Around 1972 I was introduced to a casual friend's mother. Her husband had died about six months earlier and she had $200,000 in life insurance proceeds to invest.
She was concerned that it had to last her the rest of her life--she was early 50s. She also wanted a check every month, so she needed at least six issues.
I asked the home office for help in selecting at least six issues--at least AA rated--with attractive coupons. They came back with a suggested portfolio that had an average rate of return of just under 6%. These were thirty year corporate bonds, she did not have tax issues so there was no need for municipals.
I can remember as if it were the other day as she sat there and said, "Are you sure that I'll be getting an average of $1,000 per month? That's more than John's paycheck was."
At that point her son jumped in and said, "Mom, Dad was a good man there is no reason to say that!"
She said she knew he was and she missed him with every fiber of her being--but then she told her son to not deny the truth.
Remember it was 1972, $1,000 a month take home was actually not bad. New brokers were guaranteed $500.
Anyway, she bought the portfolio as suggested--we kept them in street name and sent her a check every month for 1/12th of a year's interest.
When I moved to the Regional staff I was not allowed to produce, but my assistant could. She went with me but kept about thirty accounts--two of them were for this woman and her son. She also had mine and my wife's.
Now go to 1979--six and a half or seven years later.
Sheila got a call from the son asking if he could come speak to me. She told him he could, then told me that he was coming. Sometime one must wonder who is the assistant and who is being assisted.
When he came in she brought him to my office. I looked up and shook his hand and asked him to have a seat. He asked if he could close the door--I indicated that he could. He did, and then sat down again.
He spoke in hushed tones that he did not want to see Sheila go to jail, but that he and his family could not simply ignore what she was doing with their account.
I asked what he meant and he pulled out two statements. The first one was that first month when his mother first bought the bonds. They showed that the portfolio was worth $200,000.
He then showed me the current statement which showed that the portfolio was worth about $120,000. He then changed his tone and said that as much as he liked me and Sheila he was going to put at least one of us in jail if we didn't give back the money. It was clear that he thought I must have been involved too.
I instantly stood up, grabbed a yellow pad and asked him to join me at the small table in the corner of my office--what you never EVER want to do is defend your point of view or action with a desk between you and the client. That desk is seen as part of the arrogance, the symbol of power, whatever--it's not good.
So, we're sitting at the small table, knees almost touching.
Now, he's an engineer so he understands numbers. I started by asking him what mortgage rates were at that time--he said they were about 20% and then muttered something like, "Phucking Carter doesn't...."
I asked what he thought the bonds in his mother's portfolio were paying. He said about 6%. I asked if he would buy a 6% that day. He said no.
Then, almost like the cartoons when the light goes on over the guy's head, he displayed a flicker of understanding.
When I thought he was stabilized I asked if I could take him to lunch.
You know what? He understood exactly what was happening and assured me that he would explain it to his mother and brother. But he never did any more business with Shelia--and he had been a guy who traded in and out of stocks every month or so.
He didn't transfer his account--instead he'd call and ask to have the proceeds of a sale sent to him.
I don't know if the older woman is still alive--she'd be in her eighties so she very well may be. As far as I know she collected that $1,000 per month each and every month until after the millenium when the bonds would have been maturing.
I'll bet she didn't have a really great retirement like she thought she would that day long ago. The danger of the long term bond market is that the price of bread doesn't stay at a quarter a loaf.
I know the son is alive because we had/have mutual friends.
I wonder what happened to Shelia--she got married and moved away.
The one thing that is certain is that nothing remains the same.