Monday, September 17, 2007

GM's Short-Term Surge

Saturday's Wall Street Journal carried the usual broadbrush coverage of the prior day's equity markets activities.

The headline of this edition's article, however, caught my eye. It read,

"GM Shares Surge 16% on the Week"

Do tell!

My equity portfolio, run according to my proprietary equity strategy, is up just shy of 20%, gross, as of the end of Friday. So GM's performance, while not quite up to my portfolio's, is indeed, well, eye-catching.
As this nearby Yahoo-sourced chart of GM's recent six-month price shows, it's been very choppy.

You would have had to hold GM for just the right period to gain this 16%. Sell to early, and you're out of luck. Buy too late, same thing.
For instance, this chart of the past year of GM's price performance is much less appealing. Over the past twelve months, the stock is up just a little over $2/ share, or less than 10%.

It's a lot like the market dynamics which I profiled in this recent post on the S&P's total ten-year performance tending to be concentrated in just 10 best days of the decade!
For reference, here are the same two GM charts, with the S&P500 Index added.

For the last six months, GM is significantly ahead of the index. Of course, much of this is a result of the past week's speculation on the outcome of the current labor contract negotiations between the firm and the UAW. Prior to that, GM's return had bounced down to 0%. Twice, since August first.

Over the past year, The S&P has outperformed GM for nearly the entire period. In the few days or weeks where GM was on top, it was briefly, and not by much.

Clearly, much of the play in GM's stock has to do with the UAW contract risk.

Hardly a company in which to make a long-term investment, is it?

Thus my continuing emphasis on consistently superior total return outperformance. Attempts to capture short-term, speculation-fueled returns like those of GM are fraught with excessive risk.

No comments: