Q: I've owned General Electric stock ge for nearly 10 years and have been disappointed with its performance. What is wrong with it?
A: It's easy for investors to beat up on General Electric.
Since the start of this decade, the stock is down 37%. Yes, patient investors have been collecting a dividend during that time. But that dividend, now yielding around 3.76%, doesn't make investors feel much better, as they watch their principal erode while the Standard & Poor's 500 index is down a much more modest 7% during the same period.
Don't think it's just General Electric. To show you what I mean, let's examine the performance of the 453 companies in the Standard & Poor's 500 that were publicly traded on Dec. 31, 1999. Of those 453 companies, the stocks of 147 or about a third, have declined in value. And of those 147 stocks, 84 or 57% have fallen 37% or more.
GE may have some specific issues. It announced disappointing earnings in April, but it's not the only large company in that predicament.
Large company stocks had been in favor so long in the late 1990s, that, naturally, the valuations became less compelling. And that's why since 2000, smaller company stocks have done better than shares of large companies like GE, says Stephen Wood, senior portfolio strategist at Russell Investments.
It looked like large company stocks would do better in 2007. Then the credit crunch hit. Many investors who were stuck with assets they couldn't sell, like mortgage-backed securities, were forced to sell things they could. Large company stocks top the list of things to sell because they're easy to unload. There is so much trading in large company stocks, investors can sell large stakes without dramatically driving the price down.
Frank Ingarra, assistant portfolio manager at Hennessey Funds, believes large company stocks, including GE, will have their day again. Investors should remain confident in the many large company stocks that pay dividends and whose companies have solid management teams. "A lot of individual investors go for instant gratification," he says, adding that Hennessey owns GE stock in several funds. "People are losing sight that stocks are a great long-term investment."
Investors who want to be patient, but don't want to count on GE getting its stock price up, may instead put their money in a diversified index fund or exchange-trade fund (ETF) that owns shares of many large-company stocks. You can invest in the S&P 500 or Russell 1000 indexes, which own broad baskets of large companies. That way, even if GE doesn't move, you can still profit.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at firstname.lastname@example.org. Click here to see previous Ask Matt columns.