A Tribute: A Pretty Portfolio
BY CARTER E. ANTHONY, CFA
From 1987-2000, I managed trust investments for National Bank of Commerce (NBC) in Birmingham. Since it was a relatively new trust department, I was charged with managing the trust assets and bringing in new business.
During my time there, the department’s assets grew from $100 million to almost $1 billion. Investment returns were among the city’s and the nation’s best. It was a successful run.
Among new clients there were some tough nuts to crack. Those who were difficult to rope usually turned out to be the most appreciative and the most fun with whom to work.
One of those “tough nuts” died last month. His death brought back some great memories. Let’s call him Dr. Jones.
Dr. Jones was one of the first eye surgeons in Birmingham. According to him, when he came to Birmingham to practice, there were no more than five eye surgeons in the city and maybe five more in the state.
He came from humble beginnings and was proud of his success. He was not a member of any of the country clubs but he loved the symphony and the Virginia Samford Theater. He drove a classic Harley and a 1974 Cadillac convertible.
He also had in his stable a 1960s model Volkswagen Beetle and a 1970s Suburban. No wife, no children, he lived in a downtown apartment/office appointed with antiques. He often cooked lunch in his office for his two long-time assistants. They absolutely adored Dr. Jones.
A bank executive introduced me to Dr. Jones over lunch in the bank’s dining room atop the Woodward Building, NBC’s headquarters. While he had several checking accounts with us, his invested assets were held in a competing trust department.
Over lunch, and he loved a free lunch, he said his accountant thought there was not a dime’s worth of difference in investment managers. I suggested we invite his accountant to lunch.
After lunch, the accountant recommended that Dr. Jones move his invested assets to NBC. The NBC dining room was unparalleled. Our Executive Chef prepared gourmet meals each day.
Our hostess and servers learned the names of our clients and greeted them by name, “Good morning, Dr. Jones, etc.” It’s the way things are supposed to be done. It was a special time.
Dr. Jones had a Profit-Sharing Plan and a Pension Plan each holding about $2 million in securities. They were copycats of each other with individual stocks and bonds and mutual funds.
I have never seen an investment portfolio so poorly planned, obviously so poorly managed and so unprofessional. There appeared to be no objective, no plan and no discipline.
Stocks and bonds were in odd lots. As an example, there were 17 shares of IBM and a $12,000 Federal Home Loan Bank bond plus odd amounts of mutual funds in a $2 million portfolio!
Odd-lots cost more and penalize your return. Within a few months, Dr. Jones owned two $2 million portfolios each with a 70% equity/30% U. S. Treasury Note allocation.
Equities were in 100-share lots and Treasuries were in $100,000 lots. Good, safe portfolios that appreciated well.
In the late 1990s, Dr. Jones called to check on 12-month CD rates at NBC. I quoted some rates and asked enough questions to learn that he had 10-$100,000 CDs maturing in less than one year.
Why did he need $1 million maturing in one year? His answer, “Oh, I don’t know. I just like to keep my money close”.
I’ve heard that from a lot of investors. I asked if he could get by with $100,000 maturing each year for the next 10 years while receiving tax-exempt income.
CDs were paying 5%-6% taxable interest at the time and Alabama tax-exempt bonds were paying 5%-6% also. He liked not paying taxes.
He agreed that he could probably get by with $100,000 maturing each year and he certainly liked the tax-exempt income.
I built Dr. Jones a very nice portfolio of Alabama tax-exempt bonds with $100,000 maturing each year for ten years. Annual tax-exempt interest was about $60,000. Dr. Jones came to call it his “Pretty Portfolio”. And, it was a pretty portfolio!
Knowing that I owned a farm, his first comment at lunch was, “Before we get into this investment ‘stuff’, what have you been bush hogging? Tell me about your bush hogging”.
In retirement, Dr. Jones moved to five acres in one of the most upscale neighborhoods in Birmingham, took five years to build his beautiful dream home and bought a small Kubota tractor “to push dirt from one spot to the next and then back, and then bush hog,” he said. RIP Dr. Jones!
