It was late fall of 1999 and I was sitting in a business class seat on a flight to the west coast. Life was good, the financial markets had been boiling and I had sold some real estate and was about to sell another asset at what I thought was a major equity market top. Of course, you should take my market timing skill with a grain of salt, as I do myself, because the real estate I sold doubled in value in the two years following my sale.
The flight had taken off nearly on time and it was one of those late morning flights where the primary meal served was a wonderful lunch. Remember now that this was 1999, before 9/11; there was even metal silverware. I was nicely settled into a window seat, with a pretty good cup of coffee and my three favorite newspapers: the Wall Street Journal, the Financial Times and the New York Times.
I was half way through my second cup of coffee, and a long way from finishing the papers, when a dreadful thing happened; the curse of all frequent travelers: the passenger next to me wished to chat. I am very good at deflecting these events on early morning flights and late evening flights where I simply lean back and go to sleep. On mid day flights one must either be rude or polite and brief. By nature I am not rude, so I tried the polite and brief tack. I said, responding to his remark about the wine list, that …” I was going to have the Napa Valley Cabernet and the chicken breast. And, yes, I know I should have the Pinot Grigio with the chicken, but white wine gives me a headache.”
The passenger next to me was a middle aged man of about 50. Gosh, I thought, how come I never am seated next to some brainy beautiful babe that wishes to talk to me? Oh well, my seat mate was clean shaven, longish hair, reasonably trim and casually dressed. He wore horn rimmed glasses and a very thick mustache that was darker than his light brown hair. I guessed him at 6 foot and probably 190 pounds. He had intelligent eyes and an authorative voice.
“You should see an allergist,” he remarked. “Are you a medical doctor,” I retorted. “No,” he replied, “but white wine is too good to give up just because you get headaches.” Yikes, I thought, I am in deep you know what. I really wished to read the papers, enjoy my coffee, have a pleasant lunch, a short nap and then dig into a novel I had packed in my brief case. Not in the cards.
Seeing that my plans had gone astray I tried to rescue myself. “Are you a wine expert?” I asked. “No,” he remarked, “but I am thinking of purchasing a little vineyard in Sonoma. You see, I just sold my business in an all cash deal and I am looking to invest my money. In fact, that is why I was in New York for the last couple weeks. I have been interviewing all the top Wall Street money managers and a few hedge funds.”
I immediately forgot about my papers, coffee and red wine. I was ready for white wine and conversation. This guy had money and I was a money manager. I had him captive for at least four hours. Move over Goldman, Morgan Stanley, and J.P. Morgan et.al. I am here! Or am I? My seat mate liked to talk, and I listened. He bent my ear on how dull, uncreative and rapacious New York money managers were. “Are the San Francisco investment folks any different,” I responded. “Oh no,” he replied, “Just closer to home.”
“Where is home?” I inquired, still trying to ingratiate myself with him. Finally, not getting anywhere, I ordered the Cabernet and settled back in
my chair, sipped on the wine and munched a few warm nuts. “Home,” he explained to me use to be Palo Alto, but he had sold his home there and moved to Incline Village in Nevada about 18 months before he sold his business. Of course, I had an “aha” moment, but I proceeded with maximum innocence. “Wow, Incline Village, what a beautiful spot. I guess you like to ski, hike, hunt or fish? “I remarked.
“Naw, the place is boring as hell, that is why I am looking for a little vineyard north of San Francisco.” He replied. “So you are selling your place in Incline Village?” I continued in perfect innocence. “Nope, got to be a Nevada resident, otherwise the California state tax guys will steal my bucks; even now they monitor my movements, my cell phone and audit the hell out of me every year.” “So,” I said, you really moved to Incline Village to avoid the California taxes on the sale of your business.” “Hell no, I moved there because my wife left me for one of my best friends and I wanted to get out of Silicon Valley. It was downright embarrassing.” I said nothing, after all what could I say?
How could I get around to showing him how smart I thought I was or how good my investment firm really was? Finally, I say, “I am so sorry; I once went through a divorce. It is very painful, no matter the circumstances.” “Not so painful after all,” he replied. “Of course I had to give her a lot of money but I still have a boat load. California is a community property state so she got half. To tell the truth, being 48, single and rich is not so bad. You would not believe the women that come courting me. Money talks, believe me.” My god, I thought, even empathy does not work. And so it went; him talking and me nodding and listening right through lunch, chocolate ice cream and coffee. By now we were long past the meal and we were within one hour of touch down.
I decided to bite the bullet and try to pitch him for a meeting with my investment team to discuss his total financial needs. I pitched, he ditched.
“Look Bub,” he said, “I have seen the best and the brightest in San Francisco, Los Angeles, New York and Geneva. There isn’t anything you got I haven’t seen and it is all high priced bullshit. All I want is to preserve my money, pay no taxes, take no risk and not have to worry.” Gosh, how unusual, he wants everything for nothing, I thought. Also another first, no one had ever called me “Bub.” What was worse, he had not even drunk that much wine. So there I sat. I had academic degrees from three great universities, was a former finance professor at an Ivy League university graduate school of business and over thirty years as an investment professional, and I was a now a “Bub.” Of course, he did not know any of this, and I do not dress for success, even at work, much less on airplanes.
“Please place your seats in an upright position and turn off any electronic devices; we will be landing shortly,” came the announcement. I had no electronic devices. “So,” I said, “what you really want is to protect your bundle against the loss of purchasing power.” “Yep,” he replied. Wow, a response, so I immediately warmed to the opportunity. “I guess, the best way to put it is that you wish to live high on the hog, pay no taxes and not outlive your money.” “Dam straight, so you are not so dumb after all. Now you tell me how to do that and I will owe you.” “Well,” I said, “you told me that after your divorce you were left with about $50 million and no debt. How much income do you need every year to live on? “Oh I guess about a ‘mil’,” he replied.
Just then there was the usual thumping as the wheels were lowered and more announcements. I was running out of time and I did not even know his last name much less his address or phone number. I knew what he really needed was a global equity portfolio with a healthy chunk of municipal bonds and some precious metals. But that was probably what every other advisor had told him too. Then we touched down, pretty smooth.
Yikes, I was nearly out of runway, so to speak. “Ok,” I said, “I am going to keep it very simple. Place half your money in highly diversified multi state intermediate and long-term municipal bond funds and half in gold bullion in allocated storage in Zurich. The municipal bonds will provide the tax free income plus pay for the gold storage and the gold will protect you against inflation, deflation and currency devaluation. If there are major bond defaults the gold will probably go up, but even if it does not, you can always sell a little to improve your life style. Selling gold, however, will force you to pay some tax. In addition, I would normally recommend a global equity portfolio for growth because there is no growth in bonds or gold.” We are at the gate; he is on his feet and reaching for his carry on. “Here,” I said, “this is my business card; give me a call if you want to discuss this investment idea or others.” “Yah, sure, say I do like the hog investment plan.”
The cabin door opened. And there went James. I had a new appreciation for Goldman, Morgan Stanley et.al. I will bet they got his complete contact information. I sat in my seat as the plane emptied; I had checked my luggage and was in no hurry. As I thought about it, living high on the hog and paying no taxes was not all that bad a strategy. Gold was selling for about USD$ 280 per ounce. High quality municipal bond funds yielded over 4 percent. So, I ate a little of my own cooking, as they say. Of course my global equity portfolio went the way of the markets….down.
EPILOGUE: TEN YEARS LATER
In October of 2009 I received a strange phone call. My assistant claimed some “secretive” man on the phone claimed to know me and wished to talk to me; he refused to give his name. My policy is to always, if at all possible, to take all calls and to talk to strangers. The reason is quite simple. One Saturday morning in the early 1980’s I was working at my
office, the phone rang, and I picked it up expecting to hear the voice of an old friend who was on his way to my office for lunch. Instead, I heard a deep southern drawl. “My name is, George from Georgia, and I am going to be up in New York next Monday and Tuesday talking to investment managers. Do you have any time when we could meet?”
The long and short of it was that George, as I am calling him, represented a large pension fund. Eventually they placed close to $100 million with my firm. George told me later that I was the only manger he found working on Saturday morning and the only one that took his call without asking who he was and where he was from. It taught me a valuable lesson.
But let’s get back to my 2009 October call. I picked up the phone; out came this unusually booming voice. “Hi, I met you on a plane to San Francisco and you told me I should invest in gold and municipal bonds. Do you remember me?” I burst out laughing, “Of course, I remember you,” I replied. “I gave you that 50% gold and 50% municipal bond idea because you wanted something easy that would permit you to live high on the hog and pay no taxes.” “Well,” he said, “I did it and I just called you to say thanks and to seek your advice. Gold is up over three times my cost; it just went over $1,000 per ounce. What do I do now?” I quickly did the math; his $25 million in gold was worth close to $75 million and his $25 million in municipal bond funds had to be worth more given the decline in interest rates. “Pay me,” I blurted out. Recovering quickly, I said “look James, it is James is it not?” “My job is to provide custom investment advice to individuals and institutions. I do this stuff for a living. I would be happy to fly to California or Nevada and meet with you to discuss your needs and give you my advice on your portfolio and what you should do now. But we need to have a written investment advisory agreement. Can I send you a draft agreement and we can discuss it?”
………………………………………………Dial tone.
NOTE: This is a true story but the names, places and dates have been modified to protect the guilty. I never did learn the last name of “James.” Is there a lesson here? For me, it was a hard way to relearn the old one: never give away something for free to a potential client that can afford to pay. Many professional investors, like me, as well as lawyers, doctors and other professional’s price discriminate at the price of zero in providing pro bono help for those that cannot pay. To do this we need to earn our fees from those that can pay. James was an outlier, but I have experienced many outliers in my life.Labels: Memoir