December 6, 2010

Why Do I Own GE Stock?

I own some General Electric GE stock in my Roth IRA.   Lately I realized that I don't have a very good reason to own GE.   Worse yet I don't have a complete explanation for the reasons I had for buying it in the first place.

Why I bought it initially
I originally bought the stock about 2 years ago when it was trading at $20.86 and the dividend was around 31¢ per quarter.   That gave it a yield of around 6%.   Not long after I bought the stock, GE slashed their dividends in a fairly historic change for a company that had paid dividends for decades without dropping them.

I know when I bought GE that their good dividend and the fact they are a solid blue chip company were factors in my purchase.   I figured that its not likely that GE would go bankrupt.     But other than these 2 reasons of good yield &  blue chip status, I don't know what other factors I used to make the purchase decision.  I might have looked at PE or PEG or other financial data, but I honestly can't remember.  

I wouldn't Buy it Today
Today GE's dividends are not especially attractive.  I could get around 3% dividends in a diversified ETF like PEY or VYM.   I don't really expect a lot of growth from GE.  Its not a growth company and their growth is likely to be proportional to the growth in the economy or population base more than growth based on new or expanding business. Their income statement lately isn't too impressive.   PE is over 17 right now and other financials are good but not great.  Its not a bad stock but not something I'd droll over as a great deal.    Note that this is not an in depth analysis of the stock but just a quick look at its financials. 

There 3 good lessons I can learn from this :

1. I should have better documented my reasons for buying GE in the first place.   If I can't remember why I bought it in the first place then I don't know if those reasons still hold.  Maybe I bought it for reasons that are no longer true.  I don't know.   I need to document my investing decisions better so I know why I've done things.   Maybe I made a stupid mistake when I bought it but its hard to learn from a mistake if you can't even remember exactly why you made the mistake in the first place.

2. I should keep better tabs on my investments to evaluate them on a periodic basis.   If a companies fundamentals go up or down over time that may change whether or not I think they are a good investment.   I don't recall really looking at GE before lately to reevaluate if it is or is not a good investment.   I should do that probably quarterly at least for all my holdings.

3. I shouldn't get stuck trying to recover losses.   I'm pretty sure that after GE initially slashed the dividend and the stock plummeted I held on to it at least initially in part due to a desire to recover the price I paid for it.  yeah I paid over $20 for GE, but thats not a good reason to ride GE into the ground in a vain attempt to get back to even.  GE may never go above $20 again.

Disclaimer:   I do not give investment advice.   This should not be construed as a 'sell' recommendation on GE.  This is just me thinking out loud about my own stock purchases and investment strategy and process.

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