Not too long ago, I wrote an article on Seeking Alpha about selling General Electric (GE) before it fails investors again. I knew there are lots of GE shareholders and I expected to get thrown my fair share of tomatoes. After all, we have all our reasons to hold share of one company instead of another and someone telling you it’s a bad idea may hit the wrong button.
There was something very surprising in the comments thought. Especially coming from supposedly educated investors. Several shareholders commented they would keep GE because they bought it at $6-$9 during the 2008 market meltdown. I don’t really understand why the price they paid 9 years ago, means something today. In fact, the price you pay for a stock doesn’t really matter and I’ll tell you why.
Paper profit is only good… on paper
Ok… so you bought GE at $6 and it’s now trading at $30. The first thing I want to tell you is congratulation. It was a risky guess, but you were right, that’s great! But now, do you still think GE is the best buying opportunity now? Would you buy more GE shares at $30? If the answer is yes, then it’s okay. This means your investment thesis is still good and you believe GE is a strong company that will continue growing.
But if you tell me you bought GE on a momentary and exceptional drop, maybe it’s time to revise your position. Because over the past 5 years and over the past 10 years, GE is underperforming the S&P 500. GE appeared to have become a great investment only for those who bought it during the first 6 months of 2009 while it was trading at its lowest point.
Upon my analysis, my guess is that GE stock will stagnate in the upcoming years as the company isn’t showing strong growth vector and is struggling to increase its dividend every year. Therefore, GE shareholders could sell their shares and cash their profit!
Yeah, but I’m already making 250% profit on this trade since 2009, I can keep it for another 10 years and reap the dividend. True, but imagine if you take your profit and buy another strong company now that will not only pay a strong dividend but will also bring you stock appreciation?
