General Electric (GE)

General Electric, universally known as GE, is an American multinational conglomerate that, for over a century, stood as a titan of industry and a symbol of American economic might. Founded in 1892 through a merger that included the company of inventor Thomas Edison, GE grew from a simple lighting and electricals business into a sprawling empire with interests in aviation, power, healthcare, finance, and even media. For generations, it was the quintessential blue-chip stock, a core holding for conservative investors and an original, long-standing member of the Dow Jones Industrial Average. However, the 21st century saw GE's spectacular fall from grace, a decline so profound it has become one of the most studied corporate case studies in modern history. The story of GE offers critical, hard-won lessons for every investor, particularly those who follow a value investing philosophy. Following years of struggle, the company completed its historic breakup in 2024, spinning off its divisions into three independent public companies: GE Aerospace, GE Vernova, and GE HealthCare.

GE's history is a dramatic two-act play. The first act was a century of innovation and dominance. The second was a tragedy of hubris, complexity, and financial engineering that brought the giant to its knees.

Much of GE's modern identity was forged under the leadership of its celebrity CEO, Jack Welch, who ran the company from 1981 to 2001. Welch's tenure was defined by a relentless drive for performance and a simple, brutal mandate: GE had to be #1 or #2 in every market it operated in, or else the business would be fixed, sold, or closed. This drove phenomenal growth in its industrial segments. However, the real engine of growth during this era was GE Capital, the company's financial services arm. It ballooned into a colossal, unregulated bank, dabbling in everything from aircraft leasing to subprime mortgages. GE Capital contributed as much as half of the company's total profits, turning an industrial manufacturer into a high-flying financial institution. The company became legendary for its ability to “manage” its earnings, consistently meeting or beating Wall Street's quarterly estimates by a penny. This reliability was beloved at the time but later exposed as a product of aggressive and opaque accounting.

The magic began to fade after Welch's departure. The 2008 Financial Crisis delivered a body blow to GE Capital, exposing its massive leverage and risky bets. The financial arm that had once produced smooth profits suddenly required a government bailout to survive. Investors began to realize that they didn't truly understand the company. GE Capital was a financial black box attached to an industrial company, making a true assessment of its health and risks nearly impossible. The following decade was a painful unwind. GE was hit by a succession of crises:

• Massive write-downs: Billions in losses were recognized from disastrous acquisitions made at the top of the market.
• Dividend cuts: The once-sacred dividend, a hallmark of a blue-chip stock, was slashed to near zero.
• Leadership turnover: The company cycled through CEOs as it struggled to find a path forward.
• Scandal: The company faced investigations by the SEC for its accounting practices, particularly in its insurance and power divisions.

In 2018, the ultimate humiliation came when GE was removed from the Dow Jones Industrial Average after more than 110 years as a member, cementing its status as a fallen icon.

GE's story is a goldmine of cautionary tales. For a value investor, the key takeaways are timeless principles that can help you avoid similar disasters.

As the legendary investor Peter Lynch said, “Never invest in any idea you can’t illustrate with a crayon.” GE became the antithesis of this advice. Its financial reports were labyrinthine, and the inner workings of GE Capital were incomprehensible to almost everyone, including, it seems, its own leadership at times. Warren Buffett preaches investing within your circle of competence. If you cannot explain how a business makes money and what its primary risks are in simple terms, you should avoid it. Complexity often serves to hide weakness.

A company's reported profit is an opinion; its cash flow is a fact. GE was a master at financial engineering, using acquisitions, divestitures, and accounting adjustments to produce a smooth, ever-rising earnings-per-share number. This masked the volatility and poor quality of its underlying business performance. A savvy investor must always question the earnings quality by digging into the financial statements.

• Always read the cash flow statement: Does the company consistently generate more cash than it reports in net income? If not, it's a major red flag.
• Beware of “one-time” charges: If a company has “one-time” or “extraordinary” items every year, they aren't one-time at all.

Peter Lynch coined the term “diworsification” to describe the tendency of large companies to expand into areas they don't understand, often destroying shareholder value in the process. GE's deep foray into financial services is a textbook example. While it supercharged profits for a time, it ultimately poisoned the entire company by introducing risks that management couldn't control and investors couldn't see. True value is created by businesses that reinvest capital in their core, high-return operations—not by chasing growth in unrelated fields.

Faced with an unsustainable structure and a mountain of debt, GE's recent leadership embarked on a radical solution: a full breakup. The idea was to dismantle the conglomerate to “unlock” the value of its constituent parts. This is a classic sum-of-the-parts strategy, where the market value of the independent pieces is believed to be greater than the value of the combined whole.

• GE HealthCare was spun off in early 2023, operating as a focused global leader in medical technology.
• GE Vernova (Power & Renewable Energy) and GE Aerospace (Aviation) separated in 2024, with the original GE ticker symbol (GE) being retained by the aviation business.

This final act transformed GE from a cautionary tale of complexity into a case study on corporate simplification, creating three distinct, more transparent businesses for investors to analyze on their own merits.