Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Pre-COVID US Economy Wasn’t All That Great Either - 4th Dec 20
Bitcoin Breath Taking Surge - Crypto Trading Event - 4th Dec 20
Platinum Begins A New Rally – Gold & Silver Will Follow - 4th Dec 20
Don't Let the Silver (and Gold) Bull Shake You Off! - 4th Dec 20
Stronger Risk Appetite Sends Gold below $1,800 - 4th Dec 20
A new “miracle compound” is set to take over the biotech market - 4th Dec 20
Eiro-group Review –The power of trading education - 4th Dec 20
Early Investors set to win big as FDA fast-tracks this ancient medicine - 3rd Dec 20
New PC System Switch On, Where's Windows 10 Licence Key? Overclockers UK OEM Review (5) - 3rd Dec 20
Poundland Budget Christmas Decorations Shopping 2020 to Beat the Corona Economic Depression - 3rd Dec 20
What is the right type of insurance for you, and how do you find it? - 3rd Dec 20
What Are the 3 Stocks That Will Benefit from Covid-19? - 3rd Dec 20
Gold & the USDX: Correlations - 2nd Dec 20
How An Ancient Medicine Is Taking On The $16 Trillion Pharmaceutical Industry - 2nd Dec 20
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

GE’s Stock Price Crash Holds an Important Lesson About Investing

Companies / US Auto's Nov 28, 2018 - 03:56 PM GMT

By: Jared_Dillian

Companies The main problem with most investors is that they have a very small imagination.

GE is a single-digit midget. Who could have predicted that?

I have been speculating about the probability that GE could go bankrupt.

Bankrupt? A stock that was in the Dow for 100 years?


Yes, bankrupt. Option prices suggest a probability of about 2–3% that GE will go down for the dirtnap.

In finance, good things tend to get better, and bad things tend to get worse. Turnarounds are exceedingly rare. And trend followers know this.

Everyone loves an underdog, but it is a terrible investment strategy.

Sell Before It Goes to Zero

Some of you are probably holding onto GE. You think it is temporarily mispriced and will soon shoot up.

Very unlikely.

GE has a lot of debt, and is furiously trying to sell assets. But it may not be able to move quickly enough.

A few weeks ago, I talked about portfolios and rebalancing. I talked about people whose portfolios were dominated by one stock that had grown to the sky.

Well, the opposite can happen, too.

One of your stocks can go to zero. If you have a portfolio of 10 stocks, each at a 10% weight, and one of them goes to zero, it will be hard to have a good year.

So the idea is to sell before it gets to zero. But in reality, it is not so easy to sell a stock like GE at $8.

It is even harder to sell it at $2. But selling at $2 is way better than watching it go to zero.

I’m not sure if there is a name for this phenomenon, where it gets harder to sell something on the way down.

Endowment effect, maybe, but maybe not. Either way, we don’t need a name for it.

Don’t fall into this trap.

AT&T Could Be Next

Speaking of stocks that are in trouble, some people started pointing fingers at AT&T.

(Full disclosure: I own a small amount of AT&T. I have held it in a UGMA account since I was literally eight years old. A widow-and-orphan stock, and I was an orphan. It’s not much. Now I am thinking of launching it.)

Anyway, AT&T has $181 billion in debt. It’s easily the most indebted company in the US (and possibly the world), adding lots of it with its recent misadventures into media and entertainment.

The stock yields 6.5%. And I’m sure some people think that’s a great dividend yield.

Actually, that is not a great dividend yield. Usually when a stock yields over 6% (unless it is a REIT or a tobacco stock), it means trouble.

So this is how the story goes.

There is a lot of corporate debt out there. And if the credit markets get funky, people will go after AT&T first.

I assure you that will happen.

My prediction is that AT&T will one day be in the same predicament as GE. That dividend yield is not so safe—they will have to cut it to make interest payments on the bonds.

But that will not be enough, and asset sales are next. Hard to pay back $181 billion in debt.

Heaven forbid AT&T ever gets cut to junk. That will be a day to remember in bond market history.

Use your freaking imagination. If I told you even a year ago that GE and AT&T could cease to exist, you would have said no waaaaaay. Way. Throw in Sears and some other old-line retailers, too.

It is an achievement for a company to last 100 years. It is hard to last much longer than that.

Here’s the Lesson

The lesson here isn’t to dive into your brokerage account and sell your own stocks. The lesson here is that you should exercise a little brainpower and long-term thinking.

I spend a lot of time telling people not to fool around with dumb stuff like Bitcoin and pot. It’s also worth telling people not to screw around with stocks that are like an anvil on a glide path.

People don’t sell these stocks because they are afraid that they’ll sell the low and the stocks will pop back up. They are trying to minimize regret. It’s probably not the low.

If we have a bear market and a recession, there will be more stories like this.

Actually, the worst part about owning a stock that goes to zero is that it then goes to the Pink Sheets. At that point you won’t be able to trade it. It just sits in your brokerage account and mocks you when you pull up the screen.

Then it really will be pointless to sell it, because you’ll get something like a dollar.

I like to make fun of trend followers, because they say things like, “I buy the stocks that go up, and sell the stocks that go down.”

Trend followers are simpletons. But there is a weird sort of wisdom in a statement like that. You really should sell the stocks that go down.

I’m a proponent of not staring at your portfolio on a daily basis, but I recommend checking in fairly regularly to make sure everything is okay.

Grab Jared Dillian’s Exclusive Special Report, Investing in the Age of the Everything Bubble

As a Wall Street veteran and former Lehman Brothers head of ETF trading, Jared Dillian has traded through two bear markets.

Now, he’s staking his reputation on a call that a downturn is coming. And soon.

In this special report, you will learn how to properly position your portfolio for the coming bloodbath. Claim your FREE copy now.

By Jared Dillian

© 2018 Copyright Jared Dillian - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules