Tag Archives: investing

The Dead Man Fund

(Lambert/Archive Photos)

Jack El-Hai | Longreads | November 2017 | 7 minutes (1,672 words)

In 1989, Morningstar, Inc., an advisory service, issued a strongly worded and unusual recommendation to its clients who had placed money with a firm then called the Steadman Funds (later known as the Ameritor Funds). “We urge you to cut your losses and get out,” Morningstar counseled. Doubtless, some investors heeded this advice. Many couldn’t, though, because they were dead.

A few years ago, the fate of Ameritor— nicknamed “The Dead Man Fund” — and its unfortunate investors, became entangled with the history of my house. An envelope had landed in our mailbox containing a check in the amount of $10.32 made out to one Anna Mae Heilman. She was nobody we knew, but the name rang familiar to me for some reason. With the check was a letter explaining that the money was a final settlement of Heilman’s investment of 171 shares in the Ameritor Security Trust mutual fund, which had closed down.

It didn’t take long for me to remember how I knew Heilman’s name. When we bought the house, we acquired its abstract, a thick and crumbling packet of legal documents that chronicled more than a century of transactions involving the property. Heilman’s name was in there. She and her husband had owned our house for several years ending in 1971.

Heilman’s tiny payout at a rate of only six cents per share seemed strange, so I began looking into the history of Ameritor and the circumstances of the Heilmans’ sale of our house. I then learned of two terrible misfortunes that afflicted one family. Read more…

Lessons from Warren Buffett’s Letter to Shareholders

Before I depart the subject of spin-offs, let’s look at a lesson to be learned from a conglomerate mentioned earlier: LTV. I’ll summarize here, but those who enjoy a good financial story should read the piece about Jimmy Ling that ran in the October 1982 issue of D Magazine. Look it up on the Internet.

Through a lot of corporate razzle-dazzle, Ling had taken LTV from sales of only $36 million in 1965 to number 14 on the Fortune 500 list just two years later. Ling, it should be noted, had never displayed any managerial skills. But Charlie told me long ago to never underestimate the man who overestimates himself. And Ling had no peer in that respect.

Ling’s strategy, which he labeled “project redeployment,” was to buy a large company and then partially spin off its various divisions. In LTV’s 1966 annual report, he explained the magic that would follow: “Most importantly, acquisitions must meet the test of the 2 plus 2 equals 5 (or 6) formula.” The press, the public and Wall Street loved this sort of talk.

In 1967 Ling bought Wilson & Co., a huge meatpacker that also had interests in golf equipment and pharmaceuticals. Soon after, he split the parent into three businesses, Wilson & Co. (meatpacking), Wilson Sporting Goods and Wilson Pharmaceuticals, each of which was to be partially spun off. These companies quickly became known on Wall Street as Meatball, Golf Ball and Goof Ball.

Soon thereafter, it became clear that, like Icarus, Ling had flown too close to the sun. By the early 1970s, Ling’s empire was melting, and he himself had been spun off from LTV … that is, fired.

Periodically, financial markets will become divorced from reality—you can count on that. More Jimmy Lings will appear. They will look and sound authoritative. The press will hang on their every word. Bankers will fight for their business. What they are saying will recently have “worked.” Their early followers will be feeling very clever. Our suggestion: Whatever their line, never forget that 2+2 will always equal 4. And when someone tells you how old-fashioned that math is—zip up your wallet, take a vacation and come back in a few years to buy stocks at cheap prices.

-From Warren Buffett’s annual letter to Berkshire Hathaway shareholders.

Read the full letter