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Published: October 6, 2009
Gerald Ford is a banking legend...
In the 1980s, when the savings and loan (S&L) industry
collapsed, Gerald Ford bought more than 30 failed S&Ls. He
turned these S&Ls into profitable banks, and made a fortune. He
used the same strategy after the recession of the 1990s, making
a second fortune.
Today, with a net worth of $1.3 billion, Gerald Ford is No. 559
on the Forbes list of the world's richest people.
As we exit the great credit crunch of 2008, Ford is eager to
repeat this trick for a third time...
The FDIC insures bank deposits. When a bank fails, the FDIC
seizes the bank and auctions off the leftover assets to other
banks. Ford plans to buy these broken banks from the FDIC. He's
already raised $2 billion in cash for this purpose, and he's
secured a license from bank regulators to participate in the
auctions.
I suspect Ford is going to make another billion from this plan.
So earlier this year, I advised readers of my newsletter to
contribute their money to Gerald Ford's $2 billion "busted bank"
war chest.
We could have bought stock in Gerald Ford's holding company.
It's called Hilltop Holdings. It trades on the NYSE under the
symbol HTH. We would have been entitled to whatever profits
Gerald Ford's busted bank strategy makes. And we would have been
entitled to vote on anything related to Gerald Ford's company.
In short, we would have been co-owners with Ford.
But we did not buy stock with Gerald Ford. We loaned him money
instead...
By making the loan, we ensured our money is totally secure.
Gerald Ford has a legal obligation to pay us income and redeem
our loan at full value. We'll take him to court if he fails to
pay us back a single cent he owes us. If we'd bought stock, we'd
have no such power.
Besides, I knew Gerald Ford would
need plenty of time to make his
acquisitions. While he looks for
opportunities, we're getting 9% a
year in income. Shareholders get no
income. (Gerald Ford hasn't been
able to make a deal. You can read
about his frustrations in this
recent Forbes article.)
Most people don't realize it, but
you often have the choice to make a
loan instead of a stock investment
when looking at a company you like.
There are over a thousand "loans"
like the one we made to Gerald Ford
trading on the major stock
exchanges. These loans have symbols
just like stocks. You can buy and
sell them through any discount
broker with two clicks of a mouse.
They go in your IRA and command the
same commissions and fees.
Take the symbol "ATT" on the NYSE as
an example. It's a 6.375% senior
note issued by AT&T. Or "CPV." It's
a 6.75% bond issued by CBS Corp,
trading on the NYSE. Comcast issued
a 7% bond that matures in 2056. Its
symbol is "CCT" on the NYSE.
The Gerald Ford loan we made is a
"preferred share" issued by his
holding company Hilltop Holdings
(NYSE: HTH-PA).
You can find it under "HTH-PA" on
Yahoo Finance. It trades on the
NYSE. We're up +32% so far, but it's
still a good buy under $25. (It's
trading around $24.60 today.)
Right now, we're in a time of
extreme uncertainty. The stock
market has had a huge +60% rally in
seven months. And several indicators
I follow are pointing toward a
potential drop. At this point, I'm
much more comfortable making loans
to companies, where they must pay me
back in full and they have to pay me
interest each quarter. This way, I
don't have to worry about stock
market volatility or dividend cuts.
The next time you consider investing
in a company, take five minutes to
see if it has any loans floating on
the NYSE or the Nasdaq. You'll get a
much more stable investment with a
guaranteed income stream.
Quantum Online is the definitive
source of exchange-traded
fixed-income securities. It's free
to set up a username and password.
Once you're in, enter a symbol or
scroll through the lists of
fixed-income securities. -- Tom
Dyson
Contributing Editor
Daily
Wealth Editor's Note: This
article originally appeared in
Daily Wealth. |
