Old Advice, as Valuable as Ever

When my wife and I got married more than 15 years ago, we had a lot of things in common including the fact that we had both inherited stock in GE.  In fact, it was about 10 percent of our combined net worth.


I don’t remember the exact numbers anymore, but the cost basis on the stock was low for both of us because each of us had separately received the stock from a living person, which meant that we inherited their original cost basis. 


In my case, that meant a price back to the 1980s, although I don’t remember the number anymore.  The cost basis for my wife’s stock dated back to the 1940s and was something like four cents per share. 


During the honeymoon periods, I just sat on the stock because I didn’t want to pay the capital gains on a sale, Jack Welch was still the CEO and his track record was so good, it felt great owning the stock.  I am pretty sure that GE was the largest company in the world at that time and there was no end in sight to their dominance.


When Chris and Dannelle were first putting together the pieces that would ultimately turn into Acropolis, I showed them my brokerage statements and Chris said almost immediately that I needed to cut the GE position down substantially. 


It wasn’t a call on GE and no one could have foreseen that over the next 15 years that the stock would be worth half as much as it was then.


I think I groused about the capital gains tax, but Chris was adamant, ‘Dave, it’s too much risk, you don’t know what’s going to happen.’  He also said that since we had inherited the stock, it was basically found money before or after tax.


He was totally right, so I sold a good chunk of the position with a plan to sell more in the coming years. 


Not too far along in that process, 9/11 happened.  Jeff Immelt, the current CEO, who had taken over the job from Welch four days before 9/11 had a quote that I remember,  ‘In addition to the human tragedy, I saw planes with our engines hit buildings we insured, covered by a TV network that I owned.’


Amid the chaos of the tragedy, which came at an already turbulent market period of the tech bubble bursting, I felt relieved that I didn’t have such a big position in GE anymore.  I was far more diversified than I had ever been before and GE’s losses weren’t very impactful.


I kept selling and was out of the position by the middle of the decade.  At that point, I was glad to be out because the S&P 500 had fully recovered but GE was still suffering. 


When the stock hit five dollars per share in the 2008 financial crisis I thought about what I had paid in taxes compared to what I would have lost if I had held onto the stock.  I specifically remember a Thanksgiving dinner when a lot of family members were talking about how much they lost on GE. 


For me, the experience taught me two important lessons.  First, it’s impossible to know what the future will hold, so diversify your assets.  There is no reason to hold ten percent of your net worth in any publicly traded stock. 


Second, don’t let the tax tail wag the dog.  I had been letting tax avoidance keep me in a bad investment strategy.  With some nudging from Chris, I bellied up to the bar, paid my share and couldn’t have been happier about it a few years later.


Thanks, Chris, for the advice.  It was worth quite a bit to me, literately and figuratively.