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ikkyu2 (99.51)

GE: In-line perform

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August 09, 2007 – Comments (4)

General Electric, the old stalwart.  The highest-capitalized stock in American markets, it makes up 4% of the (cap-weighted) S+P 500.

 

That makes it nearly useless for a game like CAPS.  Consider this: GE is diversified into many sectors.  Defense, homebuilding, home furnishings, materials, hardware, software, consumer staples, consumer discretionary, finance - GE has a finger in these pies and many others.

 

That means that if one sector tends to exert a "pulling up" effect on the S+P, GE gets dragged along with it.  If the entire market gets depressed, GE gets depressed along with it. 

 

I don't believe this stock can do much other than in-line perform with the S+P because of the nature of our financial markets and how they're valued.  I don't expect it to outperform or underperform, and I don't expect it to have any volatility to speak of.  If you look at the graph of the stock for the last year, it appears that GE is slightly underperforming the S+P.  The amount by which it is doing so is pretty much equivalent to GE's dividend yield.

 

This makes GE worthless for CAPS, and I can't even pick the stock to express that opinion.  So I'm expressing it here. 

4 Comments – Post Your Own

#1) On August 10, 2007 at 10:52 AM, FoolishChemist (98.14) wrote:

I see your point and even though you won't get rich with CAPS points for picking GE, plenty of people have picked GE and picked up points.  The leader has only 16 points and the least points is -13.  I guess it is a matter of perspective how worthwhile picking GE is.  You won't make 100 points in a few months, but you can still get something.  Actually some ETFs have a smaller spread than GE. DVY is between +/-8 and DIA is about +/- 5!  They make GE look kind of good.

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#2) On August 10, 2007 at 2:15 PM, ikkyu2 (99.51) wrote:

The Dow and S+P march in lock step because much, if not most of the market cap of the S+P is contained in the Dow.  One web page I found suggested that the correlation coefficent (Spearman's r) between the two indices was 0.96 (0 means no relation; 1 means their movements are identical.)

 

 I wasn't able to find the total capitalizations of the S+P 500 and the DJIA companies, and it would be a hard comparison because of the DJIA's bizarre price-weighting.

 

As for picking GE, 16 points for a year of picking doesn't seem very rewarding to me, especially if you're risking an accuracy point to do it.  I also think that when GE and the S+P are so tightly correlated it actually becomes very difficult to select an accurate pick.

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#3) On August 18, 2007 at 1:53 PM, abitare (99.31) wrote:

GE is typically a dead money investment. But it is a "Dog of the Dow" and may out perform

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#4) On August 14, 2010 at 2:02 AM, ikkyu2 (99.51) wrote:

Spectacularly wrong here, though not so wrong as abitare.

When you're wrong, you're wrong. 

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