Archman Investor

The Long Case for GE

I got thru the first sentence and decided there was no reason to read the rest. I figured it would be the same song and dance that every bull on GE writes about.

I have written about (and been dead right about) why if you are looking to create wealth, you cannot and should not own any of the mega cap stocks in existence. If you are 55 and over, and want a stock that should not move much and give you an OK yield, and preserve your wealth, then GE and the mega cap stocks are for you.

GE, the stock, has gone nowhere in 10 years- 0% return. Inflation is greater than the dividend so the dividend argument does not hold water either.

GE, as with other mega cap stocks, cannot exponentially expand it's market cap, thanks to the laws of large numbers, amount of outstanding shares, etc.

It took GE 25 years to add 240 Billion in market cap from when it was a 10 billion dollar market cap company- a return of 1000's of percent.

If the stock was able to add that same amount in market cap today, you would get a return of 100%. If it took GE another 25 years (from today) to add another 250 Billion in market cap, you would have a 100% return over the next 25 years.

The simple (and it is simple) fact is that in order to create wealth over time, if you are anywhere between 20 and 55 yrs old, you need to be invested in companies that are small to mid cap companies, that have market caps any where from 800 million to 2 billion, with fewer than 200 million shares outstanding.

What would you rather own: A 1 billion dollar market cap company, that if it expanded its market cap to 11 billion over 25 years, thus resulting in a 1000% return (and the possibility for another 1000% return over the next 25 years)

OR

A 250 billion dollar market cap company that maybe has the potential to rise about 100% over the next 25 years. Not because the company is a poor company, no, simply because mathematically, the odds are against you.

XOM was the exception because of oil prices, however if oil settles into a huge trading range between $90 and $150 over the next decade, I expect XOM to return very little over that time frame.

Full disclosure- I have no GE position, in any market.