Snuff and Jam Jars

Reflections on investing

Among other things, I am an investor. My father started giving me $3,000 each year when I was 21 or so, and he dictated the stocks to be bought. Back in 1949 that was like shooting fish in a barrel. Came the Korean War, and I flew airplanes for Uncle Sam in Korea and elsewhere—and I saved $250 a month, which I sent to Dad, which he hived up, and which he used from time to time to buy more stocks.

The stocks prospered. After my four years in the Air Force, racking up 10 times as much pilot time as Dad ever got in the first go-round, I calculated that my savings and capital gains came to $25,000, and that was in 1955 dollars—enough to buy a house. In fact, my bride and our first son settled into a lovely house on a hill in Westchester County, rich man's territory, in 1958. It cost $31,000. In those days, a young man in four years could save and invest and get himself a house all his own, in splendid country.

Now the Rickenbackers are not rich. I have been able to live the life of a journalist—writing articles such as this for pay that comes to nothing after tax—because there are the vestiges of those early savings. And, of course, there are the inheritances (less than you'd think, for I stem from patriots, and you know all the Founding Fathers died in hock). I have manipulated it all with Irish pluck and not a small amount of downright bravado, and off at the end maybe a touch of grace.

As an aside, to illustrate that last effusion, let me tell you about my first airplane. I had wanted one ever since mustering out of the Air Force. I adore flying. But airplanes—the good ones—are expensive. I came across a stock at $10 and landed on it with both feet. I rode it up to $40, racking up enough to buy my gorgeous Turbo-Centurion, in 1966. (The stock later went to zero. Yes, zero.) My bride joined me to see the new acquisition. When she saw that the bird was plumed with white leather on the seats, she said, "Oh, you darling, you bought a plane to match my jacket."

For 20 years it has been like that, living by my wits, really, earning grocery money as a journalist but keeping the family together by manipulating a small sum until it's black and blue. Over the years I have also adopted a few clients—about 70 of them at last count—who ask me to give them advice about their investments, which I do for a fee. I don't hear too many complaints. I might add that as far as I know, I'm the only investment advisor in the world who does not set a minimum fee. My fee is one percent of principal per year on the first $100,000, and I'm just as happy to serve an investor with $3,000 as one with $3 million. In fact, I prefer the smaller accounts, because they have no place else to go. They're grateful, and they say so. I have two or three accounts in the million-dollar zone, and they're sheer trouble—nervous people, petulant, thankless. But they, too, pay (God bless the free market).

Investing is the way I live my life; it makes my life possible. Without it, without my skill at it (let's not be coy), I would be nine-to-five in somebody else's office, and my writing would be midnight stuff, weary, leftover, haggard, finally useless. In a spiritual sense, I invest in order to live.

First question, then: what does Bill Rickenbacker hold at this moment? My portfolio is neat and clean. Half of it is in oil companies, half in gold stocks.

Why oil? Because it was cheap: the major companies were for sale at five times earnings when I bought them a year or so ago. Texaco, I recall, had eight barrels of proven oil in the ground for each share of stock outstanding, and I bought the stock at $32—which meant I was buying oil for $4 a barrel (and those reserves were in the United States, not in Crazyville).

And why gold? Because it is going to be the janitor of the edifice of monetary disorder that has been erected in recent generations. When debts are not paid, when currencies are no longer exchangeable, when the United States becomes a "Third World" country with foreign debts exceeding its foreign assets (as will happen this year), when contracts drawn in terms of national currencies are abrogated in favor of gold—then metallic gold will be discovered once again as a substance that does not tell fibs, that does not deteriorate, that does not fluctuate in its physical quantity (the annual production of new gold is one or two percent of the inventory on hand in the world). The price of gold will rise.

The oil companies I've invested in are some I hope will prosper if the Near East explodes. I have Atlantic Richfield, Royal Dutch, Texaco (I had Exxon, too, last year, but sold it to pay for living expenses). The gold stocks, strictly for Mississippi river-boat gamblers, are in a bunch of Canadian companies with no history of revenues or profits.

But I may as well go into those Canadian companies in some detail in order to let you see how a person may proceed in these days of uncertainty. The Canadian companies are what are called junior exploration companies. They have acquired some acreage in promising country, they have retained a geologist, they are trying to raise money to drill holes so they can find out if their hunch is right—but they are mainly a lick and a promise. Or so you might think.

There are about five hundred of them. My partner, Austin Barker, former chief economist for Hornblower & Weeks, has been studying the gold-mining industry since the mid-1960s. He has research material on all the Canadians, and in the last two episodes of upward movement in the gold price he noticed that the junior Canadian exploration stocks turned in truly glittering performances. In rough numbers, when the gold price doubled or trebled, the price of gold-mining stocks traded in New York City went up by a factor of six or eight, and the price of selected junior Canadian exploration companies went up by a factor of 20 or 30.

This bit of history led to the conclusion that it would be good to select some junior Canadians and lay them in, like a fine wine, before the next rise in the gold price. Studying the statistical and geological reports, Barker narrowed the list to 155 companies. He took this to friends in the field—geologists, engineers, Canadian financial analysts, executives of mining companies, all of whom are personal acquaintances he has made over the years—and asked them to give their say-so. The idea was to winnow the inside list even further, retaining those companies that earned the go-ahead from at least two outside experts in the field. There were 35 survivors of this test, and I invested equal dollar-amounts in each of those 35. If history repeats itself and one of these stocks goes up by a factor of 30, then the rest can fall almost to zero, and I shall break even. I think that's a pretty favorable situation.

We advised our clients—those of them who could tolerate the risk—to do the same. We have channeled several million dollars into stocks selling for pennies per share. If we are right (which we are), and if we pick the right time to sell (which we can't foresee), we'll extricate perhaps $100 million from the position. Unfortunately, it will belong almost entirely to our clients.

The international monetary condition is terminally ill, and our domestic condition is no better. Washington in its budgeting fits has become a blasphemy beyond the reach of the raillery of Rabelais or Mencken. The whole financial structure of the federal government will collapse in the next few years. What follows, no one knows. An investor must nevertheless make decisions, and I have made mine for my clients. I have invited them to take a strong position in gold stocks, and at the same time to dig in and take a position in the ongoing business of America.

Now that's not Boy Scout Jamboree talk. The ongoing business is no longer steel and rails and automobiles, but littler things such as checkbooks and snuff and jam jars. These are not romantic. You will not mention them at the next cocktail party in order to impress the fine lady in the golden gown. "I've invested in the company that makes Mason jars!" you will say, and she will move away.

Forget her, and take a look at Ball Corporation, maker of Mason jars. And then think a bit. Is there a reason why this company keeps reporting higher sales and profits every year? And is there a reason why you shouldn't enjoy that growth, ad infinitum, when you can buy it for a song?

Many of my clients now have 10 times their original investment in one stock, United States Tobacco. It has taken 10 years to multiply their investment by 10. The company makes snuff, chewing tobacco, pipe cleaners, and a few odds and ends sold at corner newsstands. In the most important part of its business it serves something like 95 percent of the market. But that market is only some 10 percent of the ultimate potential market, as the company sees it. The elbow room for growth is enormous, and the company is exploiting it with a national advertising campaign that has all the earmarks of success. And who is going to stand against these products? They sell for pennies, they sell forever, they give satisfaction. This is a prototype of my "Old Man River" stock.

The world is falling into little bits and pieces, but there will always be companies that perform useful services and manage to survive. Looking ahead, I see a good future for the oil companies, simply because nobody else knows how to produce oil. And a good future for the gold-mining companies, because that trade has become so complex that no newcomer may profitably intrude. And a good continuation of the old standby companies whom no one wishes to capsize—such long-term growing companies as Hershey, Heinz, Carnation, Consolidated Foods, Smucker. As I say, there's no romance here, but 10 years down the line you have yourself a pretty penny.

I am reminded of Madgie Baker, a school chum of my mother's from the old Grand Rapids days, around 1900. You will recall that Mr. Durant, a fancy gent from Boston, put General Motors together twice and lost his stock, but en route he told a few ladies that he thought GM might very well be the automobile manufacturer of the future. There came a time when the former president of GM, "Engine Charlie" Wilson, was grilled about his stock holdings—this was in the early 1950s, under Eisenhower—and it came out that Charlie had about three million dollars' worth of GM stock. Madgie was sitting at my side on the couch. She hallooed across the room to my mother, "Why, Adelaide, I have more than that!"

Any good little girl from Michigan who put her pennies into GM became a millionaire. Isn't that nice?

It should also be mentioned that more than 2,000 automobile-manufacturing ventures failed. Dad failed. That would have killed many a man, but he made a triumph out of it. He refused to declare bankruptcy. Between 1928 and 1937—the horrible "Depression"—he kept the debt alive, and at the end he paid it off, dollar for dollar. On the basis of that, he got the backing from Wall Street to buy Eastern Airlines when Al Sloan decided to peel it off from General Motors. But I wander.

Okay, invest. Interest rates will rise, so avoid bonds. Government will intrude, so avoid major industries. Currency will dwindle, so avoid cash. If you are between the ages of 20 and 60, consider such a portfolio as the following:

• one-third in oil producers and oilfield operators, both in the continental United States and nearby;

• one-third in gold producers or gold exploration stocks, depending on your cardiovascular reserves; and,

• one-third in Old Man River stocks such as those already mentioned—Ball, Smucker, US Tobacco, Hershey, Heinz, Carnation, Sonat, Albertson's, and Consolidated Foods.

And don't forget the most important ingredient—good luck!

William Rickenbacker, son of World War I flying ace Eddie Rickenbacker, writes a financial column for Private Practice.