Dear Mr. Berko:
I am grateful to my college that gave me an education, which helped me earn a large amount of money. I just sold my business, and I will create a $2.6 million endowment fund to be presented to my college 21 years hence when I will be 66. I have personal reasons for waiting until I’m 66, which I don’t wish to discuss. I want this $2.6 million to be invested so it could be worth $10 million in 21 years. Would you please recommend about 25 or 30 issues each paying in excess of 6 percent that I can buy, have the dividends reinvested and in 21 years, give my college back a little of what they gave to me? I don’t want to hire a money manager, also for reasons I don’t wish to discuss. I’ve been reading your column before I entered college, and you are among the few professionals I trust.
A.S., Gainesville, Fla.
Dear A.S.:
A strange fellow, but I applaud your efforts! But before I respond, you need to know that most colleges raise money not to improve education standards but to become bigger. They hire well-known academics who couldn’t teach a dog to “sit” as a ruse to attract more students. More students mean a larger campus, more buildings, more administrative personnel, etc., ad nauseam.
Colleges spend big bucks on sports programs to lure alumni contributions for luxurious student union buildings, state-of-the-art sports facilities, elegant dormitories, new ritzy stadiums, huge glitzy auditoriums and so on. Most colleges spend a fraction of their budgets on teaching.
On average, universities receive about $8,000 in tuition from each student, plus $10,000 from the state – and only spend $3,000 per student on instructional costs.
If I were the president of a large college, with the power of a czar, I could easily reduce costs by a minimum of 20 percent the first year, 2 percent to 4 percent over the next few years, while still improving the quality of its education. So consider an addendum to your endowment that the money only be used for teaching salaries, not administration or building programs, and make sure it forbids prima donna professors who reluctantly teach one course a semester.
I don’t know where the stock market will be in 21 years, as I did when I was much younger. I can’t tell you that UAL, Dell, Office Depot, Microsoft or Intel will be worth more than they are today, though I think they will be worth less. I can’t tell you where inflation, interest rates or the political climate will be in 2031, though I believe all three will be worse.
We are in a new era unlike the investment climate of the past 75 years, when autos, steel, airlines, construction, heavy machinery, defense, etc., drove the economy. And today’s high-tech economy, cell phones, PCs, software design, biotechnology, electronics, semiconductors, Telecom, etc., may not be where your portfolio should be in the future. There is no “one size fits all.” The glory days of yesteryear have come and gone just like the change of seasons. People, circumstances, politics and expectations change, and the only constant is change itself.
Now get this in your head: You have $2.6 million that must have a money manager who has the skills to nurture that money with the care and patience of a Japanese gardener. Don’t be a “thick head.” Between the 1960s and 1990s, a “buy” handhold strategy of chemical companies, railroads, REITs, drug companies, utilities and retail stores with good revenue growth would have done well with near zero supervision. Not now!
The market for the next 21 years will have entirely different metrics than today’s market. So you would be derelict in your responsibility if you failed to hire a money manager. And I’d be derelict in my responsibility by giving you a list of 30 stocks because I can’t see 21 years into the future.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com.
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