For quite some time we have deliberated whether to augment our investments in diversified Exchange Traded Funds (ETF’s). The idea of augmenting is to add value to an existing status. We believe the stock market will present us with occasional opportunities to add an individual company’s stock to our portfolio of ETF’s; which in turn will add value to the portfolio. To make this idea of rifle shooting an individual stock into the portfolio, the following parameters would need to be observed:
Investment time horizon of three to five years
Ability to deliver better than “market” returns over the three – five year holding period
Willingness to own “out of favor” company stock at time of investment
Individual stock investment position must be at least 1%; but, not more than 3% of the amount allocated to equity in the portfolio
After much consideration, our initial investment was made in GE stock. We initiated our position while the stock was trading in the $18-20 range. Part of our investment thesis included the concept that all the “bad news” had been baked into the stock and that the drop in the stock price from $30 to $20 contained that bad news. Here we sit at $12.50 and it is obvious that all the bad news was not baked into GE at the time of our purchase.
We can now look back with perfect hindsight and realize that we were six months too early in our initial purchase. However, we are continuing with our investment in GE and will most likely look to add to our position in the near future. By doubling down on the stock at this price we can lower our overall cost basis and potentially set up an opportunity to do some tax loss harvesting at the end of the year while maintaining our investment in GE at what we believe will prove to be a very attractive price.
We think that CEO, John Flannery is doing the right thing in getting the company focused on its core strengths and shedding assets that distract from what GE can do best. We are impressed with Flannery’s willingness to lean into the wind and take a longer- term view of what the company can become while fulfilling his pledge to raise cash and to bring a leaner and more efficient approach to the company. As with all things, time will bear out our investment thesis; but, for now we have set our course and are willing to let time and the company work in our favor.