John Hempton was the latest guest on Bloomberg’s Odd Lots podcast:
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Based in Australia, John is the founder and CIO of the global management fund Bronte Capital.
In the closing minutes of the episode, John quoted an investing lesson: “The dollar doesn’t care how you got it. It only cares when you got it.”
In February of last year, John had a vivid post on General Electric ($GE), which was once hailed as a corporate paragon, but today is a fraction of its former self:
“a) GE was left hyped up and overly dependent on finance income and accounting tricks under Welch (who I think is the main culprit here),
b) Immelt did not defuse all the unexploded Welch bombs anything like fast enough. GE would have gone bust on the Welch trajectory, and Immelt got it off the Welch trajectory, but not far enough off the Welch trajectory,
c) Both Welch and Immelt behaved as if their body odor was perfume. They believed their own hype and bought back stock and stock and more stock. Total shares repurchased were over 100 billion dollars. Just 30 billion of that money now would solve the credit rating problems,
d) Power systems which were once perhaps the golden business fell on hard times. Solar is now cheaper than coal or gas. Renewables are cheap. This is a problem if you are the biggest capital equipment sellers to the old tech. This was exacerbated by spending 10 billion on Alstom just as it all fell apart. Immelt doubled down on dying technology.”
The importance of GE's credit rating
That said, I think there is one last shoe to drop, and it is a doozy. And it wasn't covered in Andrew Bary's excellent…
Maybe there is a more nefarious example of companies overspending to buy their own stock when money should’ve been invested elsewhere, but GE still ranks high as an offender:
“A lot happened during [former GE CEO Jeffrey] Immelt’s 16 years running GE. The 2008 financial crisis dealt a huge blow to the company: its stock fell 42% in 2008, forcing GE to rethink its operations. It went back to focusing on what it did before Welch took over — manufacturing. It quickly sold off some of its biggest past money-makers, like NBCUniversal, GE Plastics, and GE Water, and GE Appliances. Warren Buffett stepped in and invested $3 billion to keep the company afloat.
For most of his tenure, Immelt had two private jets — one that he used regularly, and one that he kept as a spare, without telling GE’s board of directors. The board only found out after the Wall Street Journal reported it in October 2017.
Immelt stepped down with only seven weeks’ notice.”
Triumphant rise, spectacular fall: General Electric's 127-year journey from cutting-edge American…
Ever since it was formed in 1892, GE has been a byword for American innovation - that is, until a few years ago. GE…
In 1986, General Electric bought RCA, which in turn meant that it acquired the National Broadcast Company (NBC) and its Late Night with David Letterman show.
Even though Jack Welch loved to brand himself as a business leader during his GE tenure, it’s safer to say that talk show host David Letterman has a better public legacy.
In fact, thanks to last month’s Investment Masters Class’s article on Sol Price, I have a new appreciation for the founder of The Price Club as a true pioneer:
“One of the things I find particularly interesting with Sol is that like with Warren Buffett, many people have benefited from the few. Thousands of investors have benefited from the lessons of Warren Buffett. They’ve recognized his success and copied it. Berkshire Hathaway itself has copied others.
‘All Berkshire does is copy the right people.’ Charlie Munger
The same can be said for Walmart ($WMT), Costco ($COST), and Home Depot ($HD). Even Jeff Bezos’ Amazon ($AMZN) Prime membership model draws on the innovation of Sol Price. If the world’s largest retailers and hardware chains have all been influenced by the one man, and even further have emulated his practices in their own businesses, it’s hard to refute that the man was a genius.
Sol was a true Master.”
Learning from Sol Price - Investment Masters Class
Walmart, Costco, Home Depot. You've heard of them no doubt? Together, they're recognized as the world's largest…
Meanwhile, General Electric may best go down in history as a company that turns away fruit baskets…