In volatile market conditions, the movements of certain stocks can teach us a great deal.
Sometimes, as in the case of the once-illustrious General Electric (GE), those lessons are learned painfully, but they must be observed.
Regardless of whether or not you’re an investor in GE or an industry insider, there is valuable information to be gathered by looking at the inner workings of what exactly has gone down and why.
To say GE is a historical and storied company would likely be an understatement.
One of the original members of the Dow Jones Industrial Average (also known as the Dow Jones, the Dow Jones Index, and the Dow) it is the only original company still on the Dow.
At least, it was until last week.
Last week saw GE officially removed from the Dow Jones and replaced by Walgreens Boots Alliance.
Before we get into what went wrong with GE and the lessons to be learned, let’s take a quick look at GE’s history.
GE has been a constant member of the Dow Jones for the past 111 years.
GE was originally formed in 1892, the result of a merger between two competing companies, Edison General Electric Company and the Thomson-Houston Company.
Originally, GE was focused on power-industry items, including generators, electric lamps, motors, and so on.
GE also became heavily involved in the railroad industry, and in the 1940s GE had become a major manufacturer of electric trains.
GE eventually became known for various successes and innovations, from lightbulbs, to railroads, to x-ray machines, jet engines, and so many more.
Over the years, GE employees have been awarded an impressive 67,000 patents, showing what a ground-breaking and innovative company GE has been.
So, what went wrong?
It’s not uncommon for people to consider mammoth companies like GE to be basically unstoppable.
After all, people have borne witness to the century of success GE has had, profiting hand-over-fist from revolutionary products and technologies.
Unfortunately, when a company has been so successful for so long, people can get too comfortable, and ignore warning signs.
That seems to have been a contributing factor in GE’s downfall, magnified by the company’s own rose-colored glasses in terms of realizing that trouble was coming.
Now, I’m not saying that GE got too comfortable with its position in the Dow Jones and stopped trying—that would be far too simple.
As times change and technologies emerge that make our daily lives unrecognizable from that of 100 years ago, some companies will be left behind.
The Dow Jones has always been extremely selective in the companies it allows in—comprised of only 30 companies, all blue-chip stocks, the Dow Jones works hard to represent the movers and shakers of the stock market.
The Dow Jones has traditionally been considered to be the “pulse of the stock market,” and is the second-oldest and best-known stock market index.
As innovative as a company may have been 100 years ago, that doesn’t guarantee it will be just as unique and innovative later down the road.
The inventions that made GE famous and helped transform the world are now largely “old news.”
This is important to keep in mind for investors, and something that even industry insiders tend to occasionally forget.
There is no such thing as an unsinkable company.
There is no such a thing as a company that will never fail or will be the most innovative company for the rest of time.
A company established over a hundred years ago has no idea what technologies will be created in the next century.
These are the lessons to be learned from GE, and the way you profit from them is to never allow yourself to stagnate.
No matter how behemoth a company seems, it’s impossible to predict the future.
A hundred years from now, Amazon may meet a similar fate as GE.
As investors, we must always be on our toes and keep our eyes on the charts, looking for signs that it’s time to get out.
Invest like the insiders, and never let your emotions get the best of you.
