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Kodak: When Blue Chips Go Bust

Eastman Kodak Co.’s once bright colors have been fading for years, but the news that the storied company is headed for bankruptcy is a reminder, market observers say, that no company stays on top forever — especially these days.

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Before its recent struggles to keep up with a changing market, Kodak (EK) was a blue chip stock. The company was part of the Dow Jones Industrial Average from 1930 to 2004, when it, AT&T Corp. (T), and International Paper Co. (IP) were replaced by Verizon Communications (VZ), Pfizer (PFE), and American International Group (which itself was swapped out for Kraft after receiving a government bailout in 2008). Theoretically, corporations can live forever, but in practice, they don’t, says Richard Sylla, a professor of financial history at New York University’s Stern School of Business. “This shows even the most famous and iconic companies can fail if they don’t adjust to change,” Sylla says.

Historically, it’s most common to see financial firms go bust, Sylla says. “Even an ordinary bank is levered 8 or 10 to 1,” he says. Manufacturing or industrial firms, on the other hand, tend to borrow less money and have more tangible assets, so they’re less likely to implode, he says. But a case like Kodak’s can serve to remind investors that competition and technological change continually reshape all industries, Sylla says. “Things like Apple and phones with digital cameras, they creatively destroyed Kodak,” he says. “What’s the greatest company in one era is unlikely to be the greatest a half a century later.”

In fact, research has shown that industry leaders tend to underperform their competitors. As SmartMoney has previously reported, research by Robert Arnott, a money manager, found that stocks that are sector leaders in one year will lag their peers by an average of about 3% a year in the next 10 years. The better bet for investors is a company that’s improving its competitive position, not the one that’s already on top.

Particularly in today’s volatile markets, investors can’t simply buy a company that seems solid and plan to hold it forever, says Tommy Williams, the president of Williams Financial Advisors. “You can’t just do the old buy and hold and hope,” Williams says. “You’ve got to be much more proactive,” he says.

Williams Financial Advisors now holds stocks for an average of only about seven or eight months, meaning they turn over positions much more often than they used to, Williams says. His firm reviews its portfolios every week and looks to sell stocks when they no longer meet the criteria that made them a buy in the first place. Reviewing positions can be labor-intensive for an individual investor, but “having a sell discipline is really the key,” Williams says. “Be ready to sell things that at one time you were in love with,” he says.


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    • kodak……………. my co-worker’s mother-in-law made $245373 so far just working on the internet for a few hours. Read more on this web site…m a k e c a s h 4 . com

    • kodak……………. my best friend’s aunt makes $70 an hour on the internet. She has been without work for 7 months but last month her pay was $8238 just working on the internet for a few hours. Read more on this web site… m a k e c a s h 4 . com

    • Kodak is a great example of an American company that was great at inventing and lousy on commercializing new ideas. Others are Ampex (invented the VCR, was only interested in high-end broadcast and military, totally blew their opportunity in the consumer market) Xerox (invented the PC amomg other things at Xerox PARC) Kodak, like GM also got in the business of being a private social welfare organization that incidentally made stuff, and was saddled with huge costs of paying defined benefits to people that no longer worked for them. This is going to be one of the most painful (for retirees) parts of the Kodak implosion.

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