<> GE stock on the rocks: Its continuing decline and impact on local investors | The Daily Gazette
 

Subscriber login

News

GE stock on the rocks: Its continuing decline and impact on local investors

GE stock on the rocks: Its continuing decline and impact on local investors

GE stocks showed loyalty and provided income, now both are in trouble
GE stock on the rocks: Its continuing decline and impact on local investors
The iconic GE sign overlooks Erie Boulevard in Schenectady. The company recently cut stock dividends to a penny a share.
Photographer: GAZETTE FILE PHOTOGRAPH

SCHENECTADY — The short and brutal decline of General Electric’s stock price has evaporated $200 billion in on-paper wealth for its investors.

The effective elimination of the dividend — recently cut to a penny per share — will remove billions more in actual income for shareholders.

What this means to the large community of GE employees, retirees and investors in the Capital Region is harder to quantify. First, there’s not a ledger somewhere with names, addresses and investment portfolio summaries. Second, the local GE community has shrunk markedly over the course of decades. Finally, anyone who was listening to an investment adviser would never have held a large percentage of their wealth in any single stock.

Steve Tommasone has lived his whole life in the heart of GE country: Rotterdam, home to many employees, numerous retirees and much of what is called GE’s Schenectady campus.

He now is the town’s supervisor but also has been in financial services for more than 30 years, starting as a bank teller and moving up to investment adviser. Every step of the way, he’s interacted with GE employees and investors.

Tommasone would advise anyone who asked him to not hold too much money in one stock -- GE or any other company ... but not everyone listened.

“My clients who had GE stock kept it because of loyalty to the company over the years and because they were dependent on the dividend they were receiving,” he said. “They could weather the storm of the stock going up and down $5 or $10 at a time.

“Some of them were as much as 80 or 90 percent invested in just the one stock.”

Tommasone's wife’s late parents were both in that category: retired GE employees and continued GE investors.

“It’s amazing the loyalty these retirees and others would feel toward the company,” he said. At the behest of their son, however, the couple did sell off most of their shares long before the recent decline in value.

Other investors didn’t sell off because they needed the dividend, he said.

“They’re in trouble. Some of these folks are going to have to start selling that stock ... for a lot less than it was worth a couple of years ago and, more importantly, what it might be worth a few years from now.”

COMPANY TOWN

Noted economist and investment strategist Hugh Johnson, of Albany, said it is important to remember that Schenectady is no longer a company town. That said, GE still has a large impact here.

“To some extent, we’ve watched the decline of General Electric’s presence in this community for a very, very long time. When you have that happen, it creates enormous challenges for the community in general but Schenectady County in particular.

“And for shareholders, when shareholders lose money, first of all, they’re unhappy, but it does reduce their ability to do all sorts of things in the community.”

Not only is consumers’ buying power reduced, but they lose confidence to spend the money they do have, Johnson explained.

Also

“I just hope that the stock does a little better ... and people regain morale," he added.

As this is happening, economic development agencies run to stand still, as they try to create jobs and wealth as Schenectady County’s largest private employer is reducing both.

“My hat’s off to them. They’re really trying, but they’re having a tough time,” Johnson said. “You see that show up in the economic numbers for Schenectady. It’s not all about Schenectady; it’s about GE’s impact on the community.”

With the caveat that he’s not an analyst of General Electric or its stock, Johnson sees a couple of reasons for tempered optimism: The first is change. General Electric knows it must evolve and is trying very hard to do so. But he adds: “You can’t imagine how complex this company is.” 

Second, it has a good leader in H. Lawrence Culp Jr.

“Culp is as good a CEO as you could wish for, extraordinarily effective at Danaher,” Johnson said. “He really creates very efficient companies.”

Then the caveat: “And that means some people might lose their jobs.”

Culp’s compensation package is heavily dependent on GE’s stock performance, in the form of options and bonuses paid only if share prices rise.

WHAT WENT WRONG?

So what happened to GE that prompted investors to lose more than $200 billion in wealth over two years? The most commonly cited cause appears to be strategies and decisions that were bad and/or badly timed, over the course of two recessions. But that’s as far as we’ll go here.

The why’s and wherefore’s are often beyond the understanding or even the interest of individual Main Street investors. They just want to see their money grow.

(But for those who ARE interested, do a Google search for “Welch Immelt” to see the great debate over whether CEO Jeff Immelt from 2001 to 2017 destroyed the greatness that CEO Jack Welch created from 1981 to 2001, or if he inherited a time bomb that Welch assembled.)

Kerry Mayo, of Capital Financial Advisors of New York in Clifton Park, said he counsels against owning large amounts of any one stock, and just about all of his clients are divested of GE shares.

“We have clients who had a lot of their portfolios that were made up of it,” Mayo said, adding that they were mostly older people who accrued a large number of shares over time.

“We have maybe two clients who still have some, and it’s a small part of their portfolio,” he said. “The last time we had to have this discussion, I was able to sell half of it.”

But many investors don’t seek professional investment advice, and there are likely many in the Capital Region who still hold a lot of GE shares, Mayo said.

“There are definitely a decent number of people around here that depend on that dividend for living expenses -- that and Social Security,” he said. “There’s also a mindset too, that people will own these big blue chip stocks and just live off dividends and not consider that risky. Throughout history, and you don’t have to go back far, look at huge companies that have really gotten in trouble.”

Some have bounced back, though, and so might GE, Mayo said. “There’s just no way to predict.”

After General Electric was de-listed from the Dow Jones Industrial Average in June 2018, Jason MacGregor, of Minich MacGregor Wealth Management in Saratoga Springs, told The Daily Gazette the impact was more psychological than meaningful.

“It’s nowhere near the stock it used to be,” he said, and he had long since counseled clients to be rid of it.

MacGregor has counted many GE employees and retirees among his clients in the past quarter-century and steadily watched their loyalty to the firm's shares erode.

“The transformation over the last two years has been fascinating,” he said.

EMPLOYEE STOCK OWNERSHIP

There are multiple reasons so many GE employees and retirees accrued so much GE stock:

  • Loyalty to the company was important to the generations that worked their whole lives there.
  • General Electric has been a giant of American industry over much of its 126-year history.
  • The stock’s dividend and appreciation were dependable if not always spectacular.
  • In the Jack Welch era, the stock was quite spectacular.
  • Employees got a 50 percent match from the company on their retirement accounts, and one of the investment options was GE stock.

Dennis Rocheleau, of Wisconsin, a retired GE labor negotiator who worked in Schenectady from 1968 to 1972, said many, many GE workers took GE stock as their chief retirement investment.

“Unfortunately, the instinct of working people is to buy the stock of the company they worked for,” he said. 

Those who held on are feeling the pain now, he said, as are the company towns where they live, “any place where there’s a large cadre of GE employees and retirees.”

Rocheleau, who owned as many as 88,000 shares at one point, would later become a critic of General Electric, unsuccessfully suing it over changes the firm made to retiree health insurance coverage.

“But even when I believed in the company,” he said, the level of company investment by employees disturbed him, as it was a bad strategy for the individual investor.

There are a lot of smart people who simply are not sophisticated investors, Rocheleau said.

Another retired labor negotiator, Charles Welch (no relation to Jack Welch; yes, he gets asked frequently) said a critical distinction between General Electric and companies such as Enron is that GE never required its employees to invest in the company -- nor even particularly encouraged it. GE also always allowed them to change their investment mix and never restricted their ability to divest.

The one criticism he’ll make is that GE, in decades past, never discouraged employees from accumulating a portfolio dangerously unbalanced by GE stock investment or even suggested it wasn’t a good idea.

“We had a lot of people who rolled it up,” he said.

“At one point in time, probably around 2000, the holdings in the GE Savings and Security trust were approximately 80 percent in GE stock. There were substantial accumulated holdings that GE employees and GE retirees held — as you retired you could leave it there.”

Welch said this wasn’t just well-paid executives and engineers. At one point, there were more than 2,500 production workers with more than $500,000 worth of GE stock in the company investment plan, and more than 10,000 with more than $250,000.

DIVERSIFICATION IS GOOD

General Electric told The Daily Gazette via email that it is fully compliant with all federal regulations on retirement and employee investment programs.

There were more than 250 employee 401(k)education sessions in 2017, for example, and GE’s Retirement Savings Plan gives them multiple investment options beyond GE stock.

In its employee benefits handbook, GE also points out the advantages of having a diversified investment portfolio. There’s a warning on page 71, for example, that holding more than 20 percent of total portfolio in any one company or industry can be risky. Depending on individual circumstances, the recommended maximum percentage might be even lower, the handbook advises.

Also

Diversification does not eliminate the risk of loss but helps manage the risk, the handbook says.

Diversification is happening in GE’s Retirement Savings Plan, which had 226,000 participants and was worth $28.2 billion at the end of 2017. Its 2017 federal Form 5500 indicates that participant holdings in GE stock dropped 53.6 percent that year, from 35 percent of the plan’s total value to 17 percent. 

Some of that is likely due to the stock’s decline in value, however: 44.7 percent over the same period.

View Comments
Hide Comments