The General Electric Company - A True Juggernaut & A True Long term Investment. (Part 2 of 2)

* I am in no way recommending any particular stocks/investments in this article for anyone - This is just my personal opinion. Please do not act without doing your own research, consulting & deciding your own goals.

Please refer to the previous article (Part 1 of 2) before continuing as going forward I will assume that you have read the first.

  When someone invests in a company like GE you are betting on management being able to navigate through all the changes and challenges that may arrive. This is a unique factor that only a handful of companies can claim to have (3M Company, United Technologies just to name a few).  Being battle tested & survived & thrived for as long as GE has, this factor overrode the changes in the companies products.  The other factor that occurred to me as well is, many of GE's products don't change for DECADES, a stark contrast to cloud software, social media, entertainment, and other technology companies who can become obsolete in under 3 years. Even the now defunct divisions lasted for decades. 100 years didn't change the fact people need light bulbs & appliances. 100 Years didn't change the fact people need healthcare equipment like X-Ray machines, or jet engines which the company has made for over 70 years, & many other products that have not become obsolete for well over the 50 year mark. The factors of a wonderful management culture and products that are viable for the long term albeit may change eventually is enough to warrant a long term holding right next to a company like Coca-Cola.

* I am in no way recommending any particular stocks/investments in this article for anyone - This is just my personal opinion. Please do not act without doing your own research, consulting & deciding your own goals.

NOTE: Going forward I will assume you have read the first post. Please read Part 1 first.

Another factors that came up with GE is many industrial type companies tend to be cyclical companies that can NEVER be held for the long term. Also, the last 12 years under CEO Jeff Immelt has been one of the most challenging times for the company in a VERY long time, with the 9/11 attacks/Dot-com bubble combo and the 2008 recession that brought GE to its collective knees definitely made me weary as well.  But I also knew as well, those reasons I listed are TERRIBLE reasons not to do research into the company, I was determined to find out what the really happened.  

  Many older investors will remember the late 90's Dot.com bubble where mainly large cap companies were trading at ABSURD valuations. Coke at 60 PE, Wal Mart at 55 & included in that mix was GE selling for a 45 PE!! There was NO WAY GE under ANY circumstances could live up to that type of expectation no matter what happened. It would take years if not decades before the investor started to get a return on his investment. The other part was 9/11 & the mini recession that followed, Mr. Immelt took over only a few months before, as the legendary Jack Welsh retired. Despite the recession that hit, GE's earnings held up very well (in fact they grew,), and the dividend was raised as well. A sign the company was doing just fine. An absurd valuation, a catastrophic event like 9/11, and bad timing all made for a perfect storm for an investor to lose his shirt. This time period I wrote off as not reliable to use for many factors. It wasn't a cyclical economic cycle or poor products it was largely factors the company could NEVER control & most likely would never happen again. However 2008 was a whole different story, that largely fell on GE for getting a little complacent.

  Many people will point to GE being a industrial type company as the reason you could not own it as for many cyclical= industrial. This is not the case at all why GE nearly fell on it's face in 2008. The industrial side held up VERY well during the crisis, in fact profits grew from the industrial segment. Which was VERY surprising for me to see. It was not the jet engines and appliances that got GE into trouble, it was 25% NBC Universal & 75% GE Capital which had held many sub prime mortgages in its portfolio, the consumer credit card segment suffered huge losses, the Commercial division suffered as well with many risk assets as well.  The company had just let GE capital grow bigger & bigger for the last few years as they found it easier to just use GE Capital to grow profits with risky assets than grow it from the industrial division, at one point GE Capital was over HALF of the companies profits! This not only resulted in HUGE profit losses but also the dividend being cut as well to help supplement the liquidity crisis, GE had raised the dividend every year through four decades. While this scared me at first, I did realize that this did not happen overnight, any investor could have seen the bank was growing bigger & bigger and could have sold out or adjusted to the changes (this was obvious for at least 7-8 years) once they realized the industrial segment was just a minority segment to GE Capital. Despite all this, the company was able to see things through the crisis and decided it was time to return to it's roots.

The GE of today is a FAR cry from the one that existed from 2002-2009. The NBC segment is gone, GE is spinning off the consumer credit division, the industrial segment will be 75% of the companies profits (already it is the majority of profits), the dividend has been raised every year since the crisis, the U.S. real estate is gone, the risky assets are gone and the bank has been scaled down significantly and is much more focused on industrial related profits instead of other banking sectors best left to Wells Fargo & Bank of America.  This company is truly once again the industrial company of the last 100 years preceding the turn of the century.  This demonstrated to me that while GE would have to be monitored more so than KO, it was still a terrific business especially now that the company is truly a industrial once again. The slight cyclical elements of the industrial segment was largely offset by the product diversification, global diversification, the overall importance of many of the products they make that are not luxuries, the backlog of orders in advance, and the newest asset GE Capital which gives the company a huge advantage in financing purchases and borrowing money.

I have no doubt that General Electric Company will still be around well after I am gone, and even bigger than today.  The barriers to entry are massive, a college student cannot build jet engines or nuclear plants or even more crazier ALL seven of the industrial segments and disrupt the industry as social media or Amazon has. The brand equity is among one of the best. While the company (especially the bank's liquidity ratio) has to be checked every 6 months or so this is largely a company that one could just read the annual report once a year make sure everything's ok and as long as the price isn't 42 times earnings just buy & hold.  The company is a cash machine that spews off more money than it knows what to do with and has made it clear it will make up for 2009 & get that dividend growing once again for the long term. The company is also not as cyclical as many would believe, and with the cleaning of house over the last several years GE has truly emerged as a long term investment worthy of being next to the greatest companies of all time.  While I am almost 95% sure that AT LEAST 27 out of the 30 current Dow 30 companies will still exist in some way or form I'm almost 100% sure that General Electric will still be there as it has for the last 100. As well, I see a future Dividend Aristocrat returning.

Computershare needs to update The General Electric Company DSPP prospectus

* I am in no way recommending any particular stocks/investments in this article for anyone - This is just my personal opinion. Please do not act without doing your own research, consulting & deciding your own goals.

      After making a purchase for a relative of General Electric common stock through the direct stock purchase website Computershare, I noticed the company says the each cash purchase after the initial investment is 3.00 per transaction. However, in the prospectus, which is not updated lists the fee being only one dollar per transaction for optional cash purchases (Not automatic monthly transaction). Obviously I figured that everything else being the same (rules & regulations for the plan) that the fee was not updated, and based all my calculations on the 3.00 purchase fee. However, once the purchase was done THEY ONLY TOOK OUT 1.00 INSTEAD OF THE 3.00. Apparently Computershare is listing the wrong fee. Going on the assumption most Direct investors use small cash amounts a 3.00 fee & a 1.00 fee make a BIG difference in the long run especially decades in factoring your total return.  3 out of 100 is immediately giving up 3% of the money you worked hard for so you want the fees especially for DSPP (Direct Stock Purchase Plans) to be as low as possible. 1.00 dollar out of 100 is only 1% and really is almost negligible, especially when the dividends are reinvested free & no processing fees.

For anyone who wants to start out investing in SMALL amounts (Anywhere from 10 to 100 dollars per purchase)  I 100% recommended checking out computershare.com & Wells Fargo Shareholder Services, there is a list of mostly large blue chip companies that have plans that are 90% of the time lower than traditional brokers & many are FREE or have very negligible fees. some like Philip Morris or AT&T have TERRIBLE fees & only make sense if your purchase is anywhere from 500 to over 1000 dollars. (I would opt for AT LEAST a 750 dollar purchase). When a processing fee of 5 cents per share is the only fee you have to worry about that is so small that you could probably get away with not even calculating it in into your total return. The same can be said for a 1.00 fee as well, especially if your talking anything over 500 dollars but also for anything over 100 as well in my opinion.

The General Electric Company - A True Juggernaut & A True Long term Investment. (Part 1 of 2)

* I am in no way recommending any particular stocks/investments in this article for anyone - This is just my personal opinion. Please do not act without doing your own research, consulting & deciding your own goals.

General Electric Company Ticker Symbol: (GE)

What started out as a simple light bulb/manufacturing company became something that even Thomas Edison could never have dreamed it becoming.

      From the water heater in your home to the locomotives that carry goods to market General Electric has helped build the foundation of this country for over 100 years.  What started out as a merger between two manufacturing companies in 1892 has become one of the biggest companies of all time. X-Ray machines, several types of plastics, the electric toaster, RCA, NBC, and of course the inventions of Thomas Edison one of the founders of the company changed the way we live forever. 

     I remember the first time I heard Thomas Edison founded the General Electric Company, I thought it was a typo or a different Thomas Edison but it wasn't and that blew my mind. (Apparently 9 out of 10 people don't know this either, so I didn't feel so bad afterwards.)To think, by buying the stock I could become the OWNER of the same company Thomas Edison created, as a major fan of history, that blew my mind and still does to this day.  In a way I always have felt that all  people who use General Electrics products to this day consumers & businesses alike are still being touched by Thomas Edison almost 80 years after his death. The other amazing fact that came in my head was GE's dividend, I know it is kind of weird to think  but I also saw the dividend as Thomas Edison was giving me a paycheck as well. The same type of thoughts go through my head when thinking about ExxonMobil Corporation & Chevron Corporation with Mr. Rockefeller.  As a history buff alone this was enough of a reason to AT LEAST own one share of this GE, but as a investor I looked to see what else possibly came with the company besides an amazing founder. I was amazed to learn of the things this company has done & continues to do.

Below is a SMALL (no I am not being sarcastic this is a SMALL list) of the things General Electric has done or continues to do so today.. (* means no longer does).

-Jet Engines            - Light Bulbs          - CT Scanners       - Locomotives    - Aeroderivitives    - Nuclear Power
- Inverters                - Power Plants       - Circuit Breakers  - Industrial Software   - Transformers   - Dishwashers
- Industrial Automation Systems   - Wind Turbines  - Solar Power Generators   - Banking (GE Capital)
- *RCA     - *NBC Universal  - *Computers  - Offshore Drilling Equipment   - Mining Equipment      - Drives 

As The Coca-Cola Company was among the first businesses I ever studied GE was the first time I ever saw a conglomerate or Industrial company.  This blew my mind as well, a person who bought the stock got direct ownership of a businesses that makes appliances, healthcare equipment, jet engines, power sources, and even it's own bank. Truly this was a business that overwhelmed me at first as well, understanding all the different components & how they interacted was a tumultuous challenge that to understand.  However the more i studied the company, i began to realize there really wasn't much to it. 

    Even though building items like jet engines & CT scanners are MUCH more complicated than making a bottle of Coca-Cola they are still pretty much the same things at heart that any businesses has.  In order to build these machines the company had to order supplies, had costs to selling the goods, had to pay it's employees, keep the plants running, and pay taxes (yes in spite of popular opinion GE does pay taxes). The ratio of profits of course varied across each division but for the most part they were really easy to understand overall. After all a jet engine makes a plane fly, light bulbs light a persons home, & drilling equipment drills for oil & most people I thought could easily understand that.  The diversification also makes sure GE does not rely on only one component for all its profits so if one or two divisions have a rough period the other divisions will pick up the slack. GE I could safely say was not a one-trick pony.

   Despite this I ran into several problems in evaluation, the company has evolved over 100 years & while it still did many things it did back in it's earliest years (Healthcare & Appliances) it does many new things as well. This ranged from defunct divisions, GE Capitals evolution (A whole other problem in its own rights), oil & gas divisions, software & much more. This begged the question whether or not if the company was predictable or not - i.e. would they still be doing all this 50 year from now. The answer was a no. This definitely was NOT a company that any idiot could run despite being easy to understand. Yet one little tidbit just caught my mind - I had learned GE was only independent company that was still part of the Dow Jones Average of the original 12 companies. The Dow traditionally is made up of only THE BEST companies in American business, a question popped into my mind,  how could a complex beast like this manage to be at the top of it's game for SUCH A RIDICULOUSLY long period? Just think of all the companies that have come & gone since 1892 yet despite 2 quick removals in the 1900's GE has remained. This is when I realized there is something unique about a company like GE that while it needs a very smart team to run it the culture of the company is what offsets that one disadvantage.  Long since the passing of Thomas Edison & the first CEO Charles Coffin GE continued to thrive & expand for decade after decade. This was in part thanks to a culture of being obsessed with being the best in every industry they compete in. This culture was above just one person, it ran throughout every person at the company, had been battle tested through two world wars & I realized because of this culture it has never rested on it's laurels which allowed it to be number one. This is how the company has been able to pick such terrific officers every decade. The power of being driven and constantly challenging yourself to be better is a key to success that can be used from a huge beast like GE to the simplest child. This concept was not hard to understand.

    This is a stark contrast to a company like Apple, Cisco or Microsoft or Amazon which for most of them have ALWAYS had the original founder guide them through expansions and challenges. While they are terrific companies there cultures have not been tested, and when they have (like Apple during the 90's) had failed miserably. true Microsoft has not been run by Mr. Gates in decades but he has always been there to make sure the company does not lose its vision, what will happen when he is gone completely is anyone's guess. While they may be good investments at the right price (I would love to own a company like Google/Microsoft at a discount) there is nothing in any of these businesses that would suggest that a culture exists beyond the founder(s) that will prevail the challenge of time as GE has long since Coffin & Edison left the company back in the early 1900's.

To be continued.

Comparing Apples to Coke - Principles of Investment (Part 2 of 2)

* I am in no way recommending any particular stocks/investments in this article for anyone - This is just my personal opinion. Please do not act without doing your own research, consulting & deciding your own goals.

  Please refer to the previous article (Part 1 of 2) before continuing as going forward I will assume that you have read the first.


  For many long term investors there is maybe only a handful of companies that can say they are of as high quality as the Coca-Cola Company.  For myself it was one of the first companies I ever learned about when I studied stocks in general.  The stories I had heard of the wealth the company had created, the legendary dividend, the favorite business of a guy called Warren Buffet that everyone seemed to know about made me very curious. From being the first 10K/Annual Report I ever studied to leading me to the wonders of compound interest, I can say I owe Coca-Cola so much not just in dollars signs or non alcoholic beverages consumed, but in priceless amounts of information and knowledge it has given me.  Whenever I study new principles or accounting methods I always use the Coca-Cola Company as one of my first test subjects.  I apologize if the following article may seem too much of a love affair and biased in favor of Coca-Cola compared to the previous article. What follows is meant to demonstrate the qualities of a good business for an investor to look for, using the Coca-Cola Company as a real life example. (NOTE: From here on out I will use stock ticker symbols occasionally, it just is quicker sometimes) As The Coca-Cola Company (Ticker Symbol: KO)
was among the first companies I ever learned about I will use it as the first company I use to illustrate fundamentals.

   What makes KO such a good long term investment? Is it the pretty letters? Is it Warren Buffet playing the stock? Is it just dumb luck? Well it's actually something much simpler than that...It's a GREAT business! Going back to the question I posed before about Apple I will ask the same question about Coca-Cola.  "This year what does KO do to make money?"  Coca Cola was started in 1886 selling its flagship brand Coke in Atlanta.  Today the company sells over 500 different types of non alcoholic beverages across the globe to various companies. Everyone from Wal Mart, A&P, Kroger Supermarkets, McDonalds, Disney theme Parks, 7/11 convenience stores, Dollar Stores, gas stations, Amazon.com, carnivals and family get togethers everywhere you can always find a Coke product.  So we can easily say that the company sells a range of non alcoholic beverages to make money. 

   Let's flash back to the same period we looked at Apple. Going back to 1996-97 what did KO do to make money? Despite a 15 year difference we can go back & take a look & realize the company FOR THE MOST PART sold the same things it sells today. So let's go back further.....

What did Coca-Cola do to make money 25 years ago?  Non Alcoholic Beverages
What did Coca-Cola do to make money 40 years ago?  Non Alcoholic Beverages
What did Coca-Cola do to make money 50 years ago?  Non Alcoholic Beverages
What did Coca-Cola do to make money 75 years ago?  Non Alcoholic Beverages
What did Coca-Cola do to make money 100  years ago? Non Alcoholic Beverages

      The answer stays consistent throughout the decades & century.  It is not like Apple where we go from 1996 being in the computer/Newton/CD Player/Printing/software business to the TOTALLY different Cell Phone/Tablet/ipod/apps/software/computer business in 2014.  We already hear talk of Apple a few years from now going into the Autonomous Vehicle/Watch/Home Security business. The point is to demonstrate the business is not predictable long term.  But when compared to Coca-Cola it is the EXACT opposite. There is NO DOUBT 10 years from now Coca-Cola will still be selling soda, water, and fruit juices. Or even 20, 30 , 40 or 200 years from now that the company will continue to sell beverages.  THIS MEANS THAT THE COMPANY IS PREDICTABLE!!! AND THUS SO WILL THE PROFITS!!  You can easily value a company like KO simply for this reason alone.  KO will not go from selling beverages to selling washing machines & golf shoes! Can we say the same thing about Apple? Of course not..anything is possible...We could go from iphones to iwatches back to printers to microbiology equipment to cars to selling isoda! 


    KO has another great principle, The products it sells DON'T change!!!! Coca-cola, Sprite, Fanta, Dasani, Minute Maid all are made THE EXACT SAME WAY they have been for decades and centuries!! This means the company does not have to spend tons of money to constantly revamp its operations or come up with a new hit every year. IT SELLS THE SAME PRODUCT it has sold for decades, sure the packaging has changed but that's it!  This only helps makes the costs inputs more predictable leading to the earnings being even more predictable.

   I said before that some businesses have unique advantages. KO has several. The first and probably one of the most important is the brand loyalty.  As Apple users know, the company has GREAT brand strength. It is very hard to get a iphone user to switch to Samsung.  The same principle applies to Coca Cola.  People are loyal to the brand and will ONLY drink Coke, Sprite etc.Try getting someone who drinks Coke to drink a Pepsi, (It's almost impossible in many cases).  You cannot measure that type of brand strength in dollar terms.  If Pepsi has a hard time getting people to switch than a total new comer will have a VERY hard time breaking into the industry as a whole.  This protects the business market share. 

In order to get Coke to be shipped throughout the world, Coke uses it's independent, partially owned, and fully owned bottling companies.  These bottlers are Cokes secret weapon, very similar to Apples ecosystem in a sense in that it is a unique aspect to the business that helps protect it.  The bottlers have the scale, management and in depth understanding and network to distribute Coke year round under any conditions throughout the world.  Even Pepsi does not have the scale or or effectiveness Coke's bottlers have.  Many other businesses use Coke bottling network to distribute there product rather than try & compete against it because the thing is so darn effective it would be too hard to compete against (If you can't beat'em Join'em).

The input costs of a bottle of coke are extremely low, meaning that the company does not have high costs in producing the goods. (if you sell something at 1 dollar and it cost 55 cents to make it your costs are 55% of your profit).  KO has very low costs, only requiring mainly sugar, water, and some metals.

The company is not a one trick pony that relies only on one area or one product for it's money.  The company has a nice balance of not just soda, but water, tea, fruit juice, and MANY regional drinks across the globe. Many people will say at first glance will say Coke is not a good investment because sugary drinks are on the decline, again this is only a hollow-not going beneath the surface analysis of a company.  What is popular to drink here is NOT the same as in Japan, Africa, Brazil, Italy, Turkey and elsewhere as Coke has realized throughout the decades. That is why they own so many regional brands that they only sell in certain areas. They will also always miss the low input costs, global diversification, brand loyalty, and portfolio diversification at Cokes disposal. 

Coca-Cola is also blessed with a very smart management, perhaps not Steve Jobs type management but easily top quality, all you have to do is compare KO's balance sheets to that of some of it's competitors, you will quickly realize using some traditional financial ratios KO is superior financially in every 8 out of 10 tests.  Smart management is good, something that both Apple & Coke posses (Even without Steve Jobs, management is not stupid by any stretch). But there is one thing that Apple does not have & has proven in the past it does not compared to Coke....

ANY IDIOT CAN RUN COKE!! Minus the last few years under the current CEO Coke was run by VERY sub-par management for over a decade.  Yet the business kept humming along, each selling more soda than the year before basically taking care of itself.  In other words...the company basically can take care of itself...and take a lot of abuse without hurting the profits!! A business like Procter & Gamble which has had bad/sub par management for almost 20 years has not hurt the company because any idiot can run it! P&G & Coke do not require geniuses to run them they can run themselves, that the sign of a great business.  Apple does not enjoy that luxury, back in the 90's a key reason why Apple was doing terrible is because it was run by a terrible, absolutely terrible management that ran a business that could not take that kind of abuse.  Only under the return of Steve Jobs a once in a lifetime type CEO of Henry Ford, Thomas Edison type intellect did Apple turn around. If Apple's management can remain above par, than they should do fine, however if a management of the 90's were to ever return, the company may go the way of pets.com. (NOTE: For further research into terrible management: See Ron Johnson/ JC Penney).

And finally there's the dividend, which is one of the main reasons that people own Coca-Cola - For 53 years running KO has paid a increasing dividend. One of the longest streaks of any company on record.  The dividend can keep growing every year simply because Coca-Cola sells more beverages & raises the price than the year before. (In the simplest terms). This results in a increased dividend. Just to compare - Apple pays a dividend as well - but the dividend has only been raised 3 years in a row, & has  history of being infrequent. The dividend was halted in 1995 - A roughly 15 year period of no dividend at all. Granted - The 2 are COMPLETELY different businesses, but it illustrates yet again why you cannot retire on Apple's dividend the same way you could on Coca-Cola's.  Too many people have already made the mistake of calling Apple's dividend a legend in the making, even going so far as saying someday they will be a "Dividend Champion" (Meaning 25 years or more of increased Dividends each year). This again totally ignores the companies history, & the nature of the business. I know many working couples who have made Apple's dividend the cornerstone of there portfolio for retiring 20 years from now, this is a recipe for disaster.

Am I telling you to dump all your Apple stock because the company will surely be on it's way back to the late 90's someday? NO NO & NO! Am I telling you to go buy nothing but Coca-Cola for the rest of your life? No! NO! No! If this is the conclusion you reach by reading this article you have totally missed the point & if so stocks are probably not the best thing for you to invest in. The point is just to demonstrate that while a company may have a good product and a good business doe not make it a automatic candidate for a long term investment.  (Even for KO - you always need to check up on it) You cannot just universally assume a company will stay on top forever, you cannot ignore a companies history, and you most certainly cannot ignore analyzing where the profits come from.  If there is anything to ignore - Ignore the euphoria, ignore the crowd, and ignore your own first hand assumptions without taking a look into things yourself.  The philosophy of Peter Lynch comes to mind - No matter what happens - Good Companies will do good & Bad Companies will do bad & the stockholders over the long term will be rewarded accordingly.

Comparing Apples to Coke - Principles of Investment (Part 1 of 2)

 * I am in no way recommending any particular stocks/investments in this article for anyone - This is just my personal opinion. Please do not act without doing your own research, consulting & deciding your own goals.

         Imagine how many businesses have come & gone throughout the last 200 plus years of our nations existence. Imagine all the changes that not just the United States, but the world has gone through since July 4, 1776.  The world was a totally different place, and only continued to change throughout the centuries and almost certainly will continue to do so for the next 200 years.  Yet somehow, there are certain things that manage to prove timeless, that rise above the politics, agendas and hustle & bustle of everyday life.  Despite a few amendment changes, the United States Constitution has endured for over 200 years relatively unchanged. For over 2000 years Christianity has survived and thrived despite a ever changing world.  Even older than that are emotions people feel, ranging from love,anger, fear, happiness and joy; over 5000 years of civilization didn't change that.

        As an investor this is one of the most important fundamental principles to understand, your not looking for quick gains, a hot tip, follow the leader, or speculate on nonsense; your trying to find the best businesses that will be able to survive, and thrive for a long time and not just protect there market share but continue to grow it as well. Many of the greatest companies of all time share similar attributes, and some have very unique ones as well.

   A stock ALWAYS in the long run will move with profits! If the profits continue to rise, so will the stock & vice-versa.  If the profits are erratic and inconsistent than the stock will always reflect IN THE LONG RUN.
This is one of the tricks to investing, you must be able to figure out where the future profits will come from and how much. There are many & I mean many different ways to figure out what future profits will be, but the problem is no matter what method you use (PE Ratios or throwing a dart at a wall blindfolded) you will ALWAYS be taking a GUESS!!!!  Even Wall Street professionals, MBA students, and long time traders all they are doing is taking a guess as to what future profits will be.  This is where one of the key aspects of investing comes into play, some businesses are just more predictable than others! A great example below comparing Apples Inc the most profitable, most admired and well known company on the planet to another equally as respected enterprise, The Coca-Cola Company......

Apple Inc is everything I stated before, with a 550 billion market capitalization it is the most valuable public company on earth.  With a portfolio of devices everyone uses ranging from iphones, ipads, itunes, and pc's the company is one of the best in it's field.  For many couples today, it is the number one long term holding in 401K(s) across the country mainly because they use there products and so they buy the stock. However, Apple for the long term (NOTE: when I speak long term, I'm talking a period of AT LEAST 4-5 years when designated, but mainly 10-15 years as the default, and anything beyond 15 I will make sure to say so) is one of the worst types of long term investments one can make based on some simple principles.....

This year what does Apple do to make money? Everything I mentioned above. It is very easy for most people to understand the products. So what's the problem? Simple......Even though I am not an Einstein I have noticed throughout my life, that people tend to have very short memories.  Now let's flash back to 1996-97.....
I will ask you the same question as before....This year what does Apple do to make money?  For most people this will be followed by a long "uhhhhhh..." before saying "I don't know" or "I'm not sure" or my personal favorite "Ran an Apple Orchard?" Don't get me wrong I love Apple, they have changed the world forever with there products but just because you love the product doesn't mean you should own the stock....Well come back to the question before in a little bit but first......

Failing to at least provide a sentence or two to answer this question demonstrates some key fundamental problems that MANY people fail to do when investing....

 They never bother to look into the history of the company. This usually only takes a quick visit to Google to type in the company name followed by "History" in the search bar. This is than followed by another quick step of about 5-10 minutes of just reading the companies history on there website in the "About Us" section. This will usually give you a better understanding of why the company does what it does, how it has handled adversity in the past, and can usually help spot as Peter Lynch once called it a "Diworsification" (more on that another time).

They only focus on the here & now. Imagine you are transported back in time to 1910, the most popular stock everyone owns is not Apple but a company called U.S. Steel Company. Everyone thought U.S. Steel would continue to be the best and one of the most powerful companies in the world FOREVER. Today U.S. Steel is but a mere shell of what it once was.  Flash forward to the year 1919, Henry Ford's Model T is the most popular car in the country, EVERYONE can afford one and has one. Mr. Ford's position in the automotive industry looks untouchable. Only a mere 10 years later Ford Motor Company had ceased operations temporarily to restructure as they began to lose large chunks of market share to a surging turnaround story in General Motors Corporation.  There are many other examples throughout the decades of companies that people thought they could stay on top forever & couldn't imagine a world where they weren't still. While there are ALWAYS exceptions of winners that are able to stay on top or continue to be a top leader in there respective field they don't apply universally. From the once mighty Bethlehem Steel, Eastman-Kodak Corporation, Sears-Roebuck & Company, Woolworth Corporation, BlackBerry Ltd., Myspace.com and everything in between.  There is no shortage to warn investors not to just buy a company believing since it is on top now it always will be.  Yet the amount of people that continue to make this mistake is astounding.

But even these two pale in comparison to the final mistake....

They fail to know whether the profits are predictable.  Coming back to the question before, "This year what does Apple do to make money?" the year period being 1996-97, the answer is shocking to many people...They don't make money! In fact there on the verge of bankruptcy!!  Back in 1996 Apple was a complete disaster, with terrible leadership, absolutely confusing/too complex products that even hardcore tech geeks couldn't understand fully, and bad products (some argue that the products were ahead of there time).  Either way the company was losing VASTS amounts of money for the last few years and was at wits end with what to do. The product line of Apple in the 90's included: The Apple Newton (90's version of a ipad), CD players, Digital Cameras, printing machines, ANS, floppy disk drives, and the Macintosh (several software programs that were sold are derivatives of programs still used today, but VASTLY different for the most part, sharing only the blood line).  Point being, the 2014 Apple & the 1996 Apple are not even the same companies!!! The only thing they share is the Mac!!  No one could have predicted what Apple would turn into 15 years later because in the technology field things change so quickly (2-3 years) it's almost unpredictable.  Think cell phones, beepers, computers, tablets, Bluetooth, walk mans, the internet, game consoles and the like.  The changes are so radical, that one company can be on top today, and be gone only 2 years later!!!  So this leads me to these questions......

What will Apple look like 10 years from now?
What will Apple look like 15 years from now?
What will Apple look like 20 years from now?
What will Apple look like 30 years from now?
What will Apple look like 50 years from now?

No matter whether you are a High School valedictorian or a dropout, a working mom with 2 kids, or a young father with a mortgage, or a rocket scientist or a Wall Street analyst with over 20 years experience, No one can answer these questions without resulting to pointless speculation, with no real facts or history to back them up. Sure the company may still make the Mac 30 years from now, but that is not the main cash crop for Apple, the iphone is 60% of sales while the Mac is in the single digits. Sure you very realistically could predict the future profits for Apple for the next 2-3 years (The absolute limit for dealing with technology companies like Apple) but you will not make 5 times your money or become a millionaire quickly. The most you can expect is to double your money if the company is fairly priced.  Yes you could get apple at a fire sale price that provides you a BIG margin of safety for decades to come but that's not a realistic scenario, if it does happen so be it.  Too many people hope to retire on a beach in Central America, or a be able to change there zip code to 90210 when they invest in a company of Apple's size and ever changing industry.  When you invest, even though you are taking a guess, your basis for your estimates must have facts and reasonable assurances and expectations attached to them as well!!  It is foolish to believe  iphones and tablets will be the companies main money source decades from now.  It is foolish to believe you will make 20 fold on your money in 10 years on a company of Apple's size at fair price, it is foolish to believe you can predict the company beyond 2-3 years looking at the history of the company and the industry it operates in as a whole.  Once you understand what to expect and what you are buying you can truly begin to invest.

I will compare this to a company like The Coca-Cola Company applying the same fundamentals in the second part.

    

The Misconceptions of Stocks & General Finance

*I am in no way recommending any particular stocks/investments in this article for anyone - This is just my personal opinion. Please do not act without doing your own research, consulting & deciding your own goals.

What is a stock?

The answers that I have heard people give about what stocks are, range from the enlightening to the down right stupid & dangerous. While many responses don't sound stupid or incorrect at first to the untrained ear, these types of answers are what have given stocks a undeserved bad reputation, because they are incorrect and lead to people getting bitten usually at the worst possible times. Among some answers given include.....

"Take a look, see how the stock went from 5 to 10 dollars? This means it's a good company.  I'm doubling down."

"Look at this thing!! It costs 200 dollars per share!!! It's way too expensive. Trust me buy this winner I heard about from a friend. It costs only 2 dollars, It's WAY cheaper."

"It's gone from 40 dollars to 80 dollars in a year, there's no way it can go higher, sell while you still can before the joyride ends" (For the record: that was back in 2009 & the company in question was Chipotle Mexican Grill - Today a share is worth almost 600.00 per share)

"Stocks are controlled by President Obama, you have no say!! Only he does."

"It's down 50%!!! It's must be going out of business..holy cow....I better just take the loss and wait"

These types of taboos, misinformation, bias, prejudice and just plain fear occur not just in stocks but across all of finance in general. For many households even just talking about money brings an awkward silence or uncomfortable stares at the dinner table. The amount of pain, divorces and death caused from finance is unimaginable. Think about how many times you've heard of a friend or loved one fight about money or get in debt trouble from a totally avoidable situation (obviously excluding medical). You probably lost count thinking about it, now just think how many people in the world are in the same scenario.  Not only have you lost count, but you can't even wrap your head around that amount of people.  Now think about how many people have fought over it for the last 2000 years at the dinner table!! Than just think how many will be in that same scenario in the next 2000.....

I'm not here to tell you you can alter the course at every family dinner table or completely wipe out poverty or something like that. What I am here to tell you is even though you can't solve this problem by yourself, you can still make a HUGE difference in a small way.  By just understanding some basic financial principles, some basic information, along with having a plan & having something to work towards you can make a difference at your table, maybe your parents table, your best friends table, and in turn they can do the same thing to others.

While I will mainly focus on stocks & certain businesses, none of this matters until you get your priorities straight. That means understanding how to make a budget, what's a necessity & a luxury, how to show restraint, having a goal for yourself or someone else or your family. Until you have those items checked off, NOTHING ELSE FINANCIALLY MATTERS!!!!

I'm gonna close just by saying that for many people that are just used to being poor or having no goal, this can be a VERY scary thing at first, to think in such a new way. It always is scary to try new things (like broccoli) but think of all the things in life you would have missed out on if you didn't try them out.

BOTTOM LINE: Find something to work towards & go get it, what that "something" exactly is well... that last one is your problem.

First Post

       





                   Welcome to "General Finance" my Personal Finance Blog. The purpose of this blog is to express ideas on investments, savings, finance, general economics, and personal stories of how finances impact your life & mine.  I focus mainly on stocks and the basic principles of them, the taboos of money/wealth, my personal investment heroes, current business topics, and many more. While I am brand new to this, I am truly excited to have a platform to express myself freely. I am sure I will make misquotes, mistakes, and make some novice points of views, as I will also be learning how to better improve the blog as a whole as I get more accustomed to the tools at my disposal, but that brings me to the second point of this blog; to be able to learn and grow from hearing from other people who have lived and experienced far more than I ever could have ever imagined. I Thank You for letting me into your life by letting me share you a glimpse of mine. May all of my readers lives be filled with prosperity & happiness.

                                                                                               Thank You,

                                                                                               Sincerely,

                                                                                               The General Investor