Captain Marvel: Don't invest like it's 1995
Updated: Oct 4, 2020
Captain Marvel, one of the universe's most powerful heroes, is an alien warrior who finds herself caught in the middle of an intergalactic battle between two alien races. She keeps having recurring memories of another life as U.S. Air Force pilot Carol Danvers.
The movie takes place in 1995. In one scene Captain Marvel crash-lands through the roof of a Blockbuster Video store.
I had to ask my dad what Blockbuster Video was and how it worked. He explained that back then if you wanted to watch a movie you had to drive to a movie store like Blockbuster and hope they had your movie. The popular movies were always rented out. The movie rental was about $5 and you had to return it the next day. I am glad I have Netflix, Amazon Prime and Disney Plus.
At its peak in 2004, Blockbuster had 60,000 employees and 9,000 stores worldwide with a market value of $5 billion.
Blockbuster is now bankrupt.
What happened to Blockbuster Video? It is the combination of a lot of things: The wrong people get hired to lead, business environment changes, people no longer want your product
or service, technology changes. Terrible business decisions get made. Government decides to pass laws that affect your business. Threats to your organization get larger and eventually destroy the company.
Back in September 2000, Blockbuster could have bought Netflix for US$50 million, but CEO of Blockbuster passed on the deal and couldn't stop laughing during the meeting.
Netflix was founded in 1997. It is worth US$220 billion today and has over 9,000 employees. It did US$20 billion in revenue in 2019. The Blockbuster executives don't look so smart now.
In 1995, the Internet was just getting started. Amazon's head office was a car garage in Seattle. Google and Facebook weren't invented yet. Apple was a well known but small computer company. The computers in the 90's were huge and you needed a large desk to store and use them. There were no iPhones, iPads and only a few people had laptops. Majority of the population didn't even have an e-mail address.
On Sept. 14, 1995, General Electric (GE) crossed the US$100 billion mark, making it one of the most valuable companies in the world. It was an industrial conglomerate. GE was into everything: jet engines, appliances, light bulbs, entertainment, financial services, energy and healthcare. You couldn't count all the businesses GE owned. They even owned NBC and Seinfeld, a hugely popular 90's TV show. It still plays on TV today. My parents love that show.
Jack Welch was the CEO of GE and considered a management superstar. Fortune magazine called him "manager of the century" in 1999. He had at least 20 books written about him and his leadership style then. If you were studying any university business class in the 90's, you knew about GE and Jack Welch.
According to Forbes, GE hit US$600 billion valuation in 2000. Over 300,000 employees worked at GE around the world. Things were going great then GE's downfall started in 2001.
In investing, if a high school student can't explain the business and how it makes money then it's best to stay away. General Electric became one of those companies. Global Investment firms and multi billion dollar pension funds couldn't figure out or make sense of GE's financials. They were very complicated. Not a good sign. They began selling stock and everyone else followed.
GE made big bets at the wrong time and began losing money. They first cut their dividend in 2008. The stock price then began to drop sharply. Not a good trend. We don't like companies who regularly cut dividends because the stock price follows. It becomes a downward spiral.
Today General Electric is worth US$56 billion almost half of what it was in 1995 and 10% of what it was in 2000. Let that sink in for a minute. 10% of what it was worth 20 years ago.
What is more troubling is GE's generous retiree pensions are now in trouble and many GE employees invested heavily in GE stock because for decades as it was the safe and smart thing to do. Some invested their entire net worth in GE stock only to see it worth a fraction of what it was in 2000.
We are not talking about a small number. GE's pension plan made it possible for 485,000 employees to retire. The state of Kentucky alone has over 20,000 GE retirees.
At the same time look what happened to stock prices of Amazon, Google, Facebook and Apple. They kept rising dramatically. Total market caps of these companies today is over $5 trillion dollars.
This is not new as history has shown us that even the global empires eventually fall and new ones emerge.
At one time the British Empire was one of the largest empires in the world. From London, the British ruled about 20 percent of the world's population and governed nearly 25 percent of the world's land mass including colonies such as United States, Canada, Australia, India, Singapore, Hong Kong, large parts of Africa and some areas of South America. Britain even corrupted an entire nation, China, with opium purely to extract drug revenues. Britain was truly a global superpower at the time.
Then, like all empires before it, it collapsed. The financial burden of two World Wars eventually ended the British Empire. Colonies, such as India, were tired of dealing with racist policies that made its people second class citizens in their own country and began to push for independence. After the Second World War, Britain no longer had the wealth or strength to manage an empire overseas. The last significant British colony, Hong Kong, was returned to China in 1997.
China is now considered a global superpower in economy, military, and technology. India is also emerging as a superpower. This at a time Scotland is seriously considering leaving the United Kingdom. England is now having a tough time just keeping its own country together. No one could have predicted this in the 1990's yet here we are.
Success contains the seeds of its own destruction. It doesn't matter if it's Blockbuster, General Electric or England. Companies and empires rise and fall so don't put all your eggs in one basket.
Apple is the most valuable company on Earth today at US$2 trillion dollars but it's not a good idea to put all your money in Apple stock. You now know why.
Be diversified and buy many stocks and exchange traded funds. We prefer companies that have a long history of growing their dividends. Remember that some companies will do well and exceed your wildest expectations and some of the largest corporations can go bankrupt one day. Doesn't matter how smart you are of the amount of research you have done on the company, there are simply too many variables out of your control
Not long ago, Marvel Entertainment's executive team, they are usually middle aged men, questioned the profitability of female-led superhero films. "Women can't carry a superhero movie." Captain Marvel proved them wrong as it was a major worldwide box office success generating over $1 billion dollars. Looks like more solo female superhero films will be made now. This is a change most did not see coming in the entertainment industry.