Founded in 1892, General Electric has been around for over 128 years and the company has built and produced an amazing array of products from light bulbs, to jet engines, to magnetic resonance Imaging (MRI) machines, and almost everything in between during various periods of time. Understandably, many business school students and investors have studied, analyzed, and marveled over GE's long-term success.
You can see below that a $10,000 investment in GE back in 1981 grew to almost $600,000 in less than 20 years. This is truly an amazing record and something very few companies achieve. In fact, the +20% annualized returns that GE produced over that time period are very similar to the returns Apple has produced from 2000-2020. Quite astounding to say the least.
But even with all its success, both for consumers and its shareholders, no company is immune to the extremely competitive business world. Like every global company today, GE competes in the most competitive arena the world has to offer, that arena is called Capitalism.
Capitalism is fierce.
And as such, the story changes dramatically for people who invested in GE anytime over the last 20 years. See the chart of GE below (2000 - 2020). GE has been dead money for two decades. Especially if you review how well the overall stock market performed during that same time period. $10,000 invested in GE back in 2000, an investor lost a whopping 7,400, leaving only $2,600. During this same time period, that same $10,000 invested the overall stock market grew to over $30,000.
As much as you, stock market analysts, Forbes, or your neighbor loves a particular company, even the most successful companies, some with 100+ year old track records might not provide good returns going forward. Sometimes history isn't a guide to the future and back in 2000 it wasn't for GE.
Understanding where a company competes, what are its biggest threats, what the business landscape looks like, determining their competitive advantage, answering another 100 or so difficult questions, and then properly being able to determine its value is paramount to having a chance of investing success.
Ask yourself, back in 2000 after GE's amazing growth, wouldn't you have thought GE would continue to do well for the next 20 years? Competition is fierce, tread lightly.
Paul R. Rossi, CFA