A review of my financial education, such as it’s been. I’ve split this topic into several posts (this one covers 1968 – 1994) and taken out some of the detail to make the story a little less obnoxious. My purpose for these posts is not to brag, but hopefully to educate. I feel like I’ve gone through a long learning curve and want to share some of my slowly learned advice. I have a full, unexpurgated post that I’m keeping private for Allie or others in case they want more detail.
These posts are my first use of “lessons learned” marked with a blue background. It’s a convention I will use throughout the site going forward.
As best as my records indicate, on August 5, 1968, when I was 10 years old, Dad brought me into New York City to participate in a little ceremony at his bank in Manhattan. We went into the branch and sat for a while at a desk as Dad and the bank manager worked out a transaction. When it was done, Dad had transferred 300 shares of Exxon stock to me and to each of my sisters. He described it as an advance on our inheritance, figuring that each of us children — especially the girls who were 19, 23 and 25 — could make use of it at that point rather than waiting decades more.
I may not have the date or details exactly right. If it was 1968, we must have been in New York on vacation because we still lived in Coral Gables and didn’t move to New Jersey until the following summer. I also don’t have any other documentation than a single entry in a spreadsheet I made years later to track my finances. In any event, it was a generous act that Dad certainly didn’t need to do. It’s too bad he didn’t provide any particular lessons on what to do with the stock other than recommend we hold it until we really needed it for something.
Exxon stock performed very well for many years to come. The stock split 2:1 five times between 1976 and 2000, meaning that if I’d held onto all of my shares I would have 9,600 shares, which for a time in 2014 would have been worth more than $1,000,000. But that was not to be.
Exxon 50-year adjusted price 
Exxon stock split history, actual values, not adjusted
Those values would have been even higher if I’d reinvested the dividends which Exxon paid quarterly. Instead, I was happy to have the cash flow of a few hundred dollars each quarter which went into a savings account that was much easier to access. I treated that annual cash flow as a kind of quarterly bonus for special purchases now and then; I never thought of it as regular income for everyday things. Then again, it would have been better if Dad had really pushed the idea of reinvesting dividends.
I didn’t touch the Exxon stock principal until we used some of it for the down payment on our Chrisland Cove house in 1986. This was the first time I sold any stock, beginning my education on capital gains tax implications. I chose to pay gains on the most recently split shares, which lowered my initial tax liability but meant I would have to pay more taxes on future sales.
For the first 30 years or so from 1968 t0 2000, I felt great about owning Exxon stock. For the past 20 years it’s been a darker picture what with Exxon’s growing reputation as a greedy, evil global-warming corporation and because the stock has been in a precipitous decline since 2014. Though I’ve sold some additional shares over the years, Exxon is the only individual company stock I own today. I’ve kept it out of a combination of sentiment (which an investor is not supposed to have) and unwillingness to pay capital gains tax on the remaining shares. Virtually all the value of the stock is capital gain at this point. I’ve decided that upon my death (assuming I don’t need it before then) the stock will be distributed to charities rather than passing on the legacy or guilt of owning stock in a carbon-spewing petroleum company.
But I’m getting ahead of myself. By the time I was in my twenties, I was grateful to have the Exxon stock, my sole investment vehicle, but I didn’t really know anything about investing. I hadn’t learned much from Dad other than buy-and-hold, nor had I encountered a personal finance class or anything of the sort.
By 1984, I’d saved enough to diversify into a second stock and bought 100 shares of General Motors. I guess my thought at the time was that GM was America’s largest company and it seemed synergistic with Exxon because, after all, you needed someplace to burn all that oil. In 1986, I started my own Individual Retirement Account (IRA, then a relatively new tax-advantaged personal investment vehicle) with a small investment in BellSouth, one of the Bell Operating Companies spun off from AT&T in 1984. I figured that growth in the Sun Belt should auger well for BellSouth as a long-term investment.
Also in 1986, I made small investments in two tech stocks, Data Switch and Page America. Data Switch was a competitor of ours at ARC and I thought I might get easier access to competitive information by being an investor. I didn’t, really, but I became more familiar with reading quarterly SEC filings. I can’t remember why I picked Page America but I held onto both of them for nearly 10 years and they never did anything — in fact, Page America went bankrupt and cratered to a few pennies per share. It wasn’t a big dollar loss for me but it was a lesson that not all stocks go up.
That lesson was reinforced on October 19, 1987, “Black Monday” when the Dow fell more than 22% in one day, still the largest percentage drop ever. I didn’t really have much exposure in the market, but I didn’t particularly panic or lose sleep over it, giving me some encouragement that I had the stomach to be a long-term investor. I had no doubt the markets would eventually recover and within two years they did. The drop, however, may have shaken my confidence a little more than I remember. Over the rest of the 1980s, I didn’t make any additional stock purchases.
Black Monday may have also spurred me to take out life insurance policies for Barb and myself. In November 1987 we opened whole life policies for each of us with NY Life. I don’t think I did a whole lot of shopping, but I was attracted to the combination of insurance policy and investment vehicle. It turns out not to have been a great investment vehicle, but I’ve been reasonably pleased to have these policies over time. We only had to pay into them for 8 years or so; since then the dividends have covered the annual payments. We’ve had some peace of mind carrying these policies ever since, knowing we could tap them for cash value if needed. At this point in 2020, they look like they will be a guaranteed legacy for Allie which also gives me some peace of mind.
By the summer of 1988, I’d become frustrated trying to find tools that would track my investments across different accounts and show my actual rate of return. I’d become proficient at work in the new world of spreadsheets and finally decided to do it myself. I started an Excel file to track my investments which I updated monthly for the next 12 years. Even then, it was hard to really track my year-to-year performance particularly because I was regularly buying and sometimes selling holdings (the second sheet/tab in the file is my stab at an annual return summary), but at least I could keep things all in one place rather than logging into separate accounts or statements.
When I left Atlantic Research to join Hekimian in September 1989, and because I’d been at ARC for less than 10 years, they gave me the option of rolling my retirement plan into an IRA as cash. As a result, in late 1989 I suddenly had nearly $20,000 cash (30% of my total assets) in my IRA needing something to do.
Barb had also qualified to start her Thrift Savings Plan at her work. She very conservatively put nearly all of her contributions in the G-Fund, tied to U.S. Treasury funds and the only fund with no risk of loss of principal. I talked her into putting a small percent (not even 10%) of her contributions in the C-Fund for common stocks and F-Fund for bonds.
With both our jobs shifted to Maryland, we decided to look for a home with easier commutes. Before doing so, I sought some financial planning advice on whether it was better to sell the Chrisland Cove house or hold onto it as a rental property. Though I can’t find the paperwork to prove it, I’m pretty sure I engaged a financial planner in Virginia to give us an assessment of the best path. He gave us confidence we could rent out the Chrisland Cove townhouse and still afford the down payment on Davidge through a combination of selling a bit more stock and using a home equity line of credit on the Chrisland property. This was high finance, as far as I was concerned, but it seemed to work out well enough as we were able to find renters and cover the mortgage payments.
About the same time, I sought out an investment advisor at Merrill Lynch (I think) to help with my overall financial strategy. With an asset base of less than $100K, they were not interested in taking us on as clients but the advisor did encourage me by saying we were well on our way for a 31-year old couple. That was good to hear. They said come back when we had more to invest. I never did.
Within my IRA, I bought about $3,000 each of Apple Computer and McDonalds in March 1990, figuring I would invest in our own lifestyle choices — I liked using Apple’s Macintosh computer and we both ate at McDonald’s quite a lot.
If you want to play what ifs, that 100 shares of Apple would be worth $1.3 million in 2020. The McDonalds would be about $86K. The equivalent investment in an S&P 500 index fund would be around $30K. It was eye-opening learning this in 2020. I belatedly wish I had more courage of my convictions and held onto these and other individual stocks I chose. Not all my choices were winners but there were a few home runs that would have offset all the others. I’m not complaining about how I’ve done to date, but in hindsight I could readily have had a portfolio worth several million more.
Looking back, I would still have put the bulk (90% or so) of my purchases into index funds or equivalents to be safe and sleep at night, but it would have been even better to take a few flyers on companies that looked poised to dominate their sectors for decades to come. If I could identify any such companies now, I’m inclined to give it a try. It’s not too late, is it?
By mid-1990, I’d been at Hekimian long enough to open a 401K retirement account, which itself was a relatively new benefit offered by the company. The 401K let me choose from a handful of mutual funds which was my introduction to this method of investing. I went for a (totally ignorant, at first) balanced approach, hedging my bets and not knowing any better, with 20% each in large cap, small cap, international, government bonds, and money market funds.
We made no changes for a couple of years, just making monthly contributions to the TSP and 401K accounts through payroll deductions. By April 1992 I had slowly accumulated enough cash that it was again time to consider doing something productive with it. At the same time, I decided to sell my stake in General Motors after eight years of mostly lackluster performance (25% total appreciation). I’d become comfortable enough with mutual funds to select three more in my IRA and one in my regular investment account. I also bought shares of Microsoft figuring that company might have a future.
By the end of 1992 my investment mix was already a little bit cumbersome and frankly pretty scattershot. I didn’t really have a plan and was mainly trying to deal with our savings and chunks of cash that came in annually from my bonus and our tax refund. It was clear that basic bank savings accounts, certificates of deposit or money market funds would not keep up with the pace of inflation and I needed some higher-earning investment vehicles for the long run. But I didn’t really have an idea of how much I would need for retirement or other needs down the road, nor did I have much of an idea of what constituted a reasonable investment choice.
To get some advice, I started reading the Value Line series of newsletters and stock analyses. For several years I subscribed to their service, accumulating notebooks full of detail on thousands of stocks and funds. I also used it to help keep tabs on our competitors at work (but I could never get Hekimian to pay for the subscription). The newsletters made it easy to identify stocks and mutual funds that appeared to be good values but I had a harder time figuring when and whether to sell.
By early 1994, I decided I needed some advice and sought out a broker. By this time, my taxes had become confusing enough that I’d sought out an accountant, Bob Tuttle, on the recommendation of Donna Eden and Henry Goldberg who also used him. Bob recommended an independent advisor named George Hayes.
We met and discussed my goals and risk tolerances. George recommended I close out one of my short-term bond funds that didn’t make sense and put me into four other bond funds that frankly I didn’t much understand but I was willing to listen to his advice. Two months later, with another bonus in hand, George recommended six different mutual funds covering a waterfront of small cap, mid cap, international and specific sector funds. They made sense to me at the time and I felt like I was reasonably spreading my risk.
George also suggested re-balancing my IRA and 401K holdings which I did a little later in 1994. The upshot was by June 1994 I held a total of nine individual stocks and 26 mutual funds over five or six different investment and retirement accounts. My risk was certainly spread over a variety of investment vehicles but I had a hard time really telling how diversified I was or my effective annual return.
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