X-Message-Number: 1142
From:
Subject: re: Money Update
Date: Fri, 14 Aug 92 01:37:56 PDT
First I will respond to the following accusation by Alcor's current
President:
"According to Eric those price increases ranged from 0.532% to 3.59%.
He then annualized these gains in order to come up with a huge dollar
amount of "lost potential". If we took that seriously, then it would
mean that either: a) Eric is expecting us to make quick gains by
jumping in and out of equities, or b) Eric thinks that it is possible
that a blue chip utility stock is going to appreciate in price by
43.09% over the next 12 months.
Not bloody likely in either case."
What Carlos has said is that I claimed that the 3.59% price increase
when multiplied by 12 would average out to 43%. This is far from
what I claimed, I claimed that the average of all the transactions
should be multiplied by 12 to get an idea of the money that was lost.
While I didn't give a breakdown for blue chip utility stock price
appreciation, Carlos would see that they average to a 1.404% + 3.591%
+ 1.899% + .532% = 7.426%/4 = 1.8565% which is considerably less than
a 3.59% price rise. Of course, a total average of all our gains from
all the transactions would be even more representative. The total
average gain for all the transactions was 1.28%.
Carlos's insinuation that I thought that a blue chip utility stock
would appreciate in price 43.09% per year is an example of the quite
fraudulent behavior that I can not tolerate in the leader of Alcor.
"Finding good investments takes time and is much better done by
people who already have expertise and are themselves active
investors."
I do agree with Carlos here.
"That's why the board established the advisory committee."
Here's Carlos distorting the truth again. He is implying that the
board was concerned that it was doing a poor job managing Alcor's
money so looked for help in the form of two advisory committees.
This is the NOT the case. The way the Patient Care Trust Fund
Advisory Committee was formed was that I recommended on paper that
Courtney Smith be put in charge of the Endowment Fund now. Carlos
has a thing about managing the Endowment Fund and so instead the
Patient Care Trust Fund Advisory Committee was formed the following
month. Who initiated the Patient Care Trust Fund Advisory Committee?
The board? NO! It was me.
The month after our Patient Care Trust Fund Advisory Committee
submitted its recommendations, I suggested that an Endowment Fund
Advisory Committee be formed. Carlos tried a few maneuvers to
deflect this idea, saying things like we could just submit such
recommendations informally. He didn't want an Endowment Fund
Advisory Committee formed. Luckily, I persisted and it was formed.
Who initiated the Endowment Fund Advisory Committee? The board? NO!
It was me.
I should point out that our Committees will generate returns that are
easily double or triple what Alcor was earning in the past. We are
not talking about increasing Alcor's rate of return by 1% or so. The
returns that Alcor was earning were criminally low. These low
returns are the main reason that Alcor employees get paid so
pitifully little today. The fact that the board didn't recognize
that there was a problem and initiate a solution on their own is a
MAJOR black eye on the board's performance. They should apologize to
each and every employee for this error which has produced near
poverty wages for our employees.
Finally, I should point out that our Committees are being treated
like garbage with 1) our Patient Care Trust Funds Advisory
Committee's first recommendations being implemented a MONTH after the
board VOTED to approve them 2) no copies of Endowment statements have
been sent to us, just summaries 3) no details have been given about
property that the Patient Care Trust Fund owns 4) numerous phone
calls have not been returned or followed through 5) extreme measures
needed to be taken to get the initial information on both funds - on
the Patient Care Trust Fund I had to make FOUR phone calls just to
get incomplete data which I was then forced to make numerous phone
calls about before I got the complete story - on the Endowment Fund I
got so desperate that I asked the most influential person on the
board besides Carlos to get the information out of Alcor.
To put it mildly, if it wasn't for some labored efforts on my part,
neither Committee would have been either formed or been able to make
any recommendations. It is a farce to imply that the board has been
helpful to the existence of either Committee.
"But the fiduciary responsibility will always rest with the board of
directors."
This is an extremely stupid rule which I argued against in my money
update and at the board meeting. What Alcor is saying is that we
should have nine people with little or no understanding of managing
money decide how millions of dollars should be managed. If this was
such a good idea, then mutual funds would follow this example and
place people who know nothing about investing in charge of their
money. This is an incredibly foolish way to operate. People who
understand money should be in charge of it, and those who don't
understand shouldn't be.
HOWEVER ALCOR'S MONEY IS MANAGED, PEOPLE WHO DON'T UNDERSTAND
INVESTING SHOULD NOT BE IN THE DECISION LOOP ABOUT INVESTING.
"I agree with everything here but the last sentence. We didn't
ignore the recommendations presented at the July meeting, we just
declined to implement them instantly"
Here again Carlos is slanting the truth by implying that the board
finally approved our recommendations a month after we made them.
They did NOT. A half million dollars of recommendations related to
the Scudder Short Term Global Fund were ignored as well as the board
(or Carlos on his own, I'm not sure) deciding to buy a stock that was
not recommended by either Committee, Wellcome. I did pass out
information from the August 3, 1992 issue of Forbes pointing out that
Wellcome depends on two products for 45% of its current sales and a
larger slice of likely future profits. This article also showed that
Wellcome's hold on both drugs is uncertain due to legal challenges on
AZT and patent expiration problems on Zovirax. The AZT legal
challenges are severe enough that Wellcome is too risky to place in
MY portfolio, forget Alcor's portfolio. As usual, the board didn't
respond to the article because how can you ask questions about a
matter that you don't understand?
In other words, by buying Wellcome, Alcor gained risk while its
disapproval of Scudder Short Term Global Fund lost return. (The
Scudder Short Term Global Fund has virtually no chance of losing
money in any single month, forget about year. It is composed of
short term corporate and government overseas bonds.) More risk, less
return. That sure sounds like a sensible tradeoff to me -- NOT!
"(by the way, at the time the committee didn't present the board with
any material concerning its recommendations,"
Now here is where I start getting mad. The board didn't ask any
specific questions from us on the July meeting or the August meeting.
We would have been glad to have answered them. For example, before
not approving a half million dollars of Scudder Short Term Global,
the board could at least have asked us risk and reward questions
about it. Before approving our utilities, the board could have shown
that they knew something about utilities by asking why we didn't pick
different ones. To give you an example of how little research the
board did during the month period: in our recommendation we said that
because we couldn't find any no load utility mutual funds we would
buy some individual utilities. Well, during the month that the board
supposedly "thought" about our recommendations, not one board member
noticed that a no load utility mutual fund was launched before the
next board meeting.
The reason that I am mad is that the board is saying that it needs
more time to "think" about investments when it clearly knows nothing
about investing and all the time in the world "thinking" isn't going
to help them make rational investment decisions that are good for
Alcor. If they were so good in "thinking" in the first place, Alcor
wouldn't have had money in accounts that earned as little as 3.2% as
recently as the August meeting.
"At the last board meeting, we explained to the committee that if
they would just get their recommendations to us 10 days before the
meeting (rather than at the meeting),"
Of course we get the materials from Alcor necessary to make a
recommendation less than 10 days before the meeting. We depend on
end of the month bank statements to find out where Alcor's money is.
Alcor normally meets on the first Sunday of the month. I didn't
argue this point because I had already pointed out that the method
that Alcor uses of managing its money - the votes of people who know
nothing about money - is not a good idea.
"(Eric is one of the people who is greatly unhappy with my continued
tenure at Alcor."
Actually, EVERYONE in the Committees placed material against Carlos
in the first edition of Paul and Saul's book. We live in three
different states and range in ages from mid 20s to mid 70s. Alcor
has treated its investment advisory committees like dirt and we don't
appreciate it.
Eric Klien
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