What happened to General Electric Co. (NYSE: GE) – the company, its businesses, its employees, and its shareholders – is sickening.
It never should have come to this. It's likely the end of the road for the once-iconic conglomerate.
There is a clear path of failure that GE was led down, and it's easy to see exactly where the mistakes were made.
Here's who killed GE and what to do if you own the stock (or want to profit from this icon's fall)…
The Beginning of the End
John F. Welch, better known as Jack Welch, the man who some call god or guru or genius, ran GE from 1981 to 2001. When he stepped down, he left the company in an extraordinarily rich position.
Jack, the chairman and CEO that Fortune magazine named Manager of the Century in 1999, at the end of his two-decade run, rewarded GE shareholders with a staggering 2,790% gain while the S&P 500 gained 710%.
His successor, Jeff Immelt, who took the reins of GE in June 2001, should have, would have, and could have broken up the conglomerate. But his ego was too big and his ambition too blind.
Immelt knew, despite Jack's success at GE, the company wasn't without its troubles or controversies.
Two things were obvious by the end of Welch's reign. GE had gotten too big to manage, and Jack was "managing" its earnings.
I never trusted GE's earnings numbers. How in the world, I always wondered, could GE's earnings come out within a penny or two of where the company estimated, weeks and sometimes months before they were tallied?
That's called managing your earnings, and not in the good way.
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What Welch was doing was juggling the books to hit the earnings targets he set. While revenue and earnings would probably have ended up where they did in the end, along the way they would have been volatile and often disconcerting to analysts and shareholders.
But they weren't. They were smoothed out for the sake of meeting or beating analysts' estimates. They were being ratcheted upward in a smooth and orderly progression, for the most part.
Immelt knew that, and he continued the practice. In fact, anyone who was paying attention knew that.
That's because the SEC charged GE with accounting fraud in 2009. It settled accusations of its "overly aggressive accounting" which was "false and misleading" for a whopping $50 million.
But it was too late. There'd be no more managed earnings because by then GE wasn't earning anything like it used to.
Immelt continued to grow all the businesses GE was in, spending recklessly in the process.
When "Too Big to Fail" Isn't Enough
Jack's philosophy was that in each business the company was in, it had to be the leader or in the top three of its field.
Whether it was power generation, jet engines, oil and gas, aircraft leasing, commercial lending, retail lending, railroads, appliances, or lightbulbs, GE's businesses were gigantic.
Too big, in fact. And in the case of GE Capital, they thought they were too big to fail.
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.