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Friday, July 25, 2014
Hey Standard and Poor's - Better To Be Lucky Than Good
Originally Published on forbes.com on August 11th,2011
Most of the sayings we used to have working late nights at Joseph B. Cohan and Associates are not fit for Forbes. One of them “Better to be lucky than good” is. It describes my feelings right now. A couple of days ago I described my latest investment scheme. I took a little more than half my IRA, about $160,000, and put it into Treasury zero coupon bonds. I wanted to construct a defined benefitpension plan for myself. The series of roughly equal present value bonds gives me an increasing income starting when I am 70 at $22,000 and going to $36,000 when I am 79. I’m thinking that I’ll add another year each year between now and when I am 70. More likely than not I will come up with another silly plan between now and then. Constructing my own little sector fund of companies like Sohu.com that focus on Massive Multi-player On-line Role Playing Games, like World of Warcraft, hasn’t worked out all that well.
I did a little post on the plan a couple of days ago. I said I wasn’t worried about the S and P downgrade since my plan was to hold the bonds to maturity anyway. Well, I’m rethinking that. I took half my IRA and put it into the bonds of a single issuer. Two days later S and P downgraded the issuer. You would think that I am really screwed. Here is the situation as of now. The balance of my IRA has had the snot beat out of it. My downgraded bonds have gone from being worth about $160,000 to $168,000.
I haven’t felt so good since I took my father’s advice in 2008. My father died in 1965. He was a senior order clerk for Estabrook and Company. Estabrook was long ago swept up in the wave of Wall Street mergers. Unless I’m mistaken I think Estabrook actually may be buried somewhere in Morgan Stanley whereRyan Belanger, who constructed my bond ladder, now works. Anyway my father used to come home from work and tell me jokes. Most of them I didn’t get until I thought about them twenty years later. How is an eight year old supposed to understand what a “specialist” does ? Anyway, one of his jokes was about Ford Motor Company. He would tell me that if you had put $500 into Ford Motor Company in 1912 you would have many millions of dollars in 1963. The punch line was – “Who, the hell, had $500 in 1912?” So in October of 2008, in memory of my father, I put $500 into Ford Motor Company when it was trading at 2.33. It was still over 10 yesterday and I have already sold some of the position. I wish I could say “the old man” would be proud of me, but I have the uncomfortable realization that every memory I have of my father is of a man who is quite a bit younger than I am now.
Anyway I hope this topsy turvy world of bonds going up because they have been downgraded settles down soon. Otherwise I’m going to have to sell them at a profit and wait for them to be upgraded so I can buy them back cheaper and I really don’t want that aggravation.