important to recognize that not all companies made a so-called banking error. The market is up 59% from year-end 2001. Yet, we are down 37% from year 2001. There is no doubt that financial leverage drove GE volatility.
What is lacking is a clear written numerical standard that defines safety and warns a risk. In other words, a financial speed limit. I will recommend a standard. Given that asset allocations by management is effectively investing shareholders’ money, I find it prudent to follow the counsel of, and according to most experts the greatest investment thinker of all time, Benjamin Grossbaum. Indeed, he mentored Warren Buffett, who in turn bailed us out. So let’s listen to him.
For financial stability, he recommends at a minimum that current assets are twice current liabilities, and that current assets exceed long-term debt. General Electric Company (NYSE:GE) fails on both counts according to CNBC but passes according Value Line. The Annual Report does not give assets and current liabilities as separate line items. I think it should.
Last year’s proxy featured the debt — the benefits of debt-free companies. This clearly meets the so-called 2 to 1 current ratio, and has no long-term debt. So we have a red, yellow, and green scenario. Once we transition to a 2 to 1 current ratio, and current assets exceed long-term debt, we transition from red to yellow. Once we eliminate long-term and short-term debt, we are green. It’s that simple and straightforward.
Further recommendations for price stability include generous dividends as they dampen the volatility of the stock’s price. This is in preference to share repurchases. Indeed to me, the promise to protect the 2009 dividend was much louder than any promise to concentrate shares. Please make shareholders whole to the 2009 dividend before buying back shares, as that is what you promised.
It is recommended to target and grow net income, a standard that has declined for the past two years, instead of pro-forma income. Net income was on the first page of the Annual Report when it was growing, and the stock price was $60. Now, net income is shown on page 70.
The current practice of stock options and bonuses encourage share price volatility enriching executives, while causing shareholders to lose their shirts. Please vote for eliminating stock options and bonuses, shareholder proposal number 5. Thank you. Robert Fredrich has requested me to represent him in presenting his shareholder proposal to sell the company. The spirit in the letter recommends raising your voice, and here they give me a microphone. Mr. Immelt when you were advised that you would become CEO of GE November 24, 2000, the stock price was about $50. Today, it’s about $26, a little more than half the price when you were named. The S&P 500, however, grew about 40%. So since you were advised of your current role, a dollar invested in General Electric Company (NYSE:GE) becomes $0.52. With the market, it becomes $1.40.
In 1993, we had the Kidder Peabody debacle. The stock failed but quickly corrected. We know what happened, who did it. GE took action and continued to grow. In 2009, GE paid $250 million in legal fees and fines, as GE counted sales for years in which the sales did not really occur. The SEC found 3 such events.
This time it’s different, though. After Kidder Peabody, we found one person, Joseph Jett, entered erroneous income data to earn a $9 million bonus. In the more recent scam, for example, locomotives were idling as they would be delivered during the first of the year. But General Electric Company (NYSE:GE) wanted to count in sales for the prior year. So creative accounting was used to sell locomotives to John Doe in the first year, who would in turn sell to GE customers in the next year. This took many people and many winks to pull off. This was one of 3 such events that the SEC caught.
