TAKING STOCK: Teen investor

Dear Mr. Berko:

I am 14 and have saved $3,300 in the last three years. I help my Dad in his construction business, mixing concrete and unloading trucks of lumber, plywood and plasterboard to build homes, dig footers and operate a backhoe or a forklift. I don't like this work, but I like making the money. I want to invest $1,000, and I already own 19 S&P 500, 22 shares of Pepsi and 25 shares of McDonald's. My grandfather thinks I should buy 100 shares of Adams Express. My Dad and Grandfather read your column and sometimes show me the advice you write. So I asked them if I could write you about Adams Express for advice. Please tell me about this stock and if you think this is a good stock to own. I am a long-term investor so if you don't want me to buy Adams Express, please tell me the name of a stock that you think is good. Thank you.

Sincerely, AT in Kankakee, Ill.

Dear Young Man:

You're learning it's a lot easier to make money using your head than your back. Your letter was neatly hand-written, well worded, properly punctuated with good sentence structure and without a misspelled word. One day, I hope we can meet. I'd like to shake your hand and take you and your family to dinner, which would be a treat for me.

Adams Express (ADX-$10.27) has been around since the1840s. Mr. Adams began his business in Baltimore as a citified Pony Express delivering mail, important documents and small packages to people, businesses and municipalities in the Northeast. But in the early 1900s, ADX began to exit the business, liquidated its operating assets, invested the proceeds in the stock market and became a closed end fund. Obviously, timing wasn't the best because a few years later (October 1929), the stock market crashed. ADX survived, and over the past 82 years, according to Forbes Magazine, it has averaged a 9 percent return, right in line with the long-term performance of the stock market. If you know the "Rule of 72," you'll recognize that a 9 percent annual return doubles every eight years. So if you invested $1,000 in ADX today, and if the shares perform in the future as they have in the past, your $1,000 would be worth in excess of $500,000. But in 82 years, you'll be 96, so what would you enjoy spending that money on?

While ADX has averaged 9 percent annually for 82 years, its 3.9 percent annual return for the last 10 years has been less rosy. And during the last 5 years its annualized return was 1.4 percent. This is a fine company with a $1.2 billion portfolio in big companies like Apple, Oracle, McDonald's, Pepsi, Intel, Caterpillar, Procter & Gamble and Chevron to name a few. ADX is run by Douglas Ober, who for the last 32 years received a modest $525,000 salary for his very modest performance. The portfolio turnover during the last five years has been under 20 percent, so it's apparent that Mr. Ober likes to keep his stocks. I'm reluctant to disagree with your grandfather, and even though the shares trade at a 15 percent discount to net asset value, I can't recommend ADX. ADX is as about as exciting as a Wagnerian Opera. But Lots of older folks own Adams Express (your grandfather may also) because of its unique and consistent dividend payout. The board of directors has promised to maintain an annual cash payout of at least 6 percent of the stock's price, so even in a bear market, all shareholders can depend on dividend checks. And ADX has not missed a dividend in 80 years.

About 7 months ago, I wrote a column on YUM Brands (YUM) now trading in the high $60s. The Chinese are clucking bonkers over Kentucky Fried Chicken. Wings, legs and other chicken parts are selling like hot cakes, and in a short while, there may be more KFC units in China than there are McDonald's and KFC units in the U.S. YUM is more suitable for you. Ask your dad if you can buy 14 shares.


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 website at www.creators.com.

© 2012 Creators Syndicate Inc.

Published: Wed, May 30, 2012