When It’s Bad To Set It And Forget It.
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Don’t Listen To Me, But Please, Hear Me Out: # 35
Shaheeda Abdul Kader, April 20 2021
AKA, “How I lost 57% In A Stable Stock.”
I am a long term Investor. I am not a day trader and I always advise against day-trading. So “Set it and Forget It”, is actually a common strategy for me. However, this one time, it bit me in the you-know-what and I ended up losing 57% of my investment in the stock.
Here’s the story.
The Backstory
Back in 2014, I had a brilliant friend who had just started his own investment fund. I was a busy executive and did not have time to actively manage my portfolio. So I asked him to tell me what to do. He told me to invest in IBM ($IBM), ExxonMobil ($XOM), Coca-Cola ($KO), GE ($GE) and S&P500 Index ($SPY). He said, “Set It and Forget It”. These were all dividend yielding stocks. Let compounding do its thing.
Of the above 4 stocks and 1 Index fund, today I only have CocaCola and S&P500 Index. I sold all the others.
I’m holding $KO for sentimental reasons. Coca-Cola hired me as an Intern during B-School and they were lovely. Unfortunately, at the moment, Coca-Cola is the slowest growing stock in my portfolio.
All the others were disasters. None as bad as $GE.
GE: We Bring Good Things To Life
GE was founded in 1892. So, in 2014, it was a 122 year old Blue Chip company. It was one of the first to be included in the Dow Jones Index or $DJIA, established in 1896. The $DJIA index consists of 30 of the largest companies listed in the US Stock Exchange.
So, I too wanted GE to bring good things to my life.
As you can see below, $GE has a had a pretty good 100+ year historical growth.
I Buy $GE
On March 17 2014 for $25.44, I bought GE. I was not too concerned about timing or price. GE would be a safe stock in my portfolio. I would reinvest the dividends and let my investment compound until I retire. Or so I thought. “Set it and forget it, Shaheeda,” I told, myself confidently. Why not? Look at the chart below. You can see GE was having a good run. There was a little bit of a dip around March 17 so I bought the dip. (#BTFD or Buy The F* Dip, right?)
GE Stock Performance From 2014 – 2018
GE’s stock performance was modest from 2014 through 2017. I told myself that I am a long-term investor. So, I should be happy with the dividends and natural compounding impact of the stock price. In fact, at one time even considered buying more GE.
The tide started shifting for GE towards the middle of 2017 and in 2018 it became really bad. Unfortunately, I was so complacent that I did not pay attention. I took my eye off the ball. I convinced myself that #HODL (Hold and not sell a stock) was the best strategy. (#DiamondHands right?)
Shifting Tides For GE
I ignored many warning signs.
GE’s balance sheet had started to look bad in 2017. It had ballooning debt on the books. $135 Billion in debt which was more than twice its Market Cap at the time.
Investors blamed the then CEO Jeff Immelt for GE’s poor performance and fired him in 2017. A GE insider, John Flannery took over as CEO. He lasted all of 6 months at the helm.
Barely into his new role, GE got hit with whopping $6.2 billion in re-insurance liabilities charge.
The best signal I should’ve used is from DJIA. In 2018, DJIA literally “Booted” GE out of its index and replaced it with Walgreens-Boots Alliance. I completely missed this news.
All of these should have been red flags for me to cash out. You can read more about GE’s fall in this Motley Fool’s blog.
But, I still waited another whole year.
I finally pulled the plug on April 23 2019 at $9.28. After deducting the dividends I earned throughout the investment, my total loss was 57%. This does not include the opportunity cost of investing in a better stock.
Opportunity Cost
Not many talk about the opportunity cost of making the wrong investment decision. Or the opportunity cost of holding on to the wrong investment decision.
Had I invested in my favorite ETF $SPY (S&P500 Index ETF), in 2014, then during the same period, I would have gained 72% instead of losing 57%. Had I paid more attention and sold in Jan 2018, I could have limited my losses to 34%.
Should I Have HODL’d Longer?
Would it have been better for me to have held on to GE? Could I have gained back my losses?
On April 20 2021, GE closed at $13.06. So perhaps I sold too low? I don’t believe so. Because even after 2 years, GE’s growth has been nothing spectacular.
In 2019 after licking my wounds, I spent time analyzing some stocks I was hearing a lot about. Then I found this little gem that sounds like what my nephew says when he is playing with his cars: ZOOM.
Thats right, I bought Zoom $ZM at $89 in August 2019 and the rest as they say is history. I made 300% gain within a year wiping out all my losses and adding a lot more than what even $SPY would have earned me.
Moral Of The Story
As they say in the business, you gotta know when to hold ’em and when to fold ’em.
In general, if you are a long-term investor, most of the time, your patience will do you well. Your investments will grow and compound over 5, 10, 20 year horizons. However, pay attention to the following:
- Read the news especially about the stocks or securities in our portfolio. Most of the time you may not need to act on any news. But you should be well informed. Yahoo Finance is free and good enough for most of us.
- Always pay attention to EARNINGS reports. You don’t have to worry as much about the stock price itself if the company’s earnings are trending up.
- Be diligent about checking the company’s financial statements, You do not have to go over all the reports with a fine tooth comb. But you need to pay attention certain important metrics. You can read the tricks to reading financial statements in here, here and here.
- Opportunity cost is real. It is hard to optimize and always pick the winning stocks. Here are some great books for beginners:
- Peter Lynch’s One Up On Wall Street
- Morgan Housel’s Psychology Of Money
Cool Tools For Quick Analysis
If you would like to do your own analysis, may I suggest KoyFin or FinViz? They both have free versions for quick analysis. You can compare stocks, ETFs, Mutual funds etc. I found KoyFin a little easier to use but both are good. Both FinViz and KoyFin lets you export to excel. You can create your own portfolios and track them daily, so that’s a nice feature. You can create watchlists and play around with a dream portfolio. Once you feel confident you can buy the real Stock, ETF, etc., from your brokerage account.
I usually blog about investing in the stock market. If you would like help on how to budget, save or invest more, please feel free to reach me, on Twitter @saq3 or LinkedIn @Shaheeda Abdul Kader, or leave a message at say@shaheedasays.com. I’d be happy to offer you my services. Please do check my other blogs here.
Disclaimer:
I am NOT a certified broker or financial advisor. Please DO NOT make investment decisions based solely on my blogs. My intention is to show you how to research stocks or funds for yourself . I hope you will be empowered and knowledgeable to do your own investigations and invest with confidence. It is best to consult with your broker or advisor if you have questions. You can also reach me, and I’ll do my best to help you with your queries.
