College degrees, General Electric
June 14, 2012 10:26PM
Updated: July 16, 2012 6:07AM
D ear Mr. Berko: I own 200 shares of General Electric that I bought at $41 in 2001, and I bought 200 more last year at $16. I’ve never asked for advice before, but do you think I should sell my GE? I’m 68, I’ve been investing for 31 years and losses in GE as well as other good stocks like Heinz, Johnson & Johnson, Microsoft, Allstate, Kraft, etc., make me question my ability to invest wisely. During the last 10 years, my portfolio, which I depend upon for income, has done nothing and is worth less today than it was in 2001. Do you think I should hire a money manager? I’d appreciate your thoughts. In a column a month ago, you were critical of college degrees. However, you must admit that statistics show people with college degrees earn at least 50 percent more than people without a college degree.
Dear JF: Most colleges are huge selling organizations and enormous profit centers. Their prime directive is, “We want to get bigger; who cares about getting better?”
They peddle education like Avon Products, Delta or Ford sell products. However, their selling is disguised under the guise of “public service for the common good.” And most of that earnings hype is as disingenuous as the weight loss, miles-per-gallon and “Delta Is Ready When You Are,” advertising.
Students should look at a college degree the same way an investor looks at a stock: “What are the risks, how much will it cost me, what return can I expect, and how long will it take me to earn that return?”
Please recognize that this garbage about college grads making more money than high school grads is skewed. These numbers assume all students attend public colleges that cost much less than private schools. Certainly you know that most Harvard grads will earn more than a Kutztown University graduate.
The current math assumes students complete a degree in four years (Ha!) but fails to include extra college years and dropouts. And the numbers are skewed because they don’t assign a modifying denominator to students who earn degrees in engineering, computer science, economics, accounting and natural sciences. Engineers will earn a lot more than criminology majors. I can prattle for pages, but you get my drift.
You’re living in the 21st century with a 20th-century portfolio. The dependable permanence of American dynamics of the last 100 years has vanished. Our once democratic, secular-free market economy is now challenged by a growing multiculturalism, creating a high degree of social, political and economic entropy.
Investors are nervous. They don’t trust long term and they’re impatient, demanding rapid growth, fast profits and quick results. They eschew solid, long-term, quality stocks like GE ($19.25) in place of this month’s flavor. You bought 200 shares in 2001 when values had little relation to reality (like the housing market in the Greenspan era) and investors were fearful of missing the boat. GE suffered a massive hit in 2008-09 due to its capital division’s exposure to the capital crisis.
Today’s GE is a bigger, better and more profitable company than it was in 2001. The short term looks promising, and the Street’s five-year consensus anticipates revenues increasing to $210 billion from $150 billion, earnings to $28 billion from $16 billion and a dividend of $1.25 from 68 cents. GE, one of the largest and most diversified technology and financial service companies on the planet, has plenty of room to grow. I’m comfortable owning 200 more shares and enjoying the 68-cent, 3.5 percent dividend that could be increased to $1.25 by 2017.
Still, GE has a few problems that may slow its growth. One is CEO Jeff Immelt, who is accused of having an excessive self-image and who others say has lost his enthusiasm for running GE. Another problem is size. GE may be too big to succeed, with too many moving parts to be managed effectively.
An insider I occasionally talk to suggests GE could spin off several of its many divisions to improve shareholder value. This could happen. The last decade has been frustrating for you and can affect your investment decisions. So yes, it might be wise to employ a money manager.
Address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at email@example.com.