There's a lesson here that may save you some grief in the future.
No matter how powerful it may be today, a company won't stay on top forever. Being called a "blue-chip" or a "world-class operation" can't save a company whose time is past, any more than Great Britain was saved by having the word "Great" in its name.
Long after Great Britain had lost its empire, the British people continued to think of their country as stronger and mightier than it really was, the same as the shareholders of US Steel.
International Harvester, the dominant force in farm equipment for an entire half-century, peaked in 1966 and never came back, even though it tried to change its luck by changing its name to Navistar. Johns-Manville, once number one in insulation and building supplies, topped out in 1971.
The Aluminium Company of America, better known as
Alcoa, a Wall Street darling of the 1950s when the country was discovering aluminium foil, aluminium siding, and aluminium boats, rose to $23 a share in 1957 (adjusted for splits), a price it didn't see again until the 1980s.
General Motors, the dominant car company in the world and the bluest of the automotive blue chips, reached a peak in October 1965 that it wouldn't see again for nearly 30 years. Today, GM is still the largest company in the US, and first in total sales, but it's far from the most profitable. Sometime in the 1960s, its reflexes began to slow.
The Germans came ashore with their Volkswagens and their BMWs, and the Japanese invaded with their Toyotas and Hondas. The attack was aimed directly at Detroit and GM was slow to react. A younger, more aggressive GM might have risen to this challenge more quickly, but the older GM was set in its ways.
It continued to make big cars when it could see that small foreign cars were selling like crazy. Before it could build new models that could compete with the overseas models, it ad to overhalul its outmoded factories. This cost billions of dollars, and by the time the overhaul was complete, and small cars were rolling off the GM assembly lines, the public had switched back to bigger cars.
For three decades the largest industrial company in the US has not been largely profitable.
Yet if you had predicted this result in 1965, when GM was riding the crest of its fame and fortune, nobody would have believed you. People would sooner have believed that Elvis was lip-synching.
Then there's
IBM, which had reached middle age in the late 1960s, about the time GM was in decline. Since the early 1950s, IBM was a spectacular performer and a great stock to own. It was a top brand name and a symbol of quality - the IBM logo was getting to be as famous as the Coke bottle. The company won awards for how well it was managed, and other companies studied IBM to learn how they should run their operations. As late as the 1980s, it was celebrated in a best selling book,
In Search of Excellence.
The stock was recommended by stockbrokers everywhere as the bluest of the blue chips. To mutual fund managers, IBM was a "must" investment. You had to be a maverick not to own IBM.
But the same thing happened to IBM that happened to GM. Investors were so impressed with its past performance that they did not notice what was going on in the present. People stopped buying the big mainframe computers that wer the core of IBM;s business.
The mainframe market wasn't growing anymore. IBM's personal computer line was attacked from all sides by competitors who made a less-expensive product.
IBM's earnings sank, and as you probably can guess by now, so did the stock price.
By now you might be wondering
what's the point of investing in a stodgy old company such as IBM, GM, or US Steel?
