A Penny Saved... Is Impossible: But It's the Surest Way to Become a Millionaire

By Frank A. Jones

This book is written for the beginning investor. It covers the important steps to follow to invest your own money by first understanding the value of saving, investing, and the miracle of compound interest. It introduces the reader to the mutual fund, one of the true wonders of the investment world. It stresses the important decision to diversify and allocate your assets in a manner appropriate to your needs, time-horizon, and risk tolerance. Reprints of the authors columns on investing that appeared in The Memphis Commercial Appeal from 1993 until 2003 cover these and many other subjects including indexing, market timing, selecting money managers, and the danger of fear and greed on market prices.

• Language: English
• Publisher: Xlibris US
• Release date: Sep 20, 2006
• ISBN: 9781462827022

Frank A. Jones

FRANK A. JONES graduated from MIT in 1948. In 1950, he entered the cotton merchandising business and in 1955 became a partner in Cook & Company, a cotton firm that soon became Cook Industries, Inc., a mini-conglomerate. As CFO of the company and later President, he managed the Terminix, Bruce Flooring, and Riverside Chemical divisions. From 1980 until 1992, he purchased and sold a steel forging company, then an aluminum die-casting company. In 1992, he started Summit Asset Management, a Registered Investment Advisory firm and from 1993 until 2003, wrote a financial column for The Memphis Commercial Appeal. He has served on the boards of the St. Louis and the Memphis Federal Reserve Banks, the Frisco railroad, and many local charitable organizations. Currently he serves as a Director and Regional Manager of Cumberland Trust & Investment Co.

Book preview

A PENNY

SAVED...

is Impossible

– Ogden Nash

(but it’s the surest way to

become a millionaire)

FRANK A. JONES

Twelve Steps for the Beginning Investor

WISDOM FROM NEWSPAPER

COLUMNS OF TEN YEARS

Copyright © 2006 by Frank A. Jones.

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the copyright owner.

This book was printed in the United States of America.

To order additional copies of this book, contact:

Xlibris Corporation

1-888-795-4274

www.Xlibris.com

[e-mail]

34253

Contents

ACKNOWLEDGEMENTS

INTRODUCTION

STEP ONE

1-1     Column Begins Today

1-2     Popular money option suits average investors

STEP TWO

2-1     The ‘Rule of 72’ shows interest

rate muscle

2-2     When the saver becomes an investor

2-3      Potential rewards and risks both rise as you go up the investment tree

2-4      Optimistic investors are ones who reap

2-5      Financial freedom is yours with patience, diligence

2-6     Worried about funds for retirement?

Try loving money!

2-7     Younger set should take risk, start investing now

2-8     Today’s money risks are scarier than love risks

2-9     Measuring risk using the principles

of probablility

STEP THREE

3-1      Books on investing are good gifts for kids, adults

3-2     Books present investment tips

3-3      Booklet helps teach children finance early

3-4     Groups offer free ‘kindergarten’ on lingo

3-5     Wise men who seek data follow the ‘Morningstar’

3-6     Get a new financial plan for a new year

3-7     Buyer must understand fees, expenses

3-8     Fund sites on web going interactive

3-9     Free advice from web often costly

STEP FOUR

4-1     No-load fund is modern day wonder

4-2     More managers taking up mutual funds

4-3     Mutual funds sold directly or by sales force

4-4     More investors buying direct

4-5     Load, no-load fund types both perform

4-6     Take care in purchasing closed-end funds

4-7     Quarterbacking portfolio takes vigilance, diligence

4-8     Time seems to tell: trust professionals, not luck

4-9     Law safeguards assets of funds

4-10     Rewards vary with types of investments

4-11     Equity funds provide investors strategic      choices

4-12     Column stirs storm of reader interest

STEP FIVE

5-1     Hybrids reach goals at varied gaits

5-2     Small-cap funds don’t guarantee big profits

5-3     Financial sector funds are good performers

5-4      Funds let small investor buy big real estate trusts

5-5     Foreign securities are viable prospects

5-6     Don’t ignore 66% of World Equity Markets

5-7     Emerging markets are volatile but have high potential

5-8     Option-selling fund lowers risk

5-9     Take these convertibles for a ‘ride’

STEP SIX

6-1     Allocation, allocation, allocation is the key

to performance

6-2     Consider goals, risk-tolerance, time-horizon, as you allocate assets

6-3     Three asset allocation models for guides

6-4     Spectrum funds diversify assets

6-5     Allocate assets for safety’s sake

STEP SEVEN

7-1     Value, growth goals shape management

7-2     Value and growth balance seesaw as Longleaf proves

7-3     Buffet calls growth part of value

7-4     Finding value in stocks is all relative

7-5     Patient money whiz Buffet waits for ‘pitch’

STEP EIGHT

8-1     Rankings, ratings give incomplete data on funds

8-2     Subjective judgments figure into selections

8-3     Do homework before selecting a money manager

8-4     Question manager before buying fund

8-5     Best ‘gurus’ have similar traits

8-6      Skip hot spots; best managers think

long-term

STEP NINE

 9-1     School of advisers follows indexing

 9-2     Balancing, indexing aid smaller investor

 9-3     Along came a spider—AHA !

 STEP TEN

 10-1     Market timing is a great idea—but flawed

 10-2     Market timers play risky game

 10-3      Even if you buy when market is high, you can profit if you wait

 10-4     Investing for the long term is a lifetime proposal

 STEP ELEVEN

 11-1     Expect fear, doubt when investing,

 but whatever you do don’t panic

 11-2     Investor psychology big factor in perfect market

 11-3     Face ‘tigers’ girded by meditation

 11-4     A sail on confused sea has financial market parallels

 11-5     Don’t bail out now, long-term investors

 STEP TWELVE

 12-1     After more than 350 columns, it’s time to quit

ACKNOWLEDGEMENTS

T     here is no doubt in my mind that this book and the more than

350 columns I wrote in the ten years from 1993 until 2003 would never have been possible without the help and encouragement of my wife, Mimsy. She read every word of every column before they were submitted and suggested changes and corrections in a kind and gentle manner without offending my authorship. I truly thank her for this invaluable assistance.

My columns would never have been published without the bravery of Mr. Lionel Linder, former publisher of the Memphis Commercial Appeal, to allow a neophyte in newspaper journalism an opportunity to write the columns. He introduced me to his business editor and gave him the final decision.

It goes without saying that, Bob Hetherington, the business editor of the Commercial Appeal in 1992, was equally brave to accept my columns and encourage me to keep writing.

I also thank the many other professional editors on the business staff of the Commercial Appeal who helped me meet deadlines and offered suggestions from time to time.

My friend and fellow-columnist, John Malmo, gave me much helpful advice as he has done on numerous other occasions.

Finally, I thank the many readers who, over the ten years, were kind enough to comment on my columns. Many of them told me how much the columns helped them better understand investments. That was my best reward.

INTRODUCTION

F     or ten years, from January 1993 until December 2002, I wrote

over 350 columns for the Memphis Commercial Appeal about investing. The primary focus was on investing using mutual funds. Many friends and readers suggested that I put these columns in a book. I have resisted doing this because many of them were newsworthy at the time written, but of little value today.

Recently, thanks to the power of the computer and a resourceful administrative assistant, I realized that all of the columns were available for me to review. I re-read them—often wincing at what I had said and wishing I could refine and re-write them. As I had previously thought, many pertained to the day or week they were written and would not be of much value for re-printing in a book.

However, I was surprised to find that many had stood the test of time and were still relevant to investing today or probably anytime in the future.

I decided to organize the columns as TWELVE STEPS FOR THE BEGINNING INVESTOR and select appropriate columns pertaining to each STEP. The selected columns are reprinted after each STEP. Some addresses and phone numbers in the columns may not be relevant today.

Hopefully the book will be read as a primer on investing.

The steps are:

STEP ONE: THE BEGINNING

STEP TWO: SAVING AND INVESTING

STEP THREE: LEARNING TO INVEST

STEP FOUR: MUTUAL FUNDS

STEP FIVE: MANY FLAVORS

STEP SIX: ALLOCATION

STEP SEVEN: INVESTMENT STYLES

STEP EIGHT: THE FUND MANAGER

STEP NINE: INDEXING

STEP TEN: TIMING

STEP ELEVEN: PSYCHOLOGY

STEP TWELVE: THE FINAL EXAM

After ten years and 350 columns later, I retired and my last one appeared in January 2003. It is reprinted at the end of Step Twelve.

STEP ONE

THE BEGINNING

After the second martini

W     hatever you contemplate doing will never happen until

you start—there has to be a beginning. I wanted to write a column about investments for the newspaper. After my second martini at a lively cocktail party, I boldly approached the editor of the Memphis Commercial Appeal and suggested that I would like to write a weekly column about mutual funds for the newspaper. The editor, Mr. Lionel Linder, was very polite and told me they were about to engage a professional columnist from Connecticut to write one for them.

Then, to my surprise, he suggested I call the business editor of the newspaper, Mr. Bob Hetherington, and discuss the possibilities with him. My goose was cooked.

In the light of day the following Monday, the idea seemed a bit ridiculous. I majored in engineering at college and had never written much of anything except dull one-page business reports. Nevertheless, Bob suggested that I submit a few columns and let him judge if they would interest their readers.

Mimsy, my wife, knowing of my lack of writing experience, said, Do you have any idea what you are doing? If by chance they accept you, they will expect a column every week. Are you ready for that?

A challenge! But I had a secret weapon. Mimsy was a liberal arts major in college and had written and published two books. She agreed to proof-read and correct my grammar, etc. on the columns before they were submitted. The next few weeks were mind-wrenching for this engineer. I struggled, wrote, tore-up, re-wrote many times before I finally gave them to Mimsy for proof-reading.

I sent the columns to Bob and waited, hoping down deep that he would toss them aside and politely tell me the newspaper had decided to use the professional columnist. Weeks passed until Bob called and asked me to drop by his office.

Expecting a polite rejection, I was caught off-guard when Bob said the columns were great and asked, When do you want to begin?

THE BEGINNING for me as a journalist was the appearance of the first column on January 10, 1993. It is re-printed at the end of this section.

Tragically, Mr. Linder died on New Years Eve, 1992 in an automobile accident and never saw my first column.

STEP ONE in anything you do must be THE BEGINNING. If you truly want to accumulate wealth and perhaps become a millionaire, you must commit to follow the twelve steps outlined in this book. I hope the columns re-printed after each step will serve as your road-map to success in investing.

But first you must start—there must be THE BEGINNING.

1-1     Column Begins Today

The Commercial Appeal today begins a new mutual funds column written by Memphis area business executive and investment advisor Frank A. Jones.

Jones spent almost 35 years with Cook Industries Inc. and served as president of the Memphis-based conglomerate from 1976 to 1984.

In 1992, Jones founded Summit Asset Management Inc., an investment advisory service registered with the Securities and Exchange Commission. He continues to operate Summit, which advises clients on investments using no-load mutual funds.

His column starts today and will run daily through Friday this week with a series explaining the basics of mutual funds. Thereafter, the column will become a regular feature on Monday’s financial page.

There is a significant interest in mutual funds among our readers, said Robert B. Hetherington, business editor of The Commercial Appeal. Frank writes with insight and authority. And we’re pleased to bring his perspective to print.

Jones is a trustee of the University of Tennessee Physicians Pension Fund and a member of the investment committee of the Boys Club Foundation.

He previously served on the board of directors of the Eighth District Federal Reserve Bank of St. Louis, and on the board of directors of the Memphis branch bank of the St. Louis Federal Reserve Bank. Previously, Jones was vice president and consultant to Loomis Sayles and Co. Inc. of Boston, one the largest investment management firms in the United States with more than $50 billion under their management.

In 1950, Jones joined Cook Industries, a conglomerate that included Bruce Flooring Co., Terminix, Riverside Chemical Co., CTH Insurance Group and an extensive world-wide cotton and grain merchandising division. He was named vice president of Cook in 1955, chief financial officer in 1968 and then elevated to the presidency.

Jones, a graduate of the Massachusetts Institute of Technology, also served as president and part owner of the Dietz Forge Co., which made steel forgings for the automobile industry. He is presently a director and part owner of Shelby Die Casting Co. of Shelby, Miss., which makes aluminum die castings, primarily for the auto industry.

The Commercial Appeal—January 10, 1993

1-2     Popular money option suits average investors

More than 36 million individuals own mutual funds, and more than 27 percent of American households have invested in one or more funds. Over $1.4 trillion is invested in more than 3,500 mutual funds.

A mutual fund is a pool of investors’ dollars used to purchase a diversified portfolio of stocks, bonds or both under the supervision of professional mangers.

Why do so many people use mutual funds? There is a simple answer. Where do people go when they are sick? They go to their doctor, the expert, to tell them what to do.

When people have money to invest, they go to experts, to the mutual funds that are managed by experts with proven performance records who will invest their money with one objective, giving them the greatest return for the risk they are willing to take.

Conventional money mangers usually require a minimum of several million dollars. The smaller investor can get the best money managers in the world working for them by purchasing mutual funds.

There are five very important reasons why so many people have turned to mutual funds for their investments. They include:

     Diversification: Investors immediately can get a broad diversification among companies even with assets as small as $1,000.

     Worry-free investment method:. Investors do not have to constantly make decisions about which stock they should buy, when they should sell or whether they should buy more if it goes up or down.

     Flexibility and liquidity: Investors have the ultimate flexibility because they can sell their entire portfolio or a percentage of it, or switch to other mutual funds with a few phone calls at no commission cost (assuming they have used no-load mutual funds). They have complete liquidity because no-load mutual funds can be bought or sold in less than 24 hours at net asset value with no commission cost.

     Asset allocation: Investors can allocate their assets among equities and fixed income in whatever percentage they choose, enabling them to structure a portfolio to suit their needs and attain excellent diversification at the same time with minimal assets.

     Monitoring of performance: Investors can monitor the performance of their investments and know exactly what percentage gain or loss they have compared with standards such as Dow Jones, the Standard & Poors 500 or bond indices.

How do I select the best mutual funds for my needs? How do I know the mutual fund I selected three