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How one boomer put faith in stockbrokers, trusted more in himself and retired rich enough

It's not just what advisor Karl Thunemann trusted but what advice he took-- and that $15,000 from his mother-in-law

Monday, June 2, 2014 – 2:41 PM by Karl Thunemann
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Karl Thunemann: He probably didn’t know what to do with a client who wanted to talk in depth about everything. I stopped hanging around the office.

Brooke’s Note: Once I read veteran writer Roger Angell’s article: This Old Man: Life in the Nineties in the New Yorker in February, I couldn’t get the exceptional piece out of my mind. It seemed like a story that would have already been written 1,000 times by somebody, somewhere. It was about being old, and what it was like to get there. As an editor, I felt like there was a lesson to take from it that I could confer upon RIABiz from the article by that 93 year-old man. Then it occurred to me that RIABiz had the investing, ex-investment industry equivalent of Roger Angell in its writing stable in the person of Karl Thunemann. See: Why I moved my account from Schwab’s RIA and what Chuck could do to improve Schwab Private Client. I can’t exactly describe the relationship of Karl, 70, to money but he does it while holding his nose and with a gleam in his eye. Read what he writes carefully and you might come away with insights that you’ll never forget. It’s the first in a mini-series of Karl’s adventures through retail financial advice that ended with him being a client of a big RIA.

Can everybody pinpoint the day on which he or she became an investor?

For me it came on a late spring day in 1967 when I took a job with Mutual Fund Associates in San Francisco. It was a subsidiary of Putnam Investments, but sold a wide variety of funds in offices sprinkled throughout California. I don’t think I viewed myself as an investor, despite the impressive titles they conferred on me. I was there for two-and-a-half years, starting as assistant administrator of financial planning and winning a promotion when my boss moved on.

My job was pretty simple. I wrote letters to clients on behalf of the agents who were wooing them, giving reasons they should sell their individual stocks and bonds and buy mutual funds. These letters were almost entirely boilerplate, accompanied with graphs that showed how one would have fared by investing $100,000 in a mutual fund and making withdrawals at 6% annually. Those were the days.

It didn’t last long. I felt like a fraud. I noticed that my vocabulary was shrinking under the assault of boilerplate. When I projected the generous contributions Putnam was making to my retirement account, I determined that by the time I was 42 I would have a quarter-million dollars, which in those days seemed like a lot of money. (At 6%, $250,000 would yield $15,000 a year.) This realization was frightening: I would be a consummate boilerplate-producing machine, no doubt as doomed to obsolescence as the amazing IBM Selectrics that produced our correspondence. So I gave my notice. The stock market started to slide. I took the money and ran.

Investing happens

Soon, I was too poor to think of myself as an investor. I rarely thought about it for several years. I took a job at a community newspaper in Kirkland, Wash., thinking I was just passing through. Who could think otherwise? The starting pay was $120 a week. My wife and I had one child and another on the way. My wife took the children to the well baby clinic. Lentils and beans were staples at our table, along with jugs of Red Mountain burgundy.

But somehow, without my recognizing it, investing happened. My mother-in-law ponied up the down payment on a $15,000 house—not that much, but a fortune to us. Someone said the structure used to be a chicken coop, but we called it a ranch burger with mayonnaise, in deference to the white trim that girdled the roof. When it came time to sign, we discovered the monthly payments would be a budget-busting $168 instead of the projected $155. I wanted to walk away, but my wife talked me out of it. Just like that, we were inside the real estate bubble. What a ride it was.

Fifteen years later we bumped into a Dean Witter agent while shopping at Sears. I can’t remember: Did he even have an office, or was he just standing in the aisle chatting people up? We started talking, and almost on impulse we decided to refinance the house and spend the proceeds on sending my wife and the children to college. The money was mainly invested in Ginnie Maes. The money rolled in every month, and property values kept going up. See: One-Man Think Tank: When Wall Street has investors’ 'best interests’ at heart, watch out.

Occasionally I would visit the modest Dean Witter office in downtown Bellevue for an update. It was so unremarkable have no recall of the interior. I can only summon up an image of the cramped parking garage that filled the ground floor. Things went well. Everyone graduated. Property values kept rising, we were able to ride the bubble to a better house and refinance several more times to supplement my meager income. We gradually lost touch with the agent, and he never asked about our other investment needs. I don’t even think of him as having been my broker.

A father’s legacy

And then … well, pardon me for this digression. My father had thought of himself as poor, and maybe he was. For him, dealing with money could bring out anger, rage and an uncommon stinginess. I began noticing this in myself at one of those ’70s workshops where we were invited to imagine an ideal moment in our lives. I immediately flashed on a day when I was a college student. I had a fresh pack of cigarettes, bus fare to San Francisco, and enough money for a cheap dinner in Chinatown. All my needs were met: I would be footloose in a fabulous city. I was almost broke, but money wouldn’t be an issue.

Pleasant though it was, this memory ignited other recollections of all the anxiety I associated with money. We were poor, and when I paid bills I was apt to storm around the house, pushing things over and swearing. My wife would take the children and leave the premises. It was one of those weird tics in life, where we wind up emulating behavior we loathed and feared in our parents. I recall a particular day when I was alone in the house. When all the bills were paid, I stomped about, swearing and smoking cigarettes, when suddenly it dawned on me: Something’s wrong with this picture. The bills were all paid. We had money for food and a bit more. It was time for a change.

So I set about deliberately changing my attitude toward money. Oddly enough, it extended to generosity—if not picking up the bill when dining out with friends, at least making an open-handed contribution when it came time to settle up. This change was not as simple as it sounds. It took a long time to settle in, long enough for me to notice how my children had been affected by my behavior and attitudes. My son and daughter had very different strategies to avoid this anxiety. He spent money as soon as it came into his hands. She managed to avoid having any money at all. It took years for me to make amends, and years more to see changes blossoming in them.

This experience enabled me to begin taking a long view of money. I could see it as an interesting medium rather than an extension of my lifelong struggles with my father. Without that change, I don’t think I ever could have become an investor — someone who plunks capital into investments with the hope of earning a financial gain. See: A terrible loss in the RIA business of the original breakaway broker.

Pot of jam

And then, when I was finally ready for opportunity, it arrived in the dour personage of John M. McClelland Jr., publisher of a family-owned newspaper in Longview, Wash., a timber town on the Columbia River fifty miles north of Portland. Determined to make his own mark on the state’s media capital, McClelland headed to Seattle. He bought up the little paper I worked for, along with a larger paper in neighboring Bellevue, and started publishing The Daily Journal American.

Longview Publishing Company was a profitable but staid company. It made modest contributions to its employee stock ownership plan. The company was closely held, so the value of its shares was calculated by a complex, arcane formula that only a CPA could love. If you left the company’s employ, it had the option of redeeming your vested shares at the current valuation and paying it out when you left. But it wasn’t required to shell out until you turned 65. This was the company’s entire retirement program. It was hard to believe it could ever amount to anything. See: First Command’s Marty Durbin retires — well after his scandalized IBD went RIA to rehab its image.

It was exciting to work for an upstart newspaper. But given the modest pay it offered, the Journal American newsroom couldn’t compete for talent with other Seattle-area papers covered by well-armed contracts with the American Newspaper Guild. There came a day when six reporters and editors who had departed were invited to meet with the Longview people. Their vested ESOP accounts averaged $9,000. In guarded—and legally required—language, the owners tried to persuade them to leave their money in the ESOP. All but one decided to take the money, a fact that management announced during a “so long, suckers” parade through the newsroom. See: RIAs are set to capture chunks of the $26 billion that GM is spinning out of its pension plan.

Macheezmo Mouse and other investments

A few months later, Longview announced that it was selling the JA and another paper in Port Angeles, Wash. As a result, our ESOP evaluations quadrupled. We were aboard the express elevator, traveling through a loophole secured by the newspaper lobby. In the years this company owned our paper my ESOP account—still illiquid and not diversified—escalated well into six figures. And it paid to stay. As employees continued to move to more lucrative jobs across the lake, they forfeited their unvested ESOP assets, which were doled out to the survivors. See: A refresher on how an advisor should approach the needs of clients as they near retirement.

The new owner’s dreams of empire never were realized. So it abolished the ESOP, converting the assets to 401(k)s, in preparation for selling its newspapers. The gravy train had completed its run, leaving us with substantial tax-sheltered accounts that were both diversified and highly liquid. This was to be the foundation of my fortune, enough to push my wife and me comfortably into — as I was later to find out — the mass affluent. Whenever I heard experts saying that for most families their homes were their biggest assets, I just smiled.

As business editor, I began thinking I might really become an investor. I dabbled in some offbeat stocks. The reporters who worked for me ridiculed my small investment in Macheezmo Mouse, a Portland-based chain of health-minded Mexican restaurants whose P&L sheet was chronically malnourished. It went out of business, but I see where the owner is fixing to try again. I think I’ll sit this one out. There was Wild Oats, the natural supermarket chain trying to challenge Whole Foods that instead was gobbled up by Whole Foods—and not at a premium.

Index funds

OK, so I was a hopeless dabbler. But then I met a man who changed the way I thought about investing. He was a seasoned broker at what was then Salomon Smith Barney, and he dropped into the newsroom to sell me on his brainchild: He would create a stock index of publicly traded companies in the Seattle area. We would print the results each week, and could use the data in our reporting. See: A careful look into whether CalPERS is ticking along or a ticking time bomb.

I put him off. It seemed like a lot of work for an obscure outcome. But he was persistent. I capitulated. He did all the work—without charge—and the data added a little zip to our news coverage. It brought more attention companies based in our circulation area including Microsoft, Costco, Paccar, Puget Sound Energy, plus Seattle-based companies we liked to claim. Hundreds of Boeing engineers lived or worked in our area, and family members who still ran Nordstrom lived in our toniest suburbs. It was a great time to learn about investing. And with savings and loan association Washington Mutual spreading itself thin across the nation. Who wouldn’t claim it?

Soon I had my eye on an obscure little bank that was based in Bellevue. First Mutual Savings Bank kept opening new branches. I knew the people who ran it (it would become the only company I ever held whose officers I knew personally). From the early to mid-1990s, the stock seemed to rise annually by 10% to 12%. Thinly traded, yes, but it looked like a stealth growth company. Of course I couldn’t own it while I was business editor. But eventually I would be free, and this well-run company would earn a spot on both my lists of good and bad investment decisions. But more about that later.

Blinders off

I became friends with my new index keeper. He was far more than a broker. His stable of clients included artistic entrepreneurs as well as wealthy suburban corporate types. He was active in community service, a supernumerary for the Seattle Opera, a pilot and a yachtsman. He did not favor passive investing. He was a value investor, and a contrarian. While we worked together he passed books and lore along to me. He was a big fan of Benjamin Graham, Warren Buffett’s legendary mentor. I gobbled up his book, The Intelligent Investor, first published in 1949, but bogged down in his earlier tome, Securities Analysis (co-written with David L. Dodd), which was just too technical for me. I wanted to read summations of this work, not the dense original stuff. See: How one big contrarian money manager is gearing up for 2012.

And then—suddenly and finally—I was free. I left the paper at age 52, after years of increasing estrangement from management. I didn’t want another job. I wanted to be free of the blinders that come with journalism. I wanted to know how not working felt. I wanted to look into the accounting procedures that would enable me to tap my 401(k) without paying stiff penalties. As it would turn out, I was through working full time.

Soon I rolled my money into an IRA, and my index-keeping pal became my broker. And more than that. Almost as soon as I put in my resignation, my pal announced that he was launching a startup company to educate investors. His partner was a psychologist at the University of Washington. Come to work for us, my friend urged. Finally I agreed to work as a half-time consultant. My pal put me into a portfolio of stocks and mutual funds. See: Look at the benefits, but beware the dangers, of Roth conversions.

Off course

At first my involvement was minimal, although I asked him to pick up 3000 shares of First Mutual. At less than $10 a share, this was not so outrageous. I liked visiting the Salomon Smith Barney offices. They were in one of Bellevue’s few glass high-rises, with views of Lake Washington and—on a clear day—Mt. Rainier. The parking was underground, and I would whiz down in one of the snazzy elevators with my validated ticket in hand. See: Why I moved my account from Schwab’s RIA and what Chuck could do to improve Schwab Private Client.

My broker/employer whimsically named his new company Investorship, and bought a small yacht to symbolize it. I pictured myself lolling on the poop deck and dropping a hook and line into the lake while dreamed up big ideas for the company. But I wasn’t really a nautical type, and after 17 years of retirement, I have yet to go fishing.

My employers had great ideas about investor psychology, then a new discipline that was becoming all the rage. A few times they were thisclose to striking a deal with major companies to provide seminars for their employees and/or clients. But it never quite happened. See: What they do teach at Harvard Business School that’s worth learning even after banking monetary success.

I began to notice that my advice was going off course in relation to where the partners were headed. After 18 months, I resigned, with the parting suggestion that they should start making money and stop paying consultants for ideas they didn’t need.

On my own

Soon after, my broker retired from Salomon Smith Barney, bequeathing my account to a broker I never really connected with. He had a little battery-powered perpetual motion machine on his desk. He was a pleasant guy, and probably didn’t know what to do with a client who wanted to talk in depth about everything. I stopped hanging around the office.

A friend of mine had been passed off by our broker to some agents who worked as a group. Soon they were joined by an affable, service-minded woman who had been an assistant to my broker. Now she had her license. I liked her. She had often reminded of details I had overlooked. She might not be seasoned, but she seemed trustworthy. It occurred to me that I ought to transfer my account to her. If I had, I probably wouldn’t be writing this now. But for some reason I never did. See: Dorie Rosenband’s tough questions about being a woman broker led her to become an RIA.

Instead, when the market hit a rough patch, change was instigated by my “new” broker. He wanted me to sell my largest holding—a big chunk invested in the contrarian fund managed by David Dreman—and buy a fund run by another investment management company. True, the Dreman fund had experienced a couple of rocky years. But to sell it now, when the market seemed poised to down, was to sell at a time when Dreman was poised to shine. The fund recommended by the broker struck me as lackluster. So his suggestion seemed inimical to my best interests. All it would do is generate sales fees—a good payday for the broker—and heartburn for me. See: A breakaway story, old-school style.

You’re Dreman

I was angry, but I kept it to myself. I didn’t follow his advice. Oh, no— and I was shocked to catch myself thinking that I could do better on my own behalf. It was 2000. As I recall it, Dreman’s fund posted a gain of more than 60 percent in a year the market was sharply down. I packed up and left Salomon, my portfolio under my arm. I didn’t know yet where I was taking it, but clearly I had decided to become an actual investor.

Look for Karl’s next chapter in July.

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