[Ed. note: Here is our first article from Jim Skelton, the Blind Squirrel, who is writing about his experiences as a financial advisor. As with all of our contributors, the opinions he expresses are his own, and we haven’t reviewed, approved or screened his ideas.]
Hello and welcome to all you citizens of the Gumshoe Nation! Jim Skelton here, your resident “Blind Squirrel,” coming to you with the inaugural edition of The Blind Squirrel Diaries. I’m excited to be here and be given this opportunity to share with all of you some of the stories, events, and lessons I learned during the course of my 20-year career as a Financial Advisor (herein after “FA”) with four of Wall Street’s largest retail investment firms, as well as other business ventures – and misadventures.
A couple weeks ago, Travis introduced me and I then gave an elaboration of sorts as to who I am and my qualifications. This was posted on the site, so you may have noticed it. If not, and you would like to read it first, you can go here to do so.
Now, on with the show.
This month I’m relating a story to you about my association as an FA with a young man who walked in off the street one day in 1986 to open an account for trading and investment purposes. I happened to be what we then called the “broker of the day,” which meant I got to handle anyone that dropped into the office with questions and asking to see an FA. Maybe they had the intent to open an account, or were just passing time, picking brains and looking for a little company. This was Ft. Lauderdale, a retiree capital of the world, filled with a lot of folks that had nowhere to go and nobody in particular to meet. But they could always find a young and hungry FA somewhere that would sit and swap war stories with them to pass time. Seldom were these drop-ins worth the time they took, but you never know. You just never know …
I got lucky on that day when Kurt (not his real name) stopped by. Kurt was a young man, in his late 20’s, and brimming with confidence and enthusiasm. He was German by birth, a U.S. citizen by choice, and a part-time resident of the Principality of Monaco. What part of the year he wasn’t in Monaco, he was either traveling all over Europe or at his home in Ft. Lauderdale. A real citizen of the world so to speak.
Kurt and I sat and talked awhile. He started by giving me the most impressive, beautiful business card I have ever seen – it’s still around here somewhere. Glossy, heavy stock in full color, a coat of arms emblazoned in the center and his name, the name of what I found out was his newly-formed investment management firm, and the address in Monaco. If he was trying to impress me with it, well, it worked. As did what he had to say during this initial meeting.
What Kurt wanted from me and my firm was simple. He wanted only information and research as he required. His intent was to build the investment advisory company into something grand over time, getting clients from his connections in Monaco, Germany, and the U.S. The account with me would be his model portfolio, composed of his personal funds, for prospects to see in order for them to gain confidence in placing money under discretionary management with his company. He did not want me to provide any sort of recommendations or solicitations at all. Just the data and research reports he required to make his own investment decisions. You must remember that in the 1980’s there was no such thing as the Internet or personal computers with which to gather data and do research. Everybody had to have a connection with one or another brokerage firm to get to the things they needed for the most part. Well, this was fine by me. I had no real responsibilities and would just act as a resource for him, then transact the trades as he directed. At full commission, by the way. No request for any special treatment such as discounts, etc. I was one happy camper at the great good fortune that walk-in brought along with him that day.
Oh yes – one other thing. In addition to that magnificent business card, he had one other piece of paper for me. A check for US $100,000.00 as an opening deposit. That usurped the business card in attractiveness! To a relatively new broker of not quite two full years in production, opening a $100K account with new, investable cash, was a heady experience. So much so that, as I was walking him out, I had him stop by and meet the office manager for a quick introduction. Brownie points for me, a recognition of his value to the firm and our appreciation of his business for him.
As time moved forward Kurt was true to his word. He would call in from time to time, sometimes to seek information, sometimes to place a trade. Within a few months he had built a portfolio of about 10 positions, most of which were established large cap companies such as those in the DJIA or S&P 500. There were a couple more aggressive in terms of size and growth prospects. He and I had developed a good working relationship and had earned one another’s trust in doing what was expected and asked. I had never called him with an idea or suggestion, and he had never failed to get the funds into the account to cover a trade on time. All was well in the land of the Blind Squirrel.
Then, one day in late 1986 (as my best recollection of exact timing), things changed, as they sometimes will. It just so happened I had come across a little information on a company that was probably the worst run, most down-beaten, corrupt and mismanaged firm I had ever seen. Share price was about as bad as it could get – $0.12 p/s. But, it traded on the NYSE as an ADR, so there was exposure and liquidity if anyone had the heart for it. And – this was the interesting part – it was in a critical, indispensable industry that was absolutely required by millions of people within its sphere of influence. The company symbol was TFONY, a/k/a Telephonos de Mexico. Yes, the state-run and state-owned telecommunication company of the entire country of Mexico, an economy that was starting to rise and where efficient communications was becoming critical to the continuation of that economic development. Interesting situation in my opinion.
I’ll not get into the hows and whys of TFONY here – it’s not important for this story. Just understand that I had looked at this situation and couldn’t see how, but that something had to give. And I figured the give was, of necessity, going to be to the upside for the stock. As horrible as things were for the company, as unreliable as the service was, and as broke as the Mexican government was at the time, I thought the odds were pretty good that sooner or later some well-run and well-funded, established telecommunications company (probably from the U.S.) would make the Mexican government an offer they couldn’t resist. If the Mexicans would sell them the company, then give them free hand in rebuilding it by effective management, it could be a real gold mine. The new owners would have to build a new infrastructure so that both business and consumer could actually get in touch with one another. You’d then have a company with a huge built-in demand for all manner of telecom services and products. And the government would get a really big pile of cash to plunder, as was the habit of all politicians down there, back then. Everybody would win from something like that happening – and stockholders would ride the crest of that wave if and when it happened.
So, I had an original idea I felt good about. What I then needed was someone to tell about it and see if they might agree and want to own a bit of this for themselves. And I also knew what I really needed were investors that thought outside the geographic boundaries of the United States – a trait that wasn’t very common at that time. And then I thought about Kurt.
As he had requested, I had never made any suggestions to him. But this was different, or so I told myself. I had to at least tell him my thoughts and see if he might want to investigate on his own. So I pulled on my big-boy broker pants, sucked it up and made the call. He listened. And asked for hard copy info of any kind I could send him, which I did. A week or so later he called back and placed an order for 100,000 shares at $0.125 limit. I dropped the ticket, got the fill, and made the report. And we started the wait. My credibility was on the line as was a small part of his money. A big winner here would do wonders for his model portfolio and his trust in me. A big flop could ruin the entire relationship. We both had a lot to win or lose.
It didn’t take long, about six months or so. I don’t recall the exact sequence of events or the players, but pretty much what I had thought could happen actually did. Amazing! The Blind Squirrel had found his first real, ripe and tasty acorn! As the buyout made news, and the company began to change for the better, the stock price rose. By near year end 1986 it was trading ~ $0.85 p/s, a gain of near 700% or so. Kurt was thrilled. With that thrown into the calculations for an annual rate of return on his model portfolio, the numbers were vastly improved. He had much improved chances of winning over prospects when his numbers were compared to those of other management firms. Nothing else in the portfolio had come even close to this kind of performance. He knew it would impress potential investors in his efforts to woo them into opening an account with him as manager. The Blind Squirrel was quite happy as well. Not just because Kurt was pleased, but because I, too, had taken a long position in the company a month or so after any interested clients had bought in. Front-running is a no-no for brokers and I didn’t want to have anything of that sort hovering over me. I have always placed a much higher value on my integrity than the size of my net worth. Kurt added additional funds to the account and we moved along.
Things being as they were, I got a bit nervous about this massive increase in such a short time, so one day when Kurt called me I told him I felt it could be prudent to take the profit we had made so he could use it to redeploy into the kind of companies he had originally focused on. I was somewhat surprised, actually, when he agreed to the sale. So that was done and brought about $85,000 into the account in return for the $12,500 he had risked. And there ended the story of Kurt and our involvement with TFONY. I also closed out my position a week or so later. For a while I continued to follow the progress of the company as it grew and prospered, eventually getting listed as TMX and on from there. I have no idea at all what happened after about 1989, nor did it matter. Mission accomplished, so to speak.
Meanwhile, Kurt decided that it would be a good idea to set the account up on margin so he could leverage his success and ramp up returns. And, the experience with TFONY had moved his calculations a bit toward the more speculative side of things. He began asking for research on firms that were the supposed up-and-comers of the market, the fast movers, the speculative ones that could make or break a portfolio in the blink of an eye. And, as he requested, I provided what I could without comment or advice. Kurt was on a roll and more convinced than ever that his future as an Investment Management Advisor was assured. The calendar turned the page into 1987 and we continued to work together in a mutually beneficial and friendly manner.
What neither of us could know was that fate had a little something in store for both of us that would be life-changing. A storm of immense magnitude was brewing out beyond the horizon and headed our way. How that played out is the subject of my next column entitled “Paradise Lost.” Be on the lookout for that. Much to learn and remember for yourselves from the experience.
Until then, this is The Blind Squirrel signing off for now. May all your investment decisions be golden, and all your acorns free of wormholes!
“Even a blind squirrel finds an acorn every now and then”
DISCLAIMER: I have no position in any stock mentioned in this article nor any intent of establishing one.
Have you tried it yet? Free and worthwhile...
Personal Capital is an advertiser with Stock Gumshoe, but Travis also uses it every day. He says: "They offer a great (and genuinely FREE) 'second opinion' for your financial plan, but what I love most is their automated financial dashboard -- it will look at all your assets and debts, tally up your asset allocation, project where you'll be at retirement, and help you do better." Their free tools are great -- try it out here today.