Happy Birthday, Dad!

Al Levit

Glendale, CA (Aug. 31, 1998) -- Today is Monday, and normally we'd have our routine recap of the previous week in the Cash-King portfolio. We'd talk about news from our companies and probably make a comment or two about the great dangers of short-term thinking in a market like this. But... today is a special day. It's my father's 75th birthday. So, we're breaking with tradition, agreeing to look past the news, and I'm going to use this column to share with you just how Foolish my Dad has been all his life.

Fifty years ago, when my Dad was starting out, most of the advantages that we small investors currently enjoy didn't exist. Brokerage commissions were tightly regulated, and there really weren't any mutual funds, especially not index funds. The only things available to small investors in those days were full-service brokers with all of their up-front fees and trading commissions. Thus, unfortunately, Dad couldn't take advantage of a lot of Foolishness on the investing side of his life... until recently.

On the other hand, a number of our basic Foolish principles have to do with how you spend your financial (and non-financial) life, and my Dad (and my Mom for that matter) has that area covered pretty well. There are many ways my Dad has displayed his taste for Folly:

* Our family tried to avoid carrying any debt beyond the mortgage on our house.

* Our family lived well within our means (there is now some discussion about whether my wife, son, and I continue that practice, but that's another story).

* Our family was always generous with our relatives and friends (at one point my Dad helped support both sets of grandparents in addition to me and my brother).

Another thing about my Dad that's been an extraordinarily valuable lesson for his family is that he continues to learn, and to love the process of it. Some folks become very set in their ways as they age, unwilling to try new activities and think new thoughts. In finance, that sort of behavior is much to the delight of the big Wall Street firms, because folks are willing to rely on a system that doesn't serve their best interests. A friend of mine who works for one of the better known firms confesses to me that they sponsor a seminar for "Greedy Geezers."

My Dad isn't in this group. He's not greedy, and he doesn't need a full-service broker thinking for him. When we do it ourselves, we know we're protecting our family's interests first, not the interests of big marbled buildings in downtown Manhattan. Which isn't to say that he or I, or any of us, get everything right.

Here's an example of how we made a mistake and how we dealt with that as self-sufficient individual investors. The story begins with my Dad setting up accounts for his grandsons. And, I should say that I'm telling this story of an error we made with my Dad's blessing. That says something about what a secure guy my Foolish Dad is.

Onto this evening's tale...

My son Alex is seven, and Alex's college fund was started the day he was born. Originally, Dad set it up with the same full-service broker that was running his pension fund. (Author's note: Dad continues to work even though he's 75, strictly for the love of it.) Now, back in 1991, when he set this account up for Alex, The Motley Fool wasn't even a gleam in the eyes of Tom and David yet. So, we had no public resource to use as a check against our actions. Now, my Dad was also told to make my brother the custodian on Alex's account, as that would keep the funds from being taxable. (Preliminary note to our Cash-King tax expert, Phil: I know this is wrong, I'm coming to that!).

After a year or so, I poked around a little and found that half of Alex's college fund was still in CASH. Hmph. I politely asked my Dad why that was, my Dad politely asked his broker, and the fellow replied that he hadn't yet found a good enough place to invest the other half of the money. I suggested putting all the remaining money into a no-load mutual fund. Forgive me, The Motley Fool hadn't even been published yet! But it turns out I'd found a good one -- since 1991, it's one of the rare few that has beaten the S&P 500. I talked up the fund. My father, with some help from my mother (yeah MOM!) agreed to go for it.

Another year goes by. Everything's hunky-dory.

Then I read something about taxes and custodial accounts, and let Dad know that I think the college-fund investments really are taxable -- no matter whose name the custodial account is listed under. Dad checks it out. Sure enough, we should've been filing tax forms for my one-year-old son. No problem, says Dad, I'll have my accountant fill out the forms, and I'll pay the tax. "All you have to do, Al, is sign the forms and send them in."

The forms arrive, I sign them, and send them in. Upon the moment of their receipt, the nightmare begins. Alex, now three yeas old, steps up center stage in the IRS system, because HE HAS DONE SOMETHING WRONG. Much correspondence is traded between me and the IRS computers, and every action I take, I send registered so that I can prove that I replied.

I paid the penalties -- scofflaw that I apparently was. The last letter I got from the IRS was a bill for $25 interest. As best as I could figure, the bill was incorrect. I didn't owe anything. So, I sent them one last letter, registered, explained that I didn't owe anything, and yet included a check for $25. I believe that matter is closed, and I am thankful. The moral of this story, of course, is that college funds are taxable and you are best off paying the taxes the year that they're due!

Back to my Dad.

Dad was kind enough to set up a college fund for Alex. He was kind enough to set up a college fund for Alex's cousins, Max and Sam. He was kind enough to tackle the whole IRS snafu, and today, is kind enough to let me tell the world about his mistake on the funds being taxable so that someone else can learn from it.

The best part about all of this for me is that Dad is, and always has been, willing to learn. A couple of years ago, I discovered The Motley Fool, and shortly thereafter Foolish Four investing. I told my Dad about it. Now part of Alex's college fund is invested in the Fool Four, and with a deep discount broker no less. And this Labor Day weekend there is going to be a big 75th birthday celebration for my father. Among other things, it will be the perfect time to teach him about Cash-King investing!

For me, all of this is about family, about a cooperative learning adventure, and so much of it starts with my Dad. Happy Birthday, Dad!


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08/31/98 Close

Stock  Change    Bid 
 AXP   -9 5/8   78.00 
 CHV   -1 3/16  74.06 
 CSCO  -12 13/16 81.88 
 KO    -7 5/8   65.13 
 GPS   -5 3/8   51.06 
 EK    -3 7/16  78.13 
 XON   -2 1/8   65.44 
 GM    -3 1/16  58.00 
 INTC  -5 13/16 71.19 
 MSFT  -9 5/16  95.94 
 PFE   -8 3/8   93.50 
 SGP   -9       86.00 
 TROW  -1       30.44 
              Day      Month       Year       History 
 C-K         (7.91%)  (14.73%)    (1.45%)     (1.45%) 
 S&P 500     (6.78%)  (14.56%)    (4.82%)     (4.82%) 
 Nasdaq      (8.57%)  (19.93%)   (10.03%)    (10.03%) 
 Cash-King Stocks 
     Rec'd    #  Security     In At       Now    Change 
     2/3/98   24 Microsoft     78.27     95.94    22.57% 
     2/3/98   22 Pfizer        82.30     93.50    13.61% 
     5/1/98   37 Gap Inc.      51.09     51.06    -0.05% 
    6/23/98   23 Cisco Syst    86.35     81.88    -5.18% 
    2/27/98   27 Coca-Cola     69.11     65.13    -5.76% 
     2/6/98   56 T. Rowe Pr    33.67     30.44    -9.61% 
    8/21/98   22 Schering P    95.99     86.00   -10.40% 
    2/13/98   22 Intel         84.67     71.19   -15.93% 
    5/26/98   18 AmExpress    104.07     78.00   -25.05% 
 Foolish Four Stocks 
     Rec'd    #  Security     In At     Value    Change 
    3/12/98   20 Eastman Ko    63.15     78.13    23.72% 
    3/12/98   20 Exxon         64.34     65.44     1.71% 
    3/12/98   15 Chevron       83.34     74.06   -11.13% 
    3/12/98   17 General Mo    72.41     58.00   -19.90% 
 Cash-King Stocks 
     Rec'd    #  Security     In At     Value    Change 
     2/3/98   24 Microsoft   1878.45   2302.50   $424.05 
     2/3/98   22 Pfizer      1810.58   2057.00   $246.42 
     5/1/98   37 Gap Inc.    1890.33   1889.31    -$1.02 
    6/23/98   23 Cisco Syst  1985.95   1883.13  -$102.83 
    2/27/98   27 Coca-Cola   1865.89   1758.38  -$107.52 
     2/6/98   56 T. Rowe Pr  1885.70   1704.50  -$181.20 
    8/21/98   22 Schering P   2111.7   1892.00  -$219.70 
    2/13/98   22 Intel       1862.83   1566.13  -$296.71 
    5/26/98   18 AmExpress   1873.20   1404.00  -$469.20 
 Foolish Four Stocks 
     Rec'd    #  Security     In At     Value    Change 
    3/12/98   20 Eastman Ko  1262.95   1562.50   $299.55 
    3/12/98   20 Exxon       1286.70   1308.75    $22.05 
    3/12/98   15 Chevron     1250.14   1110.94  -$139.20 
    3/12/98   17 General Mo  1230.89    986.00  -$244.89 
                               CASH     $48.07 
                              TOTAL  $21473.20 
 *Please note: On 8/4/98 $2,000 cash was added to the
portfolio for future investment. This will be reflected
in the numbers as soon as possible.

*The year for the S&P and Nasdaq will be as of 02/03/98