I’ve always had an interest in the business world. As a very young boy, growing up next to my grandparents, I would delight in going with them to see their attorney (who also served as their tax consultant and financial advisor—this was the 1960’s) so that I could listen and learn. Yes, I suppose that I was a really weird kid!
From these visits and other family conversations I became aware that my grandfather (Edwin) had invested a considerable sum of his money in a startup company many years before. The young company was operated by two other men named Ed and began in a family garage. Word was that the amount he invested was a fairly large percentage of what my grandparents had at the time, much to my grandmother’s concern and dismay. As the years passed though the investment did well, eventually supporting my grandfather for most of his later years. He died in 1994, a month short of his 101st birthday. He eventually did use up his financial resources, but very near the end of his life.
An apocryphal tale? Not so much. My grandparents lived in Monroe, Michigan all their lives. My grandfather knew these gentlemen well as they attended the same church. The “Two Eds” were
cousins who formed a partnership in 1927. One had exceptional engineering aptitude while the other excelled at business and marketing. Their product was a wood-slat porch chair that reclined, which was soon updated to an upholstered model suitable for living rooms. They built a new factory at the end of 1927 when they ran out of space in the garage, financed with the support of friends and family. By 1929 they had incorporated their business as Floral City Furniture, with patent and startup costs again financed thru friends and family. The company still exists today but is known as La-Z-Boy Incorporated (NYSE:LZB) and is one of the largest furniture makers in the world.
How could a guy get this lucky? Well, first he counted the people he was helping to get started as friends. They didn’t meet on the internet! Second, a little luck never hurts. This really wasn’t a good time to start a business, but the owners were able to remain successful through it all. I suspect that today we would think of my grandfather’s investment as a “private equity” deal, although it was always talked about as “stock” within the family, and in the 1970’s and 1980’s it was indeed stock that was sold to meet Grandpa’s cash flow needs. Keep in mind that the SEC wasn’t established until 1933, and it was a lot easier to solicit investors then than it is today. LZB officially “went public” on the OTC market in 1972 (NASDAQ arrived in 1971) and moved to the NYSE in 1987. I can remember that these shares for quite some time were traded via a single regional brokerage in the immediate area on a broker to broker basis. There was not a market per se for the shares for many years, hence “going public” in 1972 was a big step in making the investment more liquid.
So my grandfather was fortunate, as were the inventors and their families. Investing in start-up companies, of course, still goes on but is generally in the sphere of the very wealthy. My grandmother’s simple logic was that “you shouldn’t put all your eggs in one basket”, and that’s why the investment worried her as it would worry most of us today. Look no further than what recently happened to the “smart money” of the Pershing Square hedge fund, which lost a reported $4 billion over a 2 year time period on a large position in a single company (Valeant pharmaceuticals). As for me, I’m not going to try to duplicate the success of my grandfather’s investment and “swing for the fences”. My eggs will continue to be diversified into many baskets!
Guest Author: Mark is a smart, educated, retired person with whom I appreciate working with as a client and talking with as a friend.