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Gregory E. Spears
interviewed by Brian Hecht on September 20, 1995
"You can buy stock in some top performing companies for under $1,000."
Gregory Spears is an associate editor at Kiplinger's Personal Finance Magazine.
Tripod: Ten investment ideas for under $1,000, huh? Let's start with the first one. What do you mean by "build a blue chip portfolio?"
GS: You can buy stock in some top performing companies for under $1,000. Companies like Coca Cola, McDonald's, Wrigley's, Proctor & Gamble. These are all well-established market leaders that sell stock direct to the public. Or you can call a discount brokerage company called Kennedy Cabot at (800) 252-0090 and they'll sell you a single share of stock in any of these companies for the cost of the share plus a fee of $23.
Tripod: Is that $23 per share, or for the whole transaction?
GS: For the transaction.
Tripod: What would be the advantage of buying single stocks like that, for the young investor, instead of, say, mutual funds?
GS: The advantage is that you could do better than mutual funds. Only about 25 percent of mutual funds beat the market. The Dow Jones Industrial Average in any given years. And if you stick with really high-quality growth stocks and you buy a portfolio of five to ten, you have a good shot at making as much or more than a mutual fund.
Tripod: Number two is five-year Treasury notes. Why are those a good investment?
GS: They pay a pretty good yield right now. And the interest payments are exempt from state and local taxes. That means that they're paying more than money market funds right now. They're paying in the seven to eight percent range, and money markets are paying in the five to six percent range. So it's just a safe place to put that you know you won't lose because Treasury bonds have never defaulted.
Tripod: Locking into zero. I don't think everybody knows what a zero coupon bond is. Could you explain?
GS: Sure. A zero-coupon bond is one that doesn't pay any interest in the interim until it matures. When you get the money you put in, plus compound interest for the entire term of the bond all at once.
Tripod: So you can't pull out early and get, say, half of the compound interest?
GS: You can if you buy in these Benham Bond Funds. Their number is (800) 331-8331. And they require only a $1,000 minimum investment. So you can get in and out. The reason you would go into a zero would be to fund a specific goal in the future, like a child's college education in the year 2010. And you can put your money in and it would grow compounded at seven percent a year until you needed it. And if you put $1,000 in to this sort of a fund and let it go until the year 2015, or 20 years from now, your $1,000 would be worth approximately $4,200.
Tripod: So this is better for someone who has a firm idea of what their time horizon is?
GS: That's exactly right.
Tripod: Taking the plunge overseas. Everything that I've been reading says to stay away from global markets, that they're very unreliable. How do you evaluate that?
GS: In investing it's always wise to buy when others are selling. Sell when others are buying. Right now, for example, the Japanese stock market is at about 60 percent below its high of three years ago. And the Japanese government is doing everything it can to reignite that economy. The stocks over there are probably a pretty good bargain right now. Now, one way to buy international stocks is through the SoGen International Fund. Their number is (800) 628-0252. It's run by a Frenchman who is a bargain-hunting contrarian. And he has had excellent returns for 15 years, he's made an average of 17 percent per year. That's one of the best records among all mutual funds.
Tripod: Matching the funds to your goal? I assume that most people when they buy a mutual fund have some idea of their goal. How can you use that to your advantage.
GS: You want to buy a fund that is not volatile if you're planning to cash in soon. The Greenspring fund, whose number is (800) 366-3683 is investing a lot in real estate, which is depressed, the manager says it's ready for a rebound. They've done about 10 percent a year for the last five years, but with a lot less risk than the general stock market. That's because they buy companies with consistent money-making potential, and they don't go in for turnarounds or companies on the decline.
Tripod: Buying a computer. Do you consider that a purchase or an investment?
GS: I think it's an investment. At least Labor Secretary Robert Reich keeps telling everybody that they've always got to upgrade their skills. Personally, I couldn't do my job anymore without a computer and all these databases. So computers are more than $1,000, but in terms of computing power, they're a terrific bargain, of course, compared to what they were ten years ago. It's just that you can get so much power now that you used to be able to, that it seems like a good investment for the future.
Tripod: Taking a tip from Warren Buffet? What do we have to learn from him?
GS: You can buy the same stocks as the world's richest man, Warren Buffett. And, for example, the stocks he was really buying this year were Gannett, the nation's largest newspaper group, the charge card company American Express, and this bank in Pittsburgh called PNC Bank Corp. And this is strictly a matter of following what Buffett is buying, which he must report to the Federal Securities and Exchange Commission, once he acquires more than five percent of the common stock of any company. So you can just sort of follow him along and get what he gets.
Tripod: Is that advice that small investors can follow in general: picking a large investor and following their lead?
GS: Well, no, you shouldn't do it in general because a lot of large investors may be getting in and getting out. Warren Buffett is a guy who buys to hold. He likes companies so much that he sticks with them for decades. He just bought the Geico insurance company, and he's been investing in that company for over 30 years. So you don't need to know when to sell. When you buy with Warren, you're in.
Tripod: Paying down debts. This is certainly something that's on the minds of a lot of our members and readers.
GS: It's a good policy not to let your bank card balance carry over because they really clip you with the interest rate. So if you pay down your credit card balance in a sense you know exactly what you're going to make. For example, we talked to a guy in Texas who owed Sears, and they charged him 21 percent per month on an annualized basis. So if he throws them a hundred bucks, gets that balance down, he's effectively making 21 percent on his money, which is a very very good return.
Tripod: What about all these low introductory 6.9 percent rates?
GS: Yeah, they make sense, if you carry your balance. People switch their balance to a new card. And get a grace period at a lower rate. But the better policy, if possible, is to bite the bullet and not carry a balance on those cards. They really do eat you out.
Tripod: Taking a break. I suppose you mean a vacation?
GS: Yes. Right now, Canada -- their dollar is worth a lot less than the US dollar. We recommended this summer taking a vacation somewhere like the old city of Quebec, or you can go out to the Pacific Northwest and visit Vancouver and British Columbia. They're beautiful places, and your dollar will go about 25 percent farther in Canada that it would in the United States.
Tripod: And finally, just giving it away?
GS: A popular option for people who have a favorite niece or nephew, or maybe a grandchild. There's a mutual fund called Twentieth Century Giftrust that makes about 25 percent a year in return, which is phenomenal. But the only hitch is, the money you invest with them, you have to give it away to whomever you designate. So you'll never get that money back. And the person that you designate will not see that money for at least 10 years, or until, if it's a child, until they reach the age of majority --- whichever is longer. So you've got to wave bye-bye to this money. But you could really benefit somebody. And I think kids should fax this tip to their parents as they hint, because 25 percent compound over 25 years, I think that triples or quadruples in value.
Tripod: A lot of our readers are just graduating from college and are just beginning to think about investing for the first time. One thousand dollars sounds like the right amount of money that they might have kicking around. Out of the ten things that you've recommended, what do you think is the best deal for them? Buying Coca Cola stock sounds fun to me.
GS: I think that right now, interest rates are falling. And in that kind of market, bonds appreciate very dramatically. So probably, it would be the five-year Treasury, because you have the certainty of absolute safety. The Federal Government stands behind payment of those bonds and they've never missed a payment. In the meantime, if interest rates fall, these bonds are worth a lot more on the market if you unload them early. You can buy Treasuries direct from the Treasury by calling (202) 874-4000. Then you punch in a code, 241, and at the sound of the beep request application for a five-year Treasury note, plus a pamphlet -- instructions for completing a Treasury note tender. That means that it's an investment you can get into without paying anyone any commission at all.
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