When A Blue-Chip Stock Suddenly Isn’t

Many self-directed investors like to buy blue-chip issues: high-value stocks that regularly pay dividends, and whose companies are so integral to the global economy that holding them seems as safe as putting money in the bank, with much better returns practically guaranteed.

         Not so fast.

         In 1999, we got a stark reminder of the fallacy of such assumptions. It took down a company whose divisions were so ubiquitous across the American landscape that they conjured a sense of permanence rivaled only by major geographic features. There was the Mississippi River. The Rocky Mountains. The Grand Canyon.

         And there was General Electric.

         For 111 years, GE was one of the several companies whose performance was gauged by the Dow Jones Industrial Average (DJIA). It practically defined the term “blue-chip stock.” Yet in June of 2018, it was removed from the DJIA, and as I write, GE stock sits at less than 25 percent of its August 2000 high. Some are now wondering if the company itself will survive.

         What happened?

         Across those years on the Dow, GE successfully diversified into smaller sub-companies within the (much) larger parent organization. Those multiple business lines touched, quite literally, every sector of the global economy. GE’s wide range of markets was a primary reason it kept its place on the Dow.

         It was also why many saw GE as a no-lose investment. In one company, they reasoned, they could achieve the kind of diversification that assures stability in bad times and growth when times are good. Those who work for a titan of industry like GE, and acquire company stock regularly as part of their 401(k), can be even more susceptible to notions of “their” company’s invincibility.

         And thus the trap is set. I refer, of course, to the all-your-eggs-in-one-basket trap.

         General Electric stock began a steady climb in the mid-90s, topping out in August 2000 at $58.17 a share—a more than threefold increase in just over three and a half years. But what the average self-directed investor did not know was that the majority of GE’s profits were coming from just two of its divisions. It only took the failure of only one, its financial services side, for GE’s share value to plummet.

         Those heavily invested in the company paid dearly. I share the story of one such investor in my book, “You’re Retired. Now What?” It also details the contrarian approach I take to structuring strategic investment portfolios which are truly diversified. It is no easy job, but I do it with one objective in mind: protecting and growing my clients’ wealth.

         You can learn more about the book here.

The Power of Dispassion: Trusting the Markets’ Cycles

The Power of Dispassion: Trusting the Markets’ Cycles

Nothing is more challenging for a wealth manager who works with her clients’ best interests at heart than talking them off the ledge when the market is tanking.

        When you’ve been doing this as long as I have, you get to a point where, frankly, you’re somewhat bemused to find that investors panic at all. Does that make me sound jaded? I hope not; “experienced” has a much nicer ring!

        Still, I get it. I really do.

        Here you are, having worked for and planned for and saved for the retirement of your dreams—and now that you’re closing in on it (or already in it) it’s like every zoo in America decided its bears could use a walking (or worse, running) tour of Wall Street! What response but panic is appropriate?

        Well, education.

        Because once you understand the market’s cycles, you realize that even the darkest day on Wall Street, in the bigger scheme of things, is fleeting. So are long-term bear markets. When you combine an understanding of the market’s cycles with years of experience in managing portfolios through them, you know panic isn’t just pointless, it’s unnecessary. You’ve already planned in a way that can accommodate tough markets and can even leverage them to a client’s advantage.

        Still, when any day is especially dark, I get phone calls. Take 2011, for example.

        I was at a remote location in India where you can’t really get the internet. But when we went into the city I hit up my smartphone and saw that the equity markets were in a tailspin: A key rating agency had downgraded U.S. Treasury bonds from AAA to AA, thanks to a Congressional harangue in Washington. The news media drew up worst-case scenarios, including people going without their social security checks.

        I pictured the phones lighting up back in Boston—where, fortunately, it was the middle of the night; the trading day had not yet begun. I sent my staff this e-mail:

        “When people call, tell them not to sell their equity positions, this is craziness. Downgrade of Treasuries should affect the Treasury market, not the stock market.”

        That’s because when a bond is downgraded, the issuer must usually pay more in interest to attract buyers. In short, this “crisis” was no crisis at all. If anything, it was an opportunity to buy in to equities—not sell out of them.

        Thanks to an understanding of market cycles born out by years of actually seeing how events in one market impact other markets, I was able to abide by an axiom that is often heard but too infrequently applied: Buy low.

        That axiom’s other half, of course, is “sell high”—and sending a sell order on a bad day for the market is doing quite the opposite.

        I discuss market cycles in great detail—and share what I was up to in a remote corner of India—in my book, You’re Retired… Now What? – coming soon!. I hope you’ll read it.