA into GE. But won't go beyond 5% of total asset. At this price level. It will be one of my core holdings for a very long time.

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

Post by Artsdoctor » 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.

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

Post by Broken Man 1999 » Tue Nov 14, 2017 2:47 pm

Well, that's the difference between buying high and selling low and buying low and selling high. You just got to remember those two choices, and make the right one. :D

So after a dividend cut, GE will be paying a bit above 2.5%, although it could be lowered again.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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

Post by avalpert » 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.

I'm not saying GE is doomed, but I know enough to know that I don't have any better guess as to where it's stock price will go in the short, medium or long term than the market consensus and believe anyone who thinks differently of themselves is just fooling themselves.

On the plus side, it helps demonstrate how wide a range of investment approaches we have represented here.

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

Post by iamlucky13 » Tue Nov 14, 2017 3:16 pm

DrGoogle2017 wrote:
Tue Nov 14, 2017 1:10 pm
I don’t think it just the stock, GE products have been going downhill for years. People used to think of GE appliances as reliable products to own, not any more, so I’m not surprised GE stock didn’t go up.
Appliances and other consumer products are just a small part of their business. Some of their most important segments, like aviation are doing quite well. Others, like the power segment, are mixed.

All of that has been brewing for years, and started to become more evident once Immelt was out. The dividend cut was not the trigger for concern, and not a surprise.

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

Post by WhiteMaxima » Tue Nov 14, 2017 3:38 pm

The problem with GE is too many business and many of them are not doing so well. Plumming oil and coal price reduce locomotive demand. Buying Baker Hugh oil service and other business. Need to sell these business and buy back share at this level. But I believe any big company need to invent itself. There are many place on these planet need GE engineering. Developing world especially. I will not hesitate to buy GE at this level.

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

Post by saltycaper » Tue Nov 14, 2017 3:38 pm

Lots of anchoring going on in this thread. Careful out there. GE's stock price in 2008, 2016, or whenever is totally irrelevant when considering whether you should buy the stock today.
"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said." --Alan Greenspan

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

Post by JimmyJammy » Tue Nov 14, 2017 3:42 pm

GE was the top performing stock in my ROTH IRA until this year.

There's no tax advantage to selling it.

But, I wonder if I should just move on anyway. A ship that big takes awhile to turn around.

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

Post by Jack FFR1846 » 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.
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Re: GE and the myth of "safe blue-chip stocks"

Post by nisiprius » 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.
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.

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

Post by DrGoogle2017 » Tue Nov 14, 2017 3:55 pm

iamlucky13 wrote:
Tue Nov 14, 2017 3:16 pm
DrGoogle2017 wrote:
Tue Nov 14, 2017 1:10 pm
I don’t think it just the stock, GE products have been going downhill for years. People used to think of GE appliances as reliable products to own, not any more, so I’m not surprised GE stock didn’t go up.
Appliances and other consumer products are just a small part of their business. Some of their most important segments, like aviation are doing quite well. Others, like the power segment, are mixed.

All of that has been brewing for years, and started to become more evident once Immelt was out. The dividend cut was not the trigger for concern, and not a surprise.
I’m not just referring to how big the consumer products to its portfolio but the less reliability of its products in general. People in my van bought GE fridge and they had to replace after 2 years. It generates crappy products. I’m nervous about this kind of mindset in other division.
Last edited by DrGoogle2017 on Tue Nov 14, 2017 3:59 pm, edited 1 time in total.

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

Post by DrGoogle2017 » Tue Nov 14, 2017 3:59 pm

JimmyJammy wrote:
Tue Nov 14, 2017 3:42 pm
GE was the top performing stock in my ROTH IRA until this year.

There's no tax advantage to selling it.

But, I wonder if I should just move on anyway. A ship that big takes awhile to turn around.
I’m surprised about this, I checked its performance with morningstar and I’m still in disbelieve. I did listen to Cramer and bought GE at $32, not sure what year but it was after 2013,it since has no split, and the price is down to $18. Yet Morningstar shows it’s up 36% something in 2015, 4% something in 2016, and nearly negative 40% YTD.

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

Post by WhiteMaxima » Tue Nov 14, 2017 4:08 pm

As a boglehead we tends not to talk individual stock. As for the GE company, this is a very unique case. GE is much like an index fund, it has too many of business. You name it. 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. When people compare GE with Enron, I can't say anything. Enron, WAMU, Lehman Brother, GE capital: all these companies has one thing in common: planning leveraged finance, pretty like a gambler. GE is a manufacturing company. Of course, old company need to reinvent itself: renewable engergy, intellgient power grid, effcient power plant, too many things to mention. I won't say now it's right time to get into GE. But you should own GE for any reason. Recent price drop further strengthen my believe in this company.

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

Post by DrGoogle2017 » Tue Nov 14, 2017 4:10 pm

Wsj had an article recently, GE sold its GE Capital at the wrong time.

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

Post by Artsdoctor » Tue Nov 14, 2017 4:14 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.
Might be! I remember when Eastern Airlines' stock price was 1/32 in 1991 . . . I distinctly recall thinking, "Would this be considered a buying opportunity?"

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

Post by KlingKlang » Tue Nov 14, 2017 4:16 pm

Does anyone remember Westinghouse Electric? GE and W used to swap executives frequently. W went through "the dinosaur died but look at how much meat there is left" phase and GE will follow before they disappear as well.

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

Post by iamlucky13 » Tue Nov 14, 2017 4:31 pm

DrGoogle2017 wrote:
Tue Nov 14, 2017 3:55 pm
iamlucky13 wrote:
Tue Nov 14, 2017 3:16 pm
DrGoogle2017 wrote:
Tue Nov 14, 2017 1:10 pm
I don’t think it just the stock, GE products have been going downhill for years. People used to think of GE appliances as reliable products to own, not any more, so I’m not surprised GE stock didn’t go up.
Appliances and other consumer products are just a small part of their business. Some of their most important segments, like aviation are doing quite well. Others, like the power segment, are mixed.

All of that has been brewing for years, and started to become more evident once Immelt was out. The dividend cut was not the trigger for concern, and not a surprise.
I’m not just referring to how big the consumer products to its portfolio but the less reliability of its products in general. People in my van bought GE fridge and they had to replace after 2 years. It generates crappy products. I’m nervous about this kind of mindset in other division.
I also don't have a favorable perception of GE appliance reliability, but I wish I knew of another brand that wasn't represented by hundreds if not thousands of similar reviews, since I'm shopping for a new washer and drier at the moment.

I understand what you're suggesting, but it's not really very informative about the rest of the company. In contrast, the CFM56 engine series is the most reliable aircraft engine in the world, the new LEAP-X is an evolution from that product. LEAP-X is having a few entry-into-service issues, but nothing really atypical for a new product as complex as a jet engine, and significantly less than the main competing product from Pratt & Whitney.

In fields like power and renewables, as far as I know, quality isn't their liability - cost and vulnerability to market changes is. The power segment is weak right now because conservation efforts mean slow growth, most of the generation growth is occurring in renewables, and they have difficulty competing on price with foreign renewables competitors. Transportation is struggling with both demand and cost-competitiveness challenges at the same time.

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

Post by Caduceus » 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?

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

Post by WhiteMaxima » Tue Nov 14, 2017 4:46 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?
Do you do a deep dive into boglehead three fund financial statements, total pension liabilities? GE is not in a dying business: many of the population on this planet don't have electric power, majority of of them never ride an airplane or even a train. most of them have no access of CT, MRI scanner for cancer diagnose. So the growth potential of GE is still so huge.

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

Post by Caduceus » Tue Nov 14, 2017 4:55 pm

WhiteMaxima wrote:
Tue Nov 14, 2017 4:46 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?
Do you do a deep dive into boglehead three fund financial statements, total pension liabilities?
Passive investing is about owning the entire markets. This method is based on designing a portfolio allocation, and then rebalancing on some pre-specified interval, whether using calendar rebalancing or interval ranges, etc. It's based on the assumption that you can't outperform the markets through active selection, so why would you study any financial statements of any individual companies?

Stock selection, on the other hand, is about deep diving into the fundamentals of a stock. No one in their right mind invests in GE just because they think in the abstract that its investments in the energy sector are going to work out based on what some CNBC pundit said. There's nothing wrong with stock selection, but most people end up underperforming a passive strategy. Most importantly, if you want to even try it, please don't tell me you've never even read the financial statements. If you don't know what GE's operating cash flow by segment is, or if you think its pension accounting is conservative, or if its off-balance sheet liabilities might present a problem in estimating its intrinsic value, in my opinion, you don't have any business buying the stock.

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