Ralph and Al: All investments don't pay off
By Mark Wineka
Who better to talk about investments than Ralph Ketner?
In 1957, Ralph Ketner, Brown Ketner and Wilson Smith assembled a group of 139 people, including themselves, who agreed to invest in their new grocery store called Food Town.
Over the telephone, the men had sold a stake in their new company at $10 a share.
ìWe were the original telemarketers,îKetner said.
The investors put up as little as $50 or as much as $2,000. Before the store got off the ground, 14 people backed out, leaving 125 original Food Town investors.
For the first 10 years, the new company struggled and the value of its stock dropped from $10 to $6 a share. The grocery chain took off when Ketner bet the company on a low-price concept that created excitement among the buying public.
You probably know the rest of the story. Over 25 years, Food Town ó which became Food Lion ó went from $5 million in annual sales to $7.2 billion. By 1999, an original $1,000 investment in Food Lion (100 shares) was worth more than $23.3 million.
Food Lion easily outperformed the likes of Walmart and Microsoft.
ìNow,î Catawba Professor Al Carter cautioned his personal finance class, ìmost companies didnít do this well. This is an extreme example.î
Investing in a company through the purchase of stock is always a risk, he said, ìbecause when you buy stock, it can go up or it can go down.î Even Food Lionís story is littered with people who sold their stock too early to reap the rewards that came later.
Ketner said at the time some of the original investors sold their stock ó and even took a loss ó they probably were making a wise decision.
ìFor the first 10 years, you would have wished you hadnít been a stockholder,î Ketner said. Food Town didnít deserve to succeed early on, Ketner has always said, because it was a ìme, tooî operation that wasnít setting itself apart from the competition.
He told the Catawba College students that as entrepreneurs, unless they are going to be better and offer customers something competitors donít have, they might as well go to work for someone else.
Also with investing, Ketner acknowledged a luck factor at times and just being in the right place at the right time.
ìBasically, everything that happens to you,î he laughed, ìwill be by accident.î
Carter handed out the followinging quiz related to investments.
Answer these multiple-choice questions:
1) A certificate of deposit ...
a. Is issued by a banking institution.
b. Has a maturity date.
c. Is insured by the Federal Deposit Insurance Corp.
d. All of these.
2) A money market account has ...
a. No maturity.
b. Usually has a minimum balance.
c. Can have limited checking service.
d. All of these.
3) Treasury bills are ...
a. Insured only by larger banks.
b. Can only be purchased by financial institutions.
c. Are offered with various maturity dates.
d. All of these.
4) In money market investments it is important to consider ...
a. Risk associated with the investment.
b. Allocation of short- vs. long-term needs.
c. Maintaining adequate liquidity for anticipated expenses.
d. All of these.
5. Which would be the better use of your funds?
a. Invest in a CD for five years.
b. Invest in a long-term money market account.
c. Pay off your credit card debt.
d. Pay off 50 percent of your credit debt and invest 50 percent in the stock market.
For questions 6 to 10, match one of the following choices to the descriptions below: a) common stocks; b) preferred stocks; c) bonds; d) mutual funds; e) stock exchange; f) none of these. (One of the choices will not be used.)
6. A certificate issued by a firm usually with a fixed dividend and often without any voting shares.
7. Often used by investors with limited funds and a need for a diversified portfolio.
8. Only available with a $10,000 commitment.
9. Facilities that allow investors to buy and sell stocks.
10. Investment that offers interest with a fixed amount of time for maturity.
11. True or false: The Dow Jones industrial Average consists of the 500 largest corporations in the United States.
12. True or false: The most common method of using earnings to value stock is price-earning ratio.
13. True or false: The New York Stock Exchange handles only stocks of U.S.-based companies.
14. True or false: A full-service brokerage firm can only charge an interest of one-half percent.
15. True or false: On-line brokerage firms can only sell stocks of U.S. firms.
16. True or false: One can purchase stocks on the margin, which enables you not to have the full amount of the stock.
17. True or false: A method to measure stocks is comparing your return to index returns.
18. True or false: Bonds have a par value and a maturity date.
19. True or false: A call feature in a bond only applies to bonds with low-interest rates.
20. True or false: Interest on municipal bonds is often tax exempt from federal income tax.
Answers on Page 3C
Contact Mark Wineka at 704-797-4263.
The quiz answers: 1) d; 2) d; 3) c; 4) d; 5) c; 6) b; 7) d; 8) f; 9) e; 10) c; 11) false; 12) true; 13) false; 14) false; 15) false; 16) true; 17) true; 18) true; 19) false; 20) true.