X-Message-Number: 1120
From:
Subject: Money Update
Date: Sun, 9 Aug 92 22:30:08 PDT
AUGUST 9TH, 1992 MONEY UPDATE
Last month, the recommendations of the Patient Care Trust Fund
Advisory Committee were not followed with the exception of the
purchase of the TRW shares. Note that the Committee has not received
confirmation of the purchase of these shares but we will assume this
was done.
The amount of money involved was 51,295.421x10.12 = 519,109.66
dollars according to the July 9th information that I have on the
Benham Adj Rate Govt Sec Fund which we requested to be closed in our
last recommendations. This number does not include the $4,269.03 in
the Pacific Horizon Funds that we also requested to be closed nor the
$100,406.85 that entered the Benham Adj Rate Govt Sec Fund on July
22, a week after our recommendations. I am not including this
additional money in order to be conservative in my estimates.
By not following our recommendations, Alcor earned 6.3% on this
money, or 519,109.66*.063/12 = $2725.33.
If our recommendations had been followed, the following amounts would
have been earned:
$100,000 would have gone into the Fidelity Low Price Stock Fund at
14.67; it is now at 14.92. This would have been a gain of 1.704% =
$1704.16.
$100,000 would have gone into the Benham Income & Growth Fund at
13.10; it is now at 13.28. This would have been a gain of 1.374% =
$1374.05.
$319,109.66 would have gone into the Scudder Short Term Global Fund.
It earned 10.09%/12 = $2683.18.
The total potential gains were $1704.16+$1374.05+$2683.18 = $5761.39.
Alcor's gain was $2725.33 was a loss of potential earnings of
$3036.06 or $36,432.72 annualized. THREE Alcor salaries were lost.
Please note that I have not compounded our losses monthly, I just
multiplied them by 12. For example, Scudder Short Term Global earned
10.09% when you took the amount earned and multiplied it by 12, but
it earned 10.57% when you took the amount earned and compounded it
twelve times. Or to put it another way, if I compounded $5761.39 and
$2725.33 monthly, the loss would have been $39,159.38, not
$36,432.72.
Last month, the recommendations of the Endowment Fund Advisory
Committee were not followed.
The amount of money involved was $43,351.92+$104,427.30+$231,693.90 =
$379,437.12.
By not following our recommendations, Alcor earned 3.2% on
$43,351.92, 6.1% on $104,437.30, 6.3% on $231,693.90 or values of
$115.61, $530.89, and $1216.39 for a total of $1862.89.
Note that these numbers may be a little inflated as I am using the
percent earned from Carlos's memo of July 29th and when I checked the
yield of 6.3% on Benham Adjustable Rate Government Securities Fund, I
was told it was 6.19% over the past thirty days, not 6.3%. I was not
able to easily check the John Hancock numbers, because copies of the
Endowment Fund statements were not provided, only a summary was
provided which is less useful. We will leave the numbers a bit
inflated to be conservative. In the future, Alcor should provide the
Endowment Fund Advisory Committee with copies of the relevant
financial statements as well as to the executive officers as was
recommended last month.
If our recommendations had been followed, the following amounts would
have been earned:
$200,000 would have gone into the Scudder Short Term Global Fund. It
earned 10.09%/12 = $1681.67.
$44,859.28 would have gone into Duke Power, DUK, at 35 5/8; it is now
at 36 1/8. This would have been a gain of 1.404% = $629.82.
$44,859.28 would have gone into Southern California Edison, SCE, at
45 1/4; it is now at 46 7/8. This would have been a gain of 3.591%
There was an additional dividend paid of 1.556% for a total gain of
5.147% = $2308.91.
$44,859.28 would have gone into Dominion Resources, D, at 39 1/2; it
is now at 40 1/4. This would have been a gain of 1.899% = $851.88.
$44,859.28 would have gone into Kansas City Power & Light, KLT, at 23
1/2; it is now at 23 5/8. This would have been a gain of .532% =
$238.65.
The total potential gains were $1681.67 + $629.82 + $2308.91 +
$851.88 + $238.65 = $5710.93. Alcor's gain was $1862.89 or a loss of
potential earnings of $3848.04 or $46,176.48 annualized. Another
FOUR Alcor salaries were lost. Please note that in addition to not
compounding the potential losses monthly, our four utilities generate
an average of 1.33 dividends a month, so on average we would get more
money from dividends than we did this month with just 1 dividend.
In conclusion, Alcor lost a total of $6884.10 potential gains or
$82,609.20 annually. This is equal to nearly SEVEN Alcor salaries.
Of course, our recommendations would fluctuate in performance month
to month, especially our equity investments.
In addition to the financial recommendations that we made last month
which we still want implemented, our committees have the following
recommendations:
1) The Endowment Fund Advisory Committee should be getting copies of
financial statements as the Patient Care Trust Fund Advisory
Committee does. Summaries are not as useful. And as we suggested
last month the executive officers should be getting copies of the
financial data on both Funds.
2) It is the opinion of the Committees that delaying our
recommendations for a month is very costly to Alcor. Alcor does not
have so much money that it can afford to be throwing away such large
sums of money. Either the board should study up on basic financial
matters so it can approve our recommendations when they are made or a
Corporate Financial Officer (CFO) should be appointed who DOES have
enough financial knowledge so he can approve our recommendations when
they are made. Note that the board always has the option to reject
our moves a month or more down the line, and then ask for certain
investments to be liquidated. They shouldn't feel that just because
they approved a utility to be bought today that they can't ask for it
to be liquidated next month. If they understood that they had this
ability, perhaps they wouldn't subject Alcor to these costly delays.
3) The details of the budget that Alcor is following should be made
available to the board of directors. While I understand that they
haven't been typed into the computer yet, they can simply be
submitted to the board of directors on paper. The board needs to be
told how money will be spent if it can advise us on how it should be
spent. [I was told this was done.]
4) The $193,967.99 of Property & Equipment in the Patient Care Trust
Fund needs to be detailed so the Advisory Committee knows what's in
it.
5) Since both Committees recommended that the Benham Adj. Govt Sec.
Fund be closed last month, Alcor will obviously have to end its
practice of putting new money into it. Money should be placed in the
Scudder Short Term Global Fund instead.
6) Alcor's current policy of allowing only about 10% of the Patient
Care Trust Fund to be in equities should be changed. As Albert
Margeson, senior vice president of New England Securities in Boston,
said on page 33 of the August issue of Kiplinger's Personal Finance
Magazine: "The answer on how to invest for a child's eventual
retirement is simple: 100% equities. Diversification, in my mind,
is a substitute for time. There is no reason to accept a lower
earnings class than equities if you have 20 years or more to go."
Unless Alcor is planning on going out of business in the very near
future, it should dramatically increase its exposure to equities.
Even the best predictions for technology show that it will be decades
before Alcor will be able to revive our patients. So why is Alcor
cutting its exposure to equities to near zero? This makes no sense.
The Patient Care Trust Fund Advisory Committee recommends that the
10% limit be raised to 50% for now just to start moving the Fund
towards a more reasonable exposure to equities.
Enclosed is some information on the risk vs. reward on equities, note
that it shows that the downside potential of a portfolio comprised of
nothing but long-term government bonds historically produces the
poorest average return yet has more downside potential than several
mixtures of stocks and bonds.
[If anyone wants a copy of this information, I'll fax it to them]
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