Wednesday, July 2, 2008

A cautionary tale

One of my many useless skills is reading too much into an ordinary article or news story. There was a good one today:
NEW YORK (AP) - Shares of General Motors Corp. plunged Wednesday to close below $10 for the first time in more than half a century, on worries about the company's cash needs and speculation about a possible bankruptcy protection filing down the road. GM shares fell $1.77, or 15.1 percent, to close at $9.98. Their session low of $9.96 marked their lowest point since September 13, 1954, when they hit $9.92, according to the Center for Research in Security Prices at the University of Chicago. The price is adjusted for splits and other changes.
After reading that, I imagined a 55-year old who got a hundred shares as a christening gift back in 1954. He's ready to retire now and on a recent trip to his safe deposit box, he quickly discovered that they were worth the same $1,000 that they were worth when his rich uncle gave them to him as a very generous gift.
Once he regained consciousness, he started thinking. He remembered what things cost in 1954:
House: $22,000
Average income: $3,960
Ford car: $1,548 - $2,415
Milk: $0.92
Gas: $.21 per gallon
Bread $0.17
Postage stamp: $.03
American Cheese: $0.55 lb.
T-Bone steak : $0.95 lb.
Post Grape Nuts cereal - 10 .oz pkg: $0.19
Clorox Bleach - 1/2 gal.: $0.19
20 gallon gas water heater $75
Semi-automatic Kenmore washer: $154.95
One share of General Motors stock in 1954 - $9.92
One share of General Motors stock in 2008 - $9.98
Those 100 shares were a generous gift in 1954. It amounted to a third of what most people made in a year. Today, they're worth what a lot of people make in a week. Factoring in inflation, it's a mountain of loss over the decades.
It points out how shabbily the automotive industry has been run over the past 50 years. After all, it's a high-demand product and people like new cars, especially if they can afford them. It isn't so much that they've outpaced inflation, because they still cost about two-thirds of what people earn in a year, so you'd have to figure that it's bad management that has doomed companies like Chrysler, Ford and General Motors and why the Japanese have been eating our lunch for the past 25 years.
Every time I think about buying a few shares of Ford Motor (currently less than $5 a share) or GM, I lie down until the feeling passes. Meanwhile, our buy-and-hold long-term shareholders are retiring on 1954 dollars.
Jiffy Lube is hiring.


Sparky Duck said...

Hey, hes made about $600!!

Anthony said...

$600? It's six cents times a hundred shares over the course of 54 years.

More like $6 gross earnings minus inflation.

You don't work for GM do you?

Kevin said...

The CEO's still make out (for leading us down the gas guzzling-SUV and Monster Truck route). The poor company grunts and investors take the hit. Should be the other way around.

Kate Michele said...

now if i could of lived back then... making what we make now.....


Anthony said...

I remember the mid-60s fairly well. It didn't seem like such a struggle. There's so much more STUFF that gets in the way.
That $4,000 went a lot further without cable TV, Internet, cell phones, gym memberships ...

Kate Michele said...

ohhh but Anthony!!! I need my cell phone...i mean how else would i survive with out texting?? :D


Firestarter5 said...

I can see GM surviving the next few years. Ford has a shot as well. Chrysler? Hmm, I see Chrysler the way I view FOXNEWS. They rely on flashy graphics and over the top marketing. Yet take that away and you're left with a product that does no one any good.

I'd love to make a new 'HEMI' commercial now that takes place at a gas pump, whereas the Civic driver asks the plaid shirt wearing Billybob if "That thing got a HEMI?"..and Billybob just starts to cry.