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Fool On The Hill

Thursday, January 14, 1999

An Investment Opinion
by Dale Wettlaufer

Estelle's Legacy

Ted could hardly see through the tears that had turned his vision prismatic. He couldn't believe his Grandmother was gone. He couldn't imagine a stronger person. Gran had been a child of the Depression, had started a business when that was a lot more daunting for a woman than it is today, and had grown that business into the class of its industry. Running the company without her occasional sage advice would be hard. Ted loved that this person was not only a good friend and a wonderful Grandmother but his business partner, too.

Ted was still not himself, at all, two days later at Bob Reynolds' office. Reynolds was talking, but Ted wasn't paying too much attention. "Who the hell decorated this place? And what is this kid doing wearing a $3,000 suit? This guy is nothing like his old man," Ted thought as he looked over at the young lawyer. In moments of profound grief or crisis, the mind can dwell on the stupidest details, Ted observed to himself.

"Mr. Jaworski, your Grandmother wanted you to watch this videotape in lieu of a reading of the will. I think you should try to pay attention. This may come as a bit of a shock." Gran always did have a flair for the dramatic. Ted sat up and came to.

"Hello dear," Estelle started. Ted could almost smell her perfume again. "In some ways I have not been looking forward to today and in some ways I've been very excited for a while about telling you what I'm about to tell you. The bad part is, I'm no longer with you. As you used to say when you were a youngster, 'No duh, Gran.'"Ted chuckled. "As we planned long ago, nothing is going to change for you or the company, my chou-chou." Ted had been the 95% majority shareholder of Estelle's Recipes since buying out his grandmother 14 years ago. "But there is a pretty big piece of news outside of that. Mr. Reynolds, won't you fill in Ted on the details?"

"Mr. Jaworski, your grandmother has instructed us to divide the cash and securities portion of her estate between yourself and the Estelle Jaworski Foundation. Upon resolution of probate, we have been directed to transfer her common stock holdings to the foundation's account with our trust department. In her place, she has also named you sole Director and has asked that you continue with the Foundation's original program. You are free, however, to direct 25% of the disbursements to the charities of your choice, no restrictions. After tax, the Foundation's net assets will increase by $3 billion." Ted was wondering how Reynolds could speak without choking on his own drool.

"Furthermore, Mr. Jaworski, your grandmother has directed that you receive the remaining after-tax balance of the estate. Again, this won't happen immediately because of probate and the sheer size of the assets we're talking about here." Ted started to fidget. "Mr. Jaworski, your Grandmother has left you $5 billion and the bulk of it is in short-term Treasuries and municipal debt. She also asked that you view this other videotape alone."

Ted had to get away. He headed to the island, which had always been his place to think. This was the perfect time of the year to be out there, too -- no tourists, the nights were cool, and the noontime temps were still nice most days. Shortly after he arrived, Ted threw a log on the fire, set his scotch down, and hit play.

"Hello again, Ted. Here we are. I hope I didn't surprise you too badly the other day." As far as Estelle's Recipes went, there were no secrets between the two, but Gran had always said that one's personal financial affairs were not an open book. In fact, Gran had always stressed discretion in one's financial matters unless you were in a jam and needed some backup from your family. Estelle had trained Ted well, though. Little did Estelle know what happened with Ted's brokerage account after he reached 18-years-old and little did Ted know that Grandmother had amassed a fortune of over $12 billion. "Let's see," Ted thought, "after tax, Grandmother must have realized $500 million on the sale of the company. Now her estate is 24 times that? That can't be."

"Sure enough." Ted went over the calculations three times on his TI just to make sure. "That's better than 25% compounded per year. Gran surely beat the market with this performance." Indeed she had. The market had advanced just over 18% per year over this time period. He turned back to the videotape and had to rewind. He hadn't stopped the tape, so stupefied was he by these returns.

"Ted, I want to tell you a few things about this money you're going to receive." Ted had seen Gran go from grandmother to businesswoman regularly, but he had never seen her this serious. "I believe money is a serious thing. Your grandfather and I started the business because it was something we loved to do and we thought we could succeed at it. The money wasn't the reason, but we didn't treat it lightly when it did come along." Tom looked out across the lawn and onto the sunset that had painted the bay red and orange. All of this was Gran's doing.

"After we sold the business to you, Ted, we simply applied the same principles we learned in building our own business to investing in individual companies. I'll say this. We never bought any options, we never traded, and we didn't buy any companies that we wouldn't want to own outright ourselves." Ted smiled. Of course Gran would have done well with investing. She was a great businesswoman.

"Let me tell you something, dear. You don't have to invest this. You can spend it, you can burn it, you can do whatever you want with it. I'm not going to try to run your life from the grave. But if you want to invest it, I want to say a few things about going about investing." Estelle Jaworski had no college degrees, but Ted would have sooner listened to her on any business matter than attend a one-on-one lunch meeting with Alan Greenspan.

"When you invest this money, the decisions you make with it should be no different than the decisions you make at Estelle's Recipes. When was the last time you announced a stock split at the company to increase shareholder value?" At privately held Estelle's Recipes, this would be irrelevant. "You wouldn't, not only because there's no reason to, but because it doesn't add value, Ted." As a New York University MBA, Ted wasn't learning anything new here, but Gran could be a lovable curmudgeon at times.

"Ted, your grandfather and I learned long ago that investing is like running a business. We started setting money aside when we were young and we heard it all from the brokers. Then the mutual fund craze came along and then the one-decision craze came along. But the minute you ask most brokers about a company's accounts receivables or margins, they don't know what they're talking about. They want you to invest in their top pick for the week and then sell if it goes up 20% or goes down 8% or some arbitrary amount. Don't listen to this sort of thing, please. This is not business. This is trading."

"Another thing, Ted. I remember our Salomon Brothers banker telling us we needed to diversify 5% of our portfolio into commodities. This was a 34-year-old telling Joe and me, two people that had built a business in which we had become intimately familiar with commodity price movements, that we needed to protect our wealth with commodities. At that point, dear, your grandfather and I decided we didn't need anyone's help. We didn't use lawyers and their ideas, we didn't buy tax shelters from the very nice but very dull brokers that used to bother Joe at the club, and we certainly did not panic upon reading headlines written by people that don't even invest for themselves." Gran had a point there.

"Ted, this is a lot of money you have to deal with here, but let me tell you something else. Few people do extraordinarily well spreading their portfolio across hundreds of companies. You don't have to invest this right away and you don't need to take this advice, but your Grandfather and I did best when we invested in things we knew well, were available at what we thought was a fair price, and where we could make a significant commitment to the company. We weren't idea factories. Joe and I actually had a life and didn't want to worry about 100 different investments we had made." Having almost his entire net worth invested in Estelle's Recipes and having done well for himself, Ted understood quite clearly what his grandmother was saying.

"I remember the time we went on the cruise up the Great Lakes, through the St. Lawrence Seaway, and down the East Coast. We didn't see the television for six months. It always drove your grandfather nuts anyway and I didn't care to see what the market was doing. And you know, Ted, when I did see what the market and our few investments had done while we were away, it was as you say 'no biggie.' We had done well and of course the market had done what the market will always do. It went up and down and sideways and around in circles for all we cared. We were busy living."

Grandmother never had any problems in that department. For all her evidently very careful ways with setting aside money over the years, Gran had lived a very nice life and had been around the world.

"Ted, I'm not preaching, you know that," Estelle continued. "But we just don't believe in all this hoopla you read about and see in the magazines and on TV. A stock that happens to trade publicly is nothing more than an ownership claim on a corporation. If you don't think of yourself as a business owner and think more of yourself as an owner of slips of paper that are readily tradable in the market, your chances of doing well are greatly reduced. Business is business, whether it's a public or private company. You do the things that we did together to build Estee's Recipes and I think you'll do fine, my dear. I'll love you always."

The screen went dark. Grandmother could do anything, and this was just more proof of that. Ted hadn't thought that much about investing in the market. Of course, his competitors were publicly traded, but Gran had always said the more you worry about your competitors or their stock prices, the less you're going to do for your own business. But Ted would have to address this situation at some point in the next year. He would no doubt watch this videotape over, probably many times, as he went about taking care of Gran's legacy.

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