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Sunday, May 21, 2000

Investment advice: Turn off the TV, watch a movie

The moral? You'll get the money if you've got the time - especially if you spend it in a bomb shelter

There's a movie starring Brendan Fraser that offers as much investment insight as anything you'll hear on CNBC.
   In the movie, "Blast from the Past," Fraser surfaces from an elaborate bomb shelter where he was raised by parents who went underground during the 1962 Cuban missile crisis, convinced that nuclear war had occurred. As he emerges from the shelter, his most noteworthy assets are baseball cards that, for obvious reasons, can't be newer than 1962, and some stock certificates from a company called International Business Machines.
   The cards and the IBM stock make Fraser filthy rich.
   Proponents of buy-and-hold strategy couldn't have asked for better validation. Yes, if you've held onto IBM stock for about 38 years, you're doing OK.
   But the movie makes it too easy. It is, after all, only a movie, it's no "Lawrence of Arabia," and its point, if there is one, has nothing to do with investing.
   It's important to note that Christopher Walken, Fraser's dad in the movie, was spared 38 years of having to watch IBM go down as well as up. There was no access to Ameritrade in the bomb shelter, no temptation to make an effortless trade online, to dump a low performer and chase a top performer. Walken has played some notable tough guys in his career, but it's questionable whether any of them would have had the stomach to hang with IBM all those years. But if they had, here's what would have happened:
   One share of IBM at the close of 1962 cost $390, which sounds pretty steep especially considering that those were 1962 dollars. That one share would have been 76.875 shares worth $8,292 by the end of 1999 - not bad as long as you're not comparing it to something like Cisco.
   IBM's annual growth since 1980 averaged 13.7 percent - again, not bad if you aren't comparing it to Cisco, which has grown an average of more than 91 percent a year since 1990, or Oracle, at more than 73 percent, or Intel, at more than 48 percent.
   But that's looking at it as if IBM and other successful companies go up in a nice straight line on a graph, which no stock does. Some of them plot out as squiggly as voice patterns.
   Your initial $390 share of IBM would have grown to $696 by mid-1966 and $1,205 by mid-1967. That means it would have more than tripled in four years, not a bad return if you can sustain it. But a year later it would have grown only $5 and five years after that, in 1973, it would have lost ground and been worth $1,185.
   Six years later, in 1979, you'd have been back up to $1,237. That's $32 growth in 12 years, not the stuff of which fortunes are made. By 1997 you'd have been up to 38 shares worth $4,021 and two years later you'd have doubled your money.
   But you have to ask yourself, would you have taken that tidy profit in 1967? Would you have held onto a loser in the 1970s?
   If all this ancient history seems too obtuse, pretend instead that you bought Microsoft a year or more ago. Would you still own it? Who's advice are you heeding? Bear or bull? Either way, you've probably heard a lot of bull.
   So here's some advice, based on vast experience born of lowbrow cinematic viewing and an inability to keep up with the number of Black Fridays since October:
   1. Time really is money. But it's not easy money, unless you spend the time holed up in a bomb shelter with no contact with the outside world.
   2. When the going gets tough, get going to a movie. No telling what you might learn.
  
  

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Tom Whitehurst

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