April 1st — foolishness ?

April 1st  ….a BEST day to initiate !

Especially when you’re not quite sure how it will develop… kind of like Abraham’s going into the wilderness not knowing what was to happen.

April 1st, 2014 : Sharing with the internet world what I have come to analyze, understand, question and suppose about the meaning of  NUMBERS especially MONEY Numbers — that concern most people at least during some of their thoughtful moments.

April 1st, 1961 : The exact beginning of my academic career. Daring to risk sharing my financial understanding with farming families in Manitoba.

April 1st, 1958 : My first investment from MY OWN analysis. One of the best ones I have experienced. Here’s MY story (and I’m sticking to it! )The setting : No, my story doesn’t begin with a dark and stormy night. It began in broad daylight, though I was in the dark and didn’t realize it. There I was in graduate school after a year of academic employment, with debts paid, newly married, soon pregnant, but wondering whether my $1000 or so of savings could earn a financial cushion, were we able to live on the monthly assistantship of $100 for 2 to 3 years.

I was studying economics ,and applied economics as well. Wasn’t there something in applying economic understanding to improve my financial standing in the world ? I believed so..The Wall Street Journal was readily available. There –a free offer listing stocks that had paid quarterly dividends for 25 years.

My Plan A  : I picked one that was quite Canadian, though I wasn’t thinking about that aspect. This company’s 25-cent quarterly dividend would provide a high annual return as the shares were selling for $18, well below the previous high of $29. The company mined copper — an important mineral for both civilian and defense  use—-up in British Columbia at a sound named HOWE. The irony of the name “Howe Sound” escaped me then, but later returned to haunt me. One month after my tiny purchase of 25 shares, the dividend was cut from 25cents to 10 cents. Six months later dividends were discontinued. A deficit was reported for the previous year. Copper prices continued their downward movement. So did the stock price … to $5.75. I sold after a year and 16 days. My loss  — 62 %.

My Plan B : Ten days after beginning my “Howe Sound” investment I sought information from a broker about Consolidated Electronics. This was an established company moving into an exciting industry –the very one I was using to analyze the data for my research. The broker recommended a different company — Sperry Rand. His arguments were that it  *was large, *had built the first Univac computer, *was diversified –their product line included gyroscopes, typewriters, farm machinery and military contracts galore, *was paying a dividend (Consolidated Electronics wasn’t), *was selling below its previous high.

The Fitch Report he had me read projected future growth. So I bought twenty shares for $ 458. Yes, the earnings increased and the 20cent dividend continued. The stock price went to $26 before dropping to $17. When earnings fell to 13cents / quarter, military contracts were “stretched out”, and there was a slow recovery from the recession. As the defense backlog increased the stock rose. I sold — for a total profit, including dividends, of $1.49. A gain of 0.32 % after 21 months and 25 days.  Consolidated Electronics ? Straight UP !

My Plan C : Three months into my first year of investing I did a calculation for my next investment. Chrysler was prospering with a new model, earning $5 a share in the first quarter. I expected their second quarter to be as good. $10 / share earnings on an $80 stock that used  to sell for $100. That explained my reasoning. I bought 6 shares @ $81. Well, I was half right … sort of. Chrysler did earn another $5 a share. Mutual funds were buying and brokers were recommending. A special dividend $1 was paid in November. The shares hit a higher price –$82, before dropping to $44. The dividend was cut to 25 cents in April. The company bought SIMCA and the stock rose above $50. Poor management practices –workers were sabotaging their production — and an uncertain future for all auto production caused me to sell , and accept my loss of 33 % after fifteen months and 4 days.

Plan …..?

It was time to “take stock” (pun intended) in my fledgling investment career. This was especially so, being unable to show any positive results to a conservative, risk adverse spouse. I was reminded that employment prospects were distant and that the family’s future was quite uncertain. How could I assure her ? Hadn’t I done exactly what was expected of a new investor ? Choosing well-established NYSE-listed companies paying dividends and suggested by those persons supposedly “in the know”. She expected me to “throw in the towel” and “leave the ring”.  Plan D ? Forget it !

I asked to sit in on a professor’s class of senior engineering students who were wondering how to analyze and compare the job offers from companies competing for their careers. Professor Erselcuk challenged all the “conventional wisdom” about the stock market. * Don’t diversify — concentrate  choose one egg and study it carefully. * Consider management above all -“3/4 of US business is run by idiots”. *Think of mines as “holes in the ground with liars on top”. *Brokers “know the price of everything, the value of nothing”. PLUS this positive direction :”Look for assets and earnings at discounts” Applying the challenges helped me see where and why I went so wrong.

Howe Sound  — a mine

Sperry Rand  — diversified

Chrysler  — everybody watching — except the management

I had picked well-recognized companies paying dividends and confirmed by other investors whom I supposed to be much more knowledgeable. Assets ? Earnings ? I was only vaguely aware of their importance. By the professor’s standards, I wasn’t doing ANYTHING right. !

NEXT  POSTING — Getting to Plan D

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