Whoa! GM Stock Has Vanished, Too?

Imagine it's June 1, 1999 and you happen to be sitting in on one of our seminars, listening to our webinar, or reading this blog and we tell you NOT to invest your serious cash directly in the stock market. The stock market is rolling and all you have to do is just pick a stock or mutual fund and you are on your way to your "dream retirement."

On that particular day General Motors (GM) and General Electric (GE) stocks close at $66 and $113, respectively. The "experts" at the time - if my memory serves me - are calling these companies Blue Chip stocks, meaning they are HUGE, very stable companies. They advise folks wishing to be wealthy to make those stocks part of their portfolios because they are not going anywhere. They're Blue Chip, remember?

After all, just 10 years prior, on June 1, 1989, GM and GE stocks were trading at $41.75 and $51.63, respectively. If you do the math, you'll find this was a 58 percent for GM and a 119 percent increase for GE. The experts claim? As long as you take their much-advised long-term view - investing for 10 years or more - these Blue Chips must be part of your portfolio.

Then, last Monday - June 1, 2009 - the unthinkable happened. GM, the largest automaker in the United States of America, a Fortune 500 company, an iconic company, filed for bankruptcy protection. In the midst of all the chaos and rumors, here are some FACTS for you, American consumers who may be affected:

Bondholders

Thousands of individuals and certain mutual funds bought $27 billion worth of GM bonds. These will end up owning stock from the reorganized GM worth - GET THIS - only a fraction (less than 50¢ on the dollar) of their original investments.

Stockowners

Those who currently own GM stocks will see their investments essentially vanish. The stock closed at 75¢ per share on June 1, 2009. As of June 2, 2009, the New York Stock Exchange no longer lists GM shares. GM will also be removed from the Dow Jones Industrial Average as of June 8, 2009.

Don't Believe the Hype

Who could have predicted that something the "experts" said could never happen would happen this easily in our lifetime?

I am not an expert, but this is the time-tested common-sense statement I always make:

Holding stocks long enough (however long that is) does not and will never
eliminate risk. These so-called experts cannot and should not be advising
investors - or even implying - that if they just hold their stock long enough,
the risk disappears and they will end up in great shape.

Ten years ago, GM stock was trading at $66; today it has essentially vanished! GE stock, on the other hand, was $113 then; today - after 10 years - it's worth $13.86. Remember, 20 years ago GM and GE were trading at $41.75 and $51.63, respectively. How about 30 years ago? GM was $59.38 and GE was $50. Forty years ago? GM was $77.87 and GE was $90.

And speaking of solid Blue Chip stocks, as the "experts" put it, here are a couple more names for you: Washington Mutual, Lehman Brothers and WorldCom.

To temper the current dismay at GM's bleak status, the company's current CEO, Fritz Henderson, has vowed that the new GM that emerges from bankruptcy will not be at risk of failure in the future. "We understand there are no second chances," he said. "We won't need one."

To that, I say, "Great!" and "Yeah right!"

Just a few months ago the nation's largest automaker's former CEO, Rick Wagoner, insisted bankruptcy was "not an option." I'm guessing you can tell that kind of talk is simply BS! It's similar to the line of crazy talk that most financial planners use to push unsuspecting investors into financial ruin.

Rethink Your Investment Strategy

The sad truth is that when you invest directly in the stock market - via stocks, mutual funds, or whatever - you are betting against an enormous uncertainty. Laser Financial Group has always maintained that retirement planning should NOT be left to chance, as the so-called experts would have you believe. Retirement is certain, and people's livelihood should be, as well. That's why we recommend and help our clients secure less volatile, more stable investments that allow them to enjoy the market's upside indirectly, without the downside risk.

Imagine where you'd be right now if your investments had NOT lost any value last year and instead, your account earned 5 percent interest! Yes, while the S&P 500 index lost more than 35 percent, your investments made gains. And imagine if, when the markets recover, your indirectly linked investment account were credited a higher interest rate - based on an index - up to a cap of 15 percent -for example. This is no dream. It's not only possible, it happens for our clients every day. Isn't this just plain old common sense?

I'll close with a well-known proverb: "Fool me once, shame on you. Fool me twice, shame on me."