This just might be one of the best investment questions ever…

The most devastating fire in California history happened late last year (2017).

Officially known as the “Camp-Fire Fire,” it caused more damage and loss of life then any other California fire ever.

To put this into perspective. California has a pretty steep list of devastating fires in its history.

It’s turning out that Pacific Gas & Electric, California’s utility company, might have caused many of those fires from the past two years. This has forced PG&E to file bankruptcy.

PG&E’s liability looks like its close to $30 billion. Ouch! And PG&E doesn’t have the money.

Stock Price Direction Matters Most

Below is a price chart of PG&E being divided by the Utility Sector (XLU). If the black line is moving higher (in the chart below) than that means PG&E is outperforming the Utility Sector (XLU).

And as you can see from 2014 to the beginning of October 2017 (3 1/2 years). PG&E was outperforming the Utility Sector (XLU).

PCG vs XLU before October 2017 drop

And then everything fell apart for PG&E starting on October 12th 2017, that’s where the price in the chart below drops off a cliff.

On October 12th 2017 (the first big drop),  the PG&E price chart below was yelling at everyone to get out of PG&E. If people knew what to look at they would have seen a very clear signal.

Again, the price chart below shows whether PG&E is out performing or underperforming the Utility Sector (XLU). If the line is falling then PG&E is underperforming.

And PG&E didn’t just start underperforming on October 12th 2017. PG&E collapsed compared to the Utility Sector (XLU).

PCG vs XLU after October 2017 drop

And as bad as the above price chart looks, it ends in January 2018. We are now a full year past the end of that price chart.

Below is a price chart of just PG&E (no comparison to utilities) that starts at the exact same time as the one above, but includes one more year of data with an ending date of January 18th, 2019.

PCG after October drop up until January 2019

As your eyes can see in the above chart. The price destruction didn’t stop in January 2017.

Since January 2017 (the big red arrow), the stock has experienced two more catastrophic price drops.

This might be one of the best investment questions ever…

There are many ways one can ask a great question, with regards to investing one of the best questions to ask is about losses.

  • How can I know when I’m wrong?
  • Does the price agree with me owning this investment?
  • How much am I willing to lose?
  • How much will I lose?
  • Is the price even going higher?

They’re all asking us to look at the same thing. They’re all asking us to look at the part of investing that no one wants to look at.

They’re all asking us to start at the end.

How will you know when you are wrong?

And the question has to be answered by looking at a price chart? The price will tell us whether we are right or wrong.

So who owned PG&E?

I’m guessing the biggest owner of PG&E stock outside of sector and index funds was pensions. And I’m willing to bet the biggest owner of PG&E stock was CalPERS and CalSTERS.

If you don’t know CalPERS its the largest pension in the united states. CalPERS stands for California Public Employees Retirement System.

The second biggest pension in the country is CalSTRS, which stands for California State Teacher Retirement System.

Together they have more than $550 billion of California public workers and teachers pension money.

The biggest takeaways…

  1. If you are not already, add pictures into your investing (read: price charts) strategy.
  2. Know when you will be wrong.
  3. Prices move up farther than we could ever imagine and lower than we could ever imagine. Manage your losses.
  4. Please ask for help if what you are doing is not working.
  5. And lastly, the simplest solution can often be the best one.

Thank you Mr. Bogle.

The last time the brokerage/advisor/investment world was up-ended was in the late 1970s. And it was done by two people. John Bogle who invented and pioneered the index fund. And Charles Schwab who invented and pioneered low cost trading commissions.

And since then nothing much has changed. Yes, fees and prices keep falling but all of that was just a continuation of what started 40 years ago.
We owe a lot to both men. And so, if you don’t know John Bogle died this week at 89.

In Your Corner,

RCPeck-Dig Signature.JPG

RC Peck, CFP

P.S. The most important step is always the first.

Should I buy this stock or sell that stock? Should I pay down debt or buy this house? Should I buy more bonds or sell more bonds? And so on.
The first step is always to work on getting connected. And perhaps the easiest way to get connected to your investments and wealth is through a phone conversation with me.  This is the easiest way.

Leave A Response