My Dumbest Investment

The year was 1961.  Vending machines were a HOT play that year, "expected" to take over the world.  At the time there were major differences between under the counter broke makers and those with memberships on such as the then functional New York Stock Exchange with its specialists and fair and orderly publicly accessible continuous auction markets.  As a newbie, "of course" I opened an account with an under the counter broke maker, Amos C. Sudler & Company.  Likely you've never heard of them because they've been defunct and inoperative for decades now.  But at the time they were a "big deal", affiliated with the fraud system which generated such scams against the investing public as "Magic Mountain" and other machinations of a fraudulent and later bankrupted "banking" organization run by Allen Lefferdink, a there local hoopdedoo promoter of scams and frauds.  Quaint historical note about Lefferdink:  it was his incomplete failed construction of an "Allen Park Hotel" on the river through that town which was later used as the foundation for the "cocaine and granola for lunch bunch" District Attorney and his Justice Center for the town.
      One of Sudler's underwritings (they sold shares of stock in the company to naive public "investors") in the HOT vending machine market was a little Californicatian company called "Vendaversal".  Supposedly the company manufactured vending machines and sold batches of them to people who wanted to install numerous of them all over the place.  I bought some shares and then some more and then some more until I had something on the order of 60% of my then total net worth involved in that one stockholding.  The Crash of 1962 was the first part of the wakeup call on that dumbest investment.
      When I got a bit queasy about my excessive holdings of that one company and went to sell the large for me holdings, the broke maker involved showed me a piece of paper on which he wrote a positive number "as if" that were going to be the next "earnings report" from Vendaversal.  Instead, the company filed for bankruptcy within a few weeks, the broke maker insisted that its price quotes were "subject" (to finding some other suckah to buy), and the then already criminally corrupt "regulatory" agency SEC refused to do anything about the abusively fraudulent practices of the broke maker.  Already then in 1963, criminally corrupt with the industry and it had been less than thirty years since their creation as a "regulatory agency".  Final resolution of that fraudulent situation was when the criminal broke maker who sold it all to me paid ONE DOLLAR for my entire holdings of Vendaversal "so I could take the tax loss".  As if the court records of the bankruptcy itself wouldn't alone prove the tax loss and the only point was to remove my memento of abject stupidity from my possession and into his as a "glory piece" on how effective he had been as a fraud and thief.  He later showed up as part of a different broke maker slopperation in Salt Lake City Utah peddling other kinds of trash paper.
      Same thing of course occurs with the bankrupting Die Rectors of companies being allowed to remain on the Bored of the post bankruptcy same company, after wiping out the earlier group of stockholders, and to "serve" on other companies so as to produce similar destructive results for cash paid public stockholders.  On an immediate basis, the only thing I got out of the Vendaversal "investment" was a cute little story about another customer who bought some shares, saw the price advancing, bought some more, saw the price advance some more, bought some more, saw the price still higher, and then tried to sell.  His broke maker then said to him "TO WHOM?"
      Recall that the severity of the harm to me from this dumbest investment was the excessive percent of my total resources that I had involved in it.  As a result of that "experience", I established money management rules to limit the consequences of any repetition of incompetent managers and the fraud and theft in"securities" industry wiping out *too much* of my resources on any one scam.  One can't rely on finding "some other suckah" to bail oneself out of bad deals via such pretenses as "stop loss orders".  One simply can't put *too much* of one's resources into *any* one thing when one wishes to survive the process.
      So the trading rules that I developed assure that I shall not put any more than 0.25% of my total portfolio value (my two bits worth) into any one purchase at any one time, and never more than 1.00% in total into subsequent purchases on a significant scale down from an initial purchase price, subject to full review of the financial capabilities of what I'm buying at each step.  I also review every potential purchase before making it in the documents on the SEC's EDGAR web site (the one part of their operation that actually functions usefully).  I reject everything that is already de facto bankrupt on the basis of their "book value" consisting of nothing but "excess of price paid over fair market value of assets acquired" euphemized as "Goodwill", swept under the rug as to identity but clearly nothing of relevant value to the business "Other Assets" or "Sundry Assets" (which sound to me like the sun dried arses of the munchiment), and all of the other scams and deceptions of Genuinely Asinine Accounting Pretenses.
      When a company is already fraudulently transferring the property of continuing stuckholders to their criminal cronies in the stock manipulation busymess under the euphemism "stock buybacks" to such an extent that the net Greenmail Paid is more than 40% of the remaining Net Tangible Equity they too are automatically excluded.  That current rule was increased from the original 20% because of the widespread prevalence of the felony theft practice of "stock buybacks" since 1987 when it resumed being promoted by His British Lordship the criminal mastermind Greedspan, after having been the primary cause of the mass bankruptcies during Great Depression One, but I continue deducting the per share amount stolen from anything I might otherwise be willing to pay for shares of companies in that 20-40% "gray area".
      I also make significant adjustments to the maximum prices that I'm willing to pay for shares when insiders are embezzling ownership under the euphemism "stock options" using a formula which takes into account the prior history of frauds approved by their Auditors of Record, the questionable nature of members of their Bored of Die Rectors, along with the absolute percentage of current outstandings which are committed to such "authorized embezzlements".  I also am supposed to avoid recent HOT stocks which had price blowoffs in excess of tripling their prior two year lowest prices, although I have recently been hit with yet another bankruptcy (to the extent of 0.75% of total portfolio value) by one of those blown off and now dying scams.
      So I'm doing what I can to learn from my dumbest investment Vendaversal.  Transliterated to its true meaning, the company name became "When The Worst Of All" happens in accordance with Murphy's Law that "anything that can go wrong will at the worst possible time and in the worst possible way".  I have applied what I learned to my subsequent investing activities.  At the time of this writing in October 2015, I've been at this for more than 54 years now and doing somewhat better.

     Bob Grumbine

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