Thursday, December 11, 1997

A Foolish History
by John Baker (

Back in prehistoric times, as my kids like to call it, a time that my wife and I simply refer to as B.C. (Before Children), when the first caveman invented the IRA, I, being a young conscientious saver, started socking that $2000 a year toward my eventual retirement when we could savor our golden years in the lap of luxury. Now, I've always been a good saver, believing that you should pay yourself before anybody else. My mother always said I was frugal; my brothers just used to call me cheap.

Nevertheless, I started putting that wad of money into the most ubiquitous of all savings vehicles of the time -- yep, the CD. Now before you gasp, a quick study of ancient history will reveal that the first four years of this savings plan shows that my CD earned 14.35%, 13.5%, 11.9%, and 9.9%, respectively. Not bad for someone who thought that PE was just another class you had to take in high school.

Then as the interest rates on savings fell below 10%, and being a more savvy investor, I felt that I could do better. However, at the time we were living in Alaska and the only broker in town was one of those full-service brokers (who shall remain nameless). One day as I was taking advantage of his full-service advice, he recommended that I invest in a Savings & Loan in California. And this during the height of the S&L scandal! Now maybe he was just being contrarian trying to pick out a good value, but for me that sounded just a little too Wise. It was shortly thereafter that I opened an account with a discount broker through the mail.

At first I was invested about 50/50 in large-cap stocks and mutual funds. With just a rudimentary knowledge in investing, I felt I did fairly well. Then three years ago, as I became more knowledgeable, I switched to 100% large-cap stocks and did even better.

Now, let's fast forward to the spring of 1997 when I came across the Motley Fool and started reading the 13 steps. Well, to coin a phrase, "it was deja vu all over again." After reading each step, all I could think was "been there, done that." I thought, "how easy it was to be Foolish." In my personal investments, I am at step 10. I've done some small-cap investing, but feel more comfortable with large caps and maybe someday I'll try shorting stocks. Though to me, shorting stocks is like playing low-ball poker, but that's another story. So, for now, I feel comfortable where I am, just like a well-worn pair of jeans.

Now for some hard numbers. In the past seven years, my portfolio has increased at a 26% annual rate and for the last three years it has grown at a 36% annual rate. And that's the real thing, not just back-tested history. So armed with a whole new world of investment strategies, a means to access data, and ways to determine stock valuations, I think I can grow my present portfolio to seven figures by the time I "retire" in about ten years. And by the "rule of twenty," I think I'll be able to retire to a new address. Some of you may have heard of it; it's a place called Easy Street. See ya there!

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