Street Sense: The fundamentals of stock market investing
Old Blue Chips Face Hard Times
Xerox, AT&T, Revlon and Polaroid were once darlings of the stock market. Now, investors shun them.
By Jerry Helzner

When I was a kid in the 1970s, hanging out in stock brokerage offices trying to learn the secrets of successful trading from the experienced old pros, I'd occasionally hear someone excitedly describing some new and innovative company as "the next Xerox."

At that time, comparing a company to Xerox was the highest form of praise you could offer. After all, the Xerox story was legend. It seemed that everyone knew of someone who had become a millionaire by purchasing Xerox shares for pennies and watching the stock soar as Xerox made instant copying a daily reality in offices around the world.

Stock brokers were so convinced that Xerox would continue to grow that they put it into an elite category known as "one-decision" stocks. The future growth of these "one-decision" stocks was so assured, the reasoning went, that all you had to do was buy them and put them away. You'd never even have to think about selling these gems. And, of course, if you just held these stocks over the years, you'd retire rich.

"ONE-DECISION" CONCEPT FAILS

Back in those days, a portfolio of "one-decision" stocks would also have included such companies as AT&T, Polaroid, Revlon, Kodak, IBM, Disney, Avon and other household names whose potential appeared to be unlimited.

And while some of these companies have survived quite nicely, Xerox, AT&T, Polaroid and Revlon have fallen upon hard times in recent years.

The decline of Xerox has been particularly shocking. From the bluest of the blue chips, Xerox is today a company that's scrambling to survive. A stock that traded well above $100 a share in 1999 is now in single digits, with little hope for a significant recovery in sight.

XEROX LOSES ITS LUSTER

What went wrong with Xerox?

The company's downfall began with a strong competitive threat from Japan. In the early 1980s, it became clear that Japanese manufacturers, such as Toshiba, were making better copiers than Xerox and selling them at lower prices. When it finally dawned on Xerox management that the company had major cost and quality problems, it was almost too late. Thanks to a Herculean effort, Xerox was able to reinvent itself as an organization and get back on at least a competitive footing with its Japanese rivals.

But Xerox would never enjoy the same market dominance as before. In recent years, continued competitive pressures, poor management decisions and the arrival of such new technologies as e-mail have combined to make Xerox a money-losing company.

NEW THREATS TO OLD COMPANIES

Xerox's story should be a lesson to those who still believe you can simply buy blue chip stocks and put them away. With technology changing so rapidly, no company's long-term growth is assured.

Who would have thought 20 years ago that AT&T would just about have to give away long-distance telephone service to retain customers? Or that Polaroid and Eastman Kodak would be threatened by new digital photography technologies? Or that a sluggish, debt-ridden Revlon would lose leadership of the cosmetics market to more agile, innovative competitors?

These stories should make all investors realize that almost any company can go from dominant player to also-ran in a short time. Even Microsoft, the ruler of PC-based computing, faces problems as the world shifts to Internet-based computing.

If you invest in individual stocks, especially those that can be affected by new developments in technology, you must review your holdings regularly. "Buy and hold" is no longer a winning strategy -- as any unhappy holder of Xerox shares can tell you.

Ophthalmology Management Associate Editor Jerry Helzner has written more than 50 articles on stock investing for Barron's. He has been a regular stock market columnist for other business publications and was a member of the equity research department of a major regional brokerage firm.