From a "retired broker"
WHY YOU MUST OWN GE
When an institutional "investor" enters his career path, he must "unlearn" anything and everything that once passed
for common sense.
1. You do NOT buy low, sell high.
2. You do NOT dare to be "different".
3. You do NOT think for yourself.
4. You must conform to the "style" prearranged for you by third party "consultants" who pass themselves off as
"experts" on how money should be allocated among investment alternatives.(Many of these idiots are "failed
investors" themselves. That's why they pretend to tell others how to do it.)
5. You must NEVER stray very far away from the "bogey" by which your "performance" is measured.
6. Your "investment" decisions must be based on RELATIVITY rather than on the intrinsic value of the idea.
7. Your portfolio must closely resemble the bogey by which you are measured, lest you be fired for being "out of
step" for more than a quarter or two.
8. THEREFORE, you must be acutely aware of the composition of that all-important bogey, so that you can
become a "closet indexer". This is, as stated above, more related to career preservation that it is to anything remotely
rational (in an investment sense).
9. Most big money is measured against the S&P 500 index, which in turn is capitalization-weighted. Thus GE, as the
largest single "weight" in that index (pushing 5% at last count), simply MUST become the cornerstone of any and all
"responsible" portfolios. In addition, it's perfectly O.K. (actually "mandatory") to have 3% of your assets in INTC,
because that was INTC's "weight" in the S&P 500. In a like vein, one MUST have a similar "weight" invested in
CSCO, MSFT, etc. simply because that represents their weight in the S&P.
Now, if all this sounds ridiculous, it's because it IS ridiculous. Back when I was running OPM, in the late 1970s,
early 1980s, the "Oils" comprised about 35% of the S&P 500 index, and virtually ALL the so-called "big" money
scrambled to adjust their portfolio "weightings" to reflect this. They managed to get there just about the time the
entire "Oil Play" collapsed. Meanwhile, the smart money was selling the oils down to a zero weighting and loading
up on "early cycle" stuff like autos, retailers, banks, etc.
Again, in the mid to late 1990s, "Tech" managed to reach that magic 35% weighting in the S&P 500, which explains a
lot of the late buying in that overhyped garbage, right at the top. Nothing more than panicked portfolio managers
scrambling to "catch up" to the S&P bogey. It becomes much easier to understand WHY those idiots continue to
buy stuff, that anyone capable of walking and chewing gum at the same time KNOWS is a bad investment
(overpriced, lousy fundamentals, but "good chart", etc.) It's the classic "group think" - the lemming-like rush to be a
total fool.
In the early 1980s, IBM constituted 5% of the S&P 500. Morgan Stanley, Merrill, and most of the rest of the wire
houses of that era proclaimed IBM to be THE stock for the next decade. Big Lou, on his Wall Street Week program
featured several "analysts" who proclaimed IBM, at around 170, was the ONE stock to buy for the next ten years.
It topped out right about there and then lost more than half its value over the next ten years! Any time something
becomes BIG enough, and widely RECOGNIZED as being that big (S&P dominant), then you know the game is just
about over. Consider MSFT @ 119 - exactly 5% of the S&P 500, at that time. Any fool could see the "Law Of
Large Numbers", the post y2k meltdown, the maturing of the PC market, and the absurd valuation, combined with
questionable accounting, all brewing up trouble for buyers of the stock. Yet, millions of shares traded every day, as
the mindless robots continued to buy the stuff with OPM. After all, they certainly didn't want to be
"underweighted".
Now you should know WHY fools continue to buy GE. It's not investing, as defined by a rational investor. It's
simply gamesmanship, dictated by career protection schemes that suggest that it's O.K. to lose your clients' money,
just so long as you don't look too far "out-of-line" when you do it. After all, if the S&P 500 drops 50%, then that's
fine, just so long as you don't lose much more than half your poor clients' money! But, then again, we live in a world
of RELATIVE values, absent absolute standards. That way, just about anything can be accepted (or excused), so
long as it doesn't stray too far from whatever RELATIVE benchmark has been most recently established. That
seems to be how "they" kept Clinton in office. 35 years ago, Nelson Rockefeller couldn't get the Republican
nomination for President, simply because he had been divorced. We've come a LONG way, baby! |
