GE to cancel dividend?

[haha]

I have survived and even prospered buying individual stocks for near to 40 years, and I know what he is talking about. It may not be absolutely logical, but it may map better to the world as it actually is than Spockian logic.

Stubbornness is not a pro-survival trait when you traffic in individual stocks.

Ha

 

[Grep]

Then a few weeks later, after thousands of experieinced professional car mechanics inspected the car,...

Except that the "thousands of professionals" have been inspecting it continuously all during your visit, as in the blind men and the elephant parable. You know, the one where they are all examining the elephant by feel, and each one claims that it's an entirely different animal, or not like an animal at all.

Well, that's enough mixing of analogies and parables for me today.

 

[youbet]

Stubbornness is not a pro-survival trait when you traffic in individual stocks.

I like that! It's now printed and posted on the cork board in front of me..... Thanks!

 

[FUEGO]

I have survived and even prospered buying individual stocks for near to 40 years, and I know what he is talking about. It may not be absolutely logical, but it may map better to the world as it actually is than Spockian logic.

I'm going to have to take your word for it since I can't understand it.

It just seems like if you know the GE dividend is probably going to be cut, but not sure how much, you'd rather have a margin of safety in case the cut is really deep.

Now if the cut is only 50%, then you still get an attractive yield at $10, and even better yield at $5, but a yield higher than 4% either way.

But if you are wrong by a little, and the dividend is cut 75% (to $0.31 a share) then you're facing a 6% yield at $5/sh and only 3% yield at $10/sh. At $5 it looks good relative to the rest of the market, at $10 it doesn't look as good.

I have not seen this argument in this line of reasoning, but there is a real risk of non-execution if you wait for the $5 price, and it ends up that $10 is as low as it is going. If events play out in this manner, I would obviously rather pay $10 for GE and watch it go to $30 and eventually produce huge yields than sit on the sidelines waiting for $5 and watching it go to $30 lamenting the lost opportunity.

But the reasoning seems to be "buy at $10, then sell if it hits $5". I guess you only lose 1/2 your stake instead of substantially all of it?

Stick with what you know I suppose.

 

[haha]

It probably rests on hard-wired personality traits. Don't forget we are talking about a company that is a notorious black box. Analyzing GE is kind of like the fable of the blind man describing an elephant. Little can be known by outsiders.

Also, I don't believe he said buy at $10, sell if it gets to $5. Just that a price of $5 would raise alarm bells.

There are two main styles of investing once you go beyond DCA or "anytime is as good as any other time". You can buy strength, or you can buy weakness. If you engage in buying strength-"Buy high, sell higher" you know when to sell. The minute it falters usually by some selected %. From time to time followers of this method have posted on this board. I would imagine that they are doing pretty well lately.

My method has always been to buy weakness and wait. But this approach presents more complexity. It doesn't make sense that a weak stock should suddenly get strong just because you buy it, so you have to allow for continued weakness. Diferent investors have different ways of dealing with the portfolio risk of a stock that is headed for the graveyard. Some use stop-loss orders. I never have, feeling that over time you lose more due to random events than you gain by avoiding flameouts. What I do is keep the position relatively small in terms of the whole portfolio. A very transparent stock I can go larger than a more opaque situation like GE. Obviously leverage increases risk, whether it be financial leverage or business operating leverage.

I tend not to average down, unless my first postion was just a "get acquainted" one. Averaging down is logically compelling-"If I liked it at $10, I gotta love it at $5" -but when it doesn't work out you can theoretically sink your portfolio. Back in the early 80s before I had this principle fully ingrained I was happily averaging down on a particular financial stock. In those days even fairly large companies often did not have Investor Relations Departments to stand between the investor and executives. I was talking ocasionally to the CFO. One Friday I mentioned that I was really ready to go in heavy and he said- "maybe wait till mid-week". I am dumb but not deaf, so I sold at a loss what I owned and saw them declare BK on Monday.

I realize that at best I can only know a small, incomplete piece of what there is to know, let alone what has not yet happened that might affect the position. Another thing to remember is that a big loss can really mess with your head for a good long time.

Ha

 

[unclemick]

The logic would be consistent with you went to a used car dealer and saw he offered it for sale for $10. You thought this was a good car with no engine problems, the parts of the car could easily sell for 9-11 dollars themselves.

Then a few weeks later, after thousands of experieinced professional car mechanics inspected the car, he lowered the price to $5 and none of the car mechanics wanted the car. Indeed none of the car dealers family is even willing to take the car at $5. You are not allowed to actually inspect the car, instead the only information you get is what the dealer cares to tell you. I think the odds are much greater that there is probably an engine issue that you did not realize lowering the selling value of the parts. Perhaps even after purchasing you may find the car won't even run.

By the way this is not my logic in general, but in this specific case for GE. Their big issue is their sick engine and how well it can actually run. Appropriate analogy since GE does make qute a few engines

The Norwegian understands quite well. There used to be a term in ancient times:

'suitable for widows and orphans'

heh heh heh - stock wise that is.

 

[Olbidness]

Warren Buffet is in at something around $22/ share. While I don't think it's a good idea to blindly follow Warren's lead. I don't think it's wise to bet against him either.
(kinda like a weekend warrior telling Lance Armstrong how to ride a bike)

 

[terminator]

Warren Buffet is in at something around $22/ share. While I don't think it's a good idea to blindly follow Warren's lead. I don't think it's wise to bet against him either.
(kinda like a weekend warrior telling Lance Armstrong how to ride a bike)

No, WEB loaned them money and received warrants to buy at something like $22. He has not bought any common yet (that has been disclosed anyway).

 

[samclem]

The Norwegian understands quite well. There used to be a term in ancient times:

'suitable for widows and orphans'

Yep-- a term used to describe stocks and bonds of stable companies that formed he underpinning of the US economy. Reliable giants like GE, BofA, Ford, GM.
The widow's starting to look a little worried as she sits by that mailbox these days!

 

[Olbidness]

It just blows my mind that in the 90's people were lined up to buy dot-com stocks that had P/E ratios of a 1000 or none at all because they had "burn rates" . But there seems to be a lot hand wringing with a solid company like GE. Sure there are problems in the economy, but there has been and always will be.

What could happen to GE ? The stock goes down to zero. What then?reverse stock split? BK? (the sky is falling, the sky is falling)
These guys make stuff. Quality stuff. Stuff people need.

"Be fearful when others are greedy, be greedy when others are fearful" W. Buffet

I think it may be due to my time horizon as I'm still w*orking and not dependant on investments to live. My stress level would be much higher if I depended on my GE dividends to eat.

 

[Nords]

What could happen to GE ? The stock goes down to zero. What then?reverse stock split? BK? (the sky is falling, the sky is falling)
These guys make stuff. Quality stuff. Stuff people need.

"Be fearful when others are greedy, be greedy when others are fearful" W. Buffet

You'll have to get back to us after you read through about a year's worth of Vacollector's posts on his doubling down (and tripling, and quadrupling) on Bank of America using similar "logic"...

 

[Gpond]

You'll have to get back to us after you read through about a year's worth of Vacollector's posts on his doubling down (and tripling, and quadrupling) on Bank of America using similar "logic"...

Here is a very interesting video from Australia. At the end they have a business owner named Harvey Norman (if you been to Australia - his stores are like Best Buys). His net worth has gone from $2.5B to $500M in 2008 because he kept "buying the dip" and averaging down.

http://www.abc.net.au/4corners/speci.../20090209/gfc/

Top left is the original report.

He puts a happy face on it by saying he is lucky because he never thought he would have $2B to loss.

 

[Olbidness]

You'll have to get back to us after you read through about a year's worth of Vacollector's posts on his doubling down (and tripling, and quadrupling) on Bank of America using similar "logic"...

__________________


Investment success (to me) is measured in years. Not months

 

[FinanceDude]

No, WEB loaned them money and received warrants to buy at something like $22. He has not bought any common yet (that has been disclosed anyway).

Warren loaned GE money at 10%.

A couple weeks ago he loaned HOG $300 million at 15% interest, which they gladly paid.

Seems that the banks those companies deal with are hoarding their TARP money...........

 

[terminator]

Yes, although GE's loan (well, preferred shares) is actually more expensive than 10% since they gave him the warrants for "free" and there is a termination fee if and when they decide to buy the preferreds back. So, either they are paying him 10% perpetually (which would be a really bad sign for GE which has half a trillion dollars in debt) or they buy him out after three years for the 10% premium in which case the "loan" rate was about 13%. If the latter, it will be "good" for GE since the company will be doing pretty well in which case that 13% rate will likely be higher since there's a good chance his free warrants will be in the money.

 

[FinanceDude]

Yes, although GE's loan (well, preferred shares) is actually more expensive than 10% since they gave him the warrants for "free" and there is a termination fee if and when they decide to buy the preferreds back. So, either they are paying him 10% perpetually (which would be a really bad sign for GE which has half a trillion dollars in debt) or they buy him out after three years for the 10% premium in which case the "loan" rate was about 13%. If the latter, it will be "good" for GE since the company will be doing pretty well in which case that 13% rate will likely be higher since there's a good chance his free warrants will be in the money.

Bottom line, if Warren is the only guy lending cash out there, we are in a WORLD OF HURT in this economy, because Warren isn't borrowing you money at 3%.........

 

[Olbidness]

There seems to be wide spread consensus that GE is doomed. My take on GE is that it was $40/ share in the spring of '08. Lets just say it was fairly valued. Half of GE is the finance wing, so say the stock should be $20/ share. Then lets say half of the remaining business evaporated, the stock should be $10/ share. Just about where it is now. Now if any of those reversals turn out not as dire as I've described then the stock seems (to me) to be undervalued.

The finance portion of GE is not a retail bank. Billy bob does not go to GE to get a loan on a 3br ranch. (using documents he's forged on the INTERNET) They make locomotives, co-gen plants , MRI machines, ect. and if you want to buy one of these, no problem. Sign right here.

Every company has a "story" which is the total of the balance sheet, quality of the management, how the companies products or services are perceived in the market place, ect. . This story is not static, it changes and has to be reviewed.

My "logic" is to Buy low, Sell high. Easy to say (or type) but hard to do. This means to me that I need to look at stocks that have been beaten down, or ignored by the "herd".

The only reason I even comment in this thread is because I took a position in GE in Oct. and Dec. '08. (yes I'm down). I used the cash I had sitting in an IRA from the sale of mutual fund I'd held since '88. Also no one I know would be knowledgeable on this subject to care or even disagree. I tend to learn more from people who have a different point of view.

If GE ceases to exist it would hurt but I would not be ruined. I understand the danger falling in love with a stock and I'm not "all in".

I could be wrong as I've been wrong before. I never cease to amaze myself in my ability to be creative in making mistakes. With some due diligence I've been able to limit their number and severity.

Now GE could go down the tubes. The country could go the tubes. The world could degenerate into some post apocalyptic scene from Mad Max, but its more fun to be an optimist.

Now if you will excuse me I'm going to go count the MRE's FEMA gave me (IKE) and clean my guns.

 

[dex]

Now GE could go down the tubes. The country could go the tubes. The world could degenerate into some post apocalyptic scene from Mad Max, but its more fun to be an optimist.

[FONT=georgia, bookman old style, palatino linotype, book antiqua, palatino, trebuchet ms, helvetica, garamond, sans-serif, arial, verdana, avante garde, century gothic, comic sans ms, times, times new roman, serif]Both optimists and pessimists contribute to our society. The optimist invents the airplane and the pessimist the parachute. ~Gil Stern[/FONT]

 

[Running_Man]

There seems to be wide spread consensus that GE is doomed. My take on GE is that it was $40/ share in the spring of '08. Lets just say it was fairly valued. Half of GE is the finance wing, so say the stock should be $20/ share. Then lets say half of the remaining business evaporated, the stock should be $10/ share. Just about where it is now. Now if any of those reversals turn out not as dire as I've described then the stock seems (to me) to be undervalued.

The finance portion of GE is not a retail bank. Billy bob does not go to GE to get a loan on a 3br ranch. (using documents he's forged on the INTERNET) They make locomotives, co-gen plants , MRI machines, ect. and if you want to buy one of these, no problem. Sign right here.

While I agree there is good value there, they have made many loans through GE capital for commercial real estate, credit cards and home loan portfolios where the value is dropping rapidly. This is the overwhelming reason for the stock decline. Long term debt is up to 345 billion up from 60 billion 10 years ago.


G.E. Meets Expectations as Profit Falls - Business | DailyAdvance.com

They do originate mortgages in the UK, they actually took back 1,000 homes in the UK

More GE Woes: U.K. Real Estate -- Seeking Alpha

 

[samclem]

GE's manufacturing: It takes many hundreds of manhours and many hundreds of millions of dollars of tool/equipment investment (which costs money daily) to build, say, a jet engine. Let's say GE clears 1 million dollars profit on each one.

GE Financing: One shopping mall financed at 150% of it's present worth--which 2 GE employees might arrange in a day-- wipes out the profits from hundreds of jet engines produced at the cost of thousands of manhours.

No one knows how deep the black hole of GE finance might be. To guess that the company's stock was fairly valued last year seems quite a leap (IMO).

 

[clifp]

GE's manufacturing: It takes many hundreds of manhours and many hundreds of millions of dollars of tool/equipment investment (which costs money daily) to build, say, a jet engine. Let's say GE clears 1 million dollars profit on each one.

GE Financing: One shopping mall financed at 150% of it's present worth--which 2 GE employees might arrange in a day-- wipes out the profits from hundreds of jet engines produced at the cost of thousands of manhours.

No one knows how deep the black hole of GE finance might be. To guess that the company's stock was fairly valued last year seems quite a leap (IMO).

I am mostly in Running Man and your camp. I was interested in GE at $20 last year because I thought the market was over reacting to the bad news. As it become obvious that problems of deleveraging were going to have a devastating impact on GE capital with the potential of destroying the good GE business. Frankly at this point, we also have to assume that the ability of airlines and aircraft leasing companies to payback GE capital for engines even threatens the profitable of the good business.

At $10-$12 price, I think the market is factoring in a 50% dividend cut this year or early next year, followed by a reasonable chance of the dividend being eliminated in 2010. Hopefully, 2011 will see a restoration of the dividend . Even with all this bad news, a bunch of GE easily give me a 4% SWR. But at $5, GE starts to look more like or B of A or even Ford. A company which may or may not be insolvent, but still has the potential to deliver good profits in the somewhat distant future, but also the real risk of insolvency and a complete wipeout.

 

[73ss454]

With GE's new sub 10 price the yield is now 13.22% according to yahoo. How long do you guys think that's going to last? I thought I was so smart when I was buying between 14 and 12. As Cramer would say. I know nothing, I know nothing, I'm nuts!

 

[ziggy29]

GE has stated over and over again that the dividend is safe for 2009. But whether you believe that -- and what happens in 2010 -- is up for debate, and the market is sending a very clear signal about what it thinks.

 

[Running_Man]

GE has stated over and over again that the dividend is safe for 2009. But whether you believe that -- and what happens in 2010 -- is up for debate, and the market is sending a very clear signal about what it thinks.

No Immelt stated in the last quarter they said they would review future payments, and by the time GE cuts it's dividend and earns it's way out of DVY as a dividend achiever it will have fallen an ungodly amount.

General Electric Dims Dividend Outlook - Forbes.com

 

[Gardnr]

No Immelt stated in the last quarter they said they would review future payments, and by the time GE cuts it's dividend and earns it's way out of DVY as a dividend achiever it will have fallen an ungodly amount.

General Electric Dims Dividend Outlook - Forbes.com

Yep, he's backpedaling now after that "firm" commitment to the dividend not that long ago. It's definitely coming down. The question is what the market's reaction will be at that time. I'd say there's a good chance it will pop up on the news. But I don't want anything to do with anything financial these days. Too much darkness lurks in the back rooms there.