Be Curious! / Be Inspired! / Business / Data

GM: The All American Stock

Back in 2008, when the economy started to crumble and the stock market started to tumble, my husband and I were in the enviable position of being “okay.” We lived within our means, my job felt pretty stable, and so we wondered what it would be like to dip our collective big toe into the stock market. Just a toe, each month, just to see.

We set a small dollar figure for monthly investing–enough money to see growth over time, but not so much that we’d drown in our own tears if we lost it. We used ING Sharebuilder to choose some stocks and set up automatic transactions. As nervous as it made me, it was shockingly simple to do.

Our first stock picks were our absolute worst–a couple of green energy firms touted by analysts as “strong buys.” We heard then President-Elect Obama talk a lot about green energy and green jobs, and we were certain we were catching the wave by investing in this sector.

Of course, the stock market continued to decline into 2009, and the green wave has been more like a little lap against the shore. Our first stock, Evergreen Solar, has plummeted 95% since we threw $200 at it in mid-2008. Did you frigging catch that? 95% loss.

Our second stock, Suntech Power Holdings, has been almost as bad, losing 65% of its value since we bought it in late ’08.

I know what you’re thinking. You’re thinking “I can stop reading right now, cause I do not want to hear what this chick has to say about stocks.” I hear ya. Yep, that was a pretty inauspicious beginning.

I remind myself of this constantly to keep myself in check. I haven’t sold any shares of those sad, sad early investments, just so I can have a potent reminder of just how wicked this stock market stuff can be–and how much I have to learn about it.

I’m happy to report that we’ve fared much better with other choices since then (PowerShares Wilderhill Clean Energy has seen a 12% profit for us!), but there’s no question about it: if you want to invest in the stock market, you better get yourself an education.

BADGE WORK UPDATE: MONEY SENSE

A task for this badge asks scouts to track a stock over the course of a month and determine what would have happened had they owned 100 shares of said stock. This is an excellent way to introduce young (and middle-aged) people to investing in the market, and I took it as a sign that it was time for me to bone up on my investment skills.

I picked General Motors (GM). Why? Because I liked the idea of supporting an American company (even if I do wish they’d stop making energy-inefficient cars, but that’s another issue). Because I wanted to see how the auto manufacturer is doing now that they’ve returned from the dead and are back in the market. And because I actually almost invested in them before they went under and the Federal government had to throw them a hefty life preserver.*

But GM is back on the market, and I tracked the stock’s opening and closing prices for four weeks, from March 1st through March 28th. Here’s my chart:

If I’d actually bought 100 shares of GM at the opening bell on Tuesday, March 1 at a cost of $3,369 (per the badge task), I’d have lost $284 when the closing bell rang on Monday, March 28th, a loss of 8.4%. That’s what we might call “statistically significant.” Yikes.

Now, the task’s requirement was satisfied at this point, but I wasn’t. Tracking the stock on its own doesn’t tell us what happened over the course of the month to prompt growth or decline. For that, we can start with a look at the news.

March 1 was a remarkably robust start for GM. MarketWatch.com reported the headline “GM Leads February Sales Surge With 46% Gain.”  That’s huge! “Sales of cars were up 76%, while trucks rose 74% and crossovers spiked 59%.”

So clearly, things looked swell for GM! I felt as though I’d picked a real winner this time! I felt as though my horse couldn’t lose and we were looking at a sure thing!!

But the immediacy of good news has a way of drifting off and away from memory, and the stock “adjusted” down a bit in the first half of the month.

The most active/volatile day of the month was March 15th, the Ides of March. The stock saw a low of $30.65/share and a high of $32.49. Any idea what might have prompted that?

Sadly, think Japan:

While the earthquake and tsunami actually hit on Friday, March 11, fears about a nuclear catastrophe really took off with this major explosion in Tuesday March 15 at the unit 2 structure at the Fukushima Daiichi complex:

So the stock took a hit. But GM wasn’t the only stock to have a tough time mid-month. Compare these charts for the Down Jones, NASDAQ, and the S&P 500 over March:

DJIA

 NASDAQ

S&P 500

So GM’s mid-month dip parallels the rest of the market.

But while these major indices climbed up through the rest of this month, we can see from the chart below of GM opening prices that this stock had a second dip; it looks as though something else happened a week after the earthquake and tsunami:

I did a search of news stories and discovered a couple of things that may have impacted the stock:

  • On Friday, March 18th, GM announced it would be closing its Shreveport, LA plant due to a disruption in the supply of parts as a result of the earthquake in Japan.
  • On Tuesday, March 22, GM announced it was liquidating its shares of “Fixed Rate Perpetual Preferred Stock, Series A, of Ally Financial Inc., in a registered public offering for a total of $1.0 billion… ‘Today we are taking another step forward in our strategy to strengthen and simply the company’s balance sheet,’ said Chris Liddell, vice chairman and chief financial officer.”

That first bullet makes clear sense to me; it’s a bad news story delivered on the last day of the week to avoid an immediate sell-off. It’s effects were still obviously felt, but the timing of the story was probably designed to lessen any negative impact. The second bullet is a bit above my pay grade, but it sounds as though the market, as a whole, didn’t quite buy the positive spin put on the transaction by GM’s CFO.

Either way, stockholders took a hit in March.

So now, we’ve looked at the stock on its own, and we’ve looked at it within the context of company and world events as well.

But if you’re going to invest in GM (and I still just might), you’d want to know what the analysts are saying. For that, we can turn to the experts, and the experts are calling GM a pretty good buy at this time. This first chart comes from the ING Sharebuilder Website (where we laughably “play” the market): 

And this one comes from The Street:

Finally, this one comes from MSN:

The short take: analysts are bullish on GM. Way to go, GM!

It’s clearly a good idea to look at analysts’ reports, but I now view them with a grain of salt. Why? Cause same said analysts were bullish on Evergreen Solar when we bought that stock. Turns out their crystal balls don’t always work that well.

Beyond the “facts” of a stock, any investment raises ethical questions — at least, I think it should raise those questions. Does the company do business honorably? Do they treat their workers fairly? Do I want to invest in a company that doesn’t appear to be playing by the rules?

Take the case of General Electric (GE). Through our household experiment, we now own 30 shares of this stock. Yeah, it’s a pittance, but it’s also one of the better-performing stocks in our little portfolio.

In fact, I felt pretty good about our 25% ROI until it was recently reported that GE paid no taxes in 2010. Nada. Zip. Nothing. In fact, they claimed a refund of $3.2 billion.  The company states that this entirely within the tax code and completely legal, but if you ask me, it redefines their tag line, “Imagination At Work.” And I don’t feel good about having paid more taxes than GE.

So what has this task taught me?

  • There’s no such thing as a sure thing when it comes to investing money in the stock market.
  • The market has always been and will probably always be a long-term choice for investments.
  • It can never hurt to do your homework about a stock before investing, but the geniuses get it wrong, too.
  • Don’t put your eggs into one basket. When it comes to investing in individual stocks (as opposed to mutual funds or exchange-traded funds), I’m still happy to be cautious about the amount of my investment. Smaller investments, over time, across a lot of different sectors and companies still seems saner to me.
  • It’s a global economy, and whatever happens overseas impacts us in our backyards.
  • Mother Nature’s forces are far, far greater than our own, always and forever–and those forces will impact the markets from time to time.
  • Publicly traded companies will always and forever be in the business of profits. Sometimes that will feel fine, and sometimes we’ll have to look at the actions of a company against the framework of our own moral compasses.
  • We must never, ever privatize Social Security here in the U.S. Again, even the smartest guys in the room get it really, really wrong sometimes. Requiring someone like me to invest the core of my retirement savings in the market is like asking me to perform surgery. Even with the best crash courses in anatomy and operating procedures, I wouldn’t get it right.

The waters are rarely crystal clear or still for the individual investor of limited means. Still, we can’t begin to know what’s out there until we put that first toe in the water…

————————————————

*Yes, I almost bought GM stock when they were getting ready to crumble in ’08. At under $9/share, seemed like a great buy!!! I thought there was no way they could go under… A-hahahahaha! Yeah… that would’ve been pretty awful…

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