Conglomerates offer a tremendous amount of diversification for investors, while allowing you to avoid the over-diversification associated with index funds, and the management expenses of mutual funds.
I consider these investments to be appropriate for those who are retired or those who are within five years of normal retirement age. This demographic can’t afford to take on as much risk as the younger generations who have time to recover from major losses.
Bringing good things to life
Many of General Electric Company (NYSE:GE)’s competitors in the capital segment have exited the market because they were struggling due to an increase in delinquencies related to commercial and residential real estate. That creates a greater market share from which General Electric Company (NYSE:GE) can attain revenue.
The company operates in various segments — largely consisting of technology and financial services — and over the years has streamlined efforts by eliminating its underperforming business segments. This leaves General Electric Company (NYSE:GE) in a solid position to profit from its remaining profitable operations. However, General Electric Company (NYSE:GE) is so diversified, that it makes it difficult to realize any significant increase in share price, and that is a contributing factor for its relatively static share price. After all, the firm operates GE Capital, GE Energy Management, GE Oil & Gas, GE Power & Water, GE Home & Business Solutions, Electric Insurance Company, GE Aviation, GE Transportation and GE Healthcare. Almost every one of those operations has sub-businesses tied to it. That both makes the company secure, and makes it difficult to realize significant gains, but it keeps your money safe.
Buffett and company also worth a gander
Other stocks with enormous diversification includes Berkshire Hathaway Inc. (NYSE:BRK.A) and The Procter & Gamble Company (NYSE:PG).
Berkshire Hathaway Inc. (NYSE:BRK.A) participates in the insurance business that operates both as primary and as reinsurance. Other interests includes freight rail transportation and energy and utility distribution and generation. The company also owns businesses exposed to numerous other activities.
The company’s compounded annual rate of return from 1965 to 2012 was 19.7%, while the S&P 500 TR Index rose 9.4% in that period, according to Morningstar research. However, the operation is so large that it will likely be difficult finding deals that are significant enough to be meaningful to the massive business.