Advice for a teen investor

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Dear Mr. Berko: I am 14 and have saved $3,300 in the last three years. I help my dad in his construction business, mixing concrete and unloading trucks of lumber, plywood and plasterboard to build homes, dig footers and operate a backhoe or a forklift. I don’t like this work, but I like making the money. I want to invest $1,000, and I already own 19 S&P 500, 22 shares of Pepsi and 25 shares of McDonald’s. My grandfather thinks I should buy 100 shares of Adams Express. My dad and grandfather read your column and sometimes show me the advice you write. So I asked them if I could write you about Adams Express for advice. Please tell me about this stock and if you think this is a good stock to own. I am a long-term investor so if you don’t want me to buy Adams Express, please tell me the name of a stock that you think is good. Thank you.  Sincerely, – A.T., Kankakee, Ill.

Dear Young Man: You’re learning it’s a lot easier to make money using your head than your back. Your letter was neatly handwritten, well-worded, properly punctuated with good sentence structure and without a misspelled word. One day, I hope we can meet. I’d like to shake your hand and take you and your family to dinner, which would be a treat for me.

Adams Express (ADX-$10.33) has been around since the 1840s. Mr. Adams began his business in Baltimore as a citified Pony Express delivering mail, important documents and small packages to people, businesses and municipalities in the Northeast. But in the early 1900s, Adams Express began to exit the business. It liquidated its operating assets, invested the proceeds in the stock market and became a closed-end fund. Obviously, timing wasn’t the best because a few years later (October 1929), the stock market crashed.

Adams Express survived, and over the past 82 years, according to Forbes Magazine, it has averaged a 9 percent return, right in line with the long-term performance of the stock market. If you know the “Rule of 72,” you’ll recognize that a 9 percent annual return doubles every eight years. So if you invested $1,000 in Adams Express today, and if the shares were to perform in the future as they have in the past, your $1,000 would be worth in excess of $500,000. But in 82 years, you’ll be 96, so what would you enjoy spending that money on?

While Adams Express has averaged 9 percent annually for 82 years, its 3.9 percent annual return for the last 10 years has been less rosy. And during the last five years its annualized return was 1.4 percent. This is a fine company with a $1.2 billion portfolio in big companies like Apple, Oracle, McDonald’s, Pepsi, Intel, Caterpillar, Procter & Gamble and Chevron – among others. Adams Express is run by Douglas Ober, who for the last 32 years received a modest $525,000 salary for his very modest performance. The portfolio turnover during the last five years has been under 20 percent, so it’s apparent that Mr. Ober likes to keep his stocks.

I’m reluctant to disagree with your grandfather, and even though the shares trade at a 15 percent discount to net asset value, I can’t recommend Adams Express. It is about as exciting as a Wagnerian opera. But lots of older folks (including, perhaps, your grandfather) own Adams Express because of its unique and consistent dividend payout. The board of directors has promised to maintain an annual cash payout of at least 6 percent of the stock’s price, so even in a bear market, all shareholders can depend on dividend checks. And Adams Express has not missed a dividend in 80 years.

About seven months ago, I wrote a column on Yum! Brands (YUM-$70.40). The Chinese are clucking bonkers over Kentucky Fried Chicken. Wings, legs and other chicken parts are selling like hotcakes, and in a short while there may be more KFC units in China than there are McDonald’s and KFC units in the U.S. This stock is more suitable for you. Ask your dad if you can buy 14 shares.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 8303, Largo, FL 33775, or email him at [email protected].

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