Chapter 36: Business Development

August 12, 1984, Chicago, Illinois

CeCi and I had spent the day in bed, though at 4:00pm, we'd gone to the shower so that I could get ready for my meeting with Marlena Volkmer. I left the condo, dressed in a suit, as this was a business meeting, and hailed a cab to take me to the restaurant. I walked into Ruth's Chris Steak House on North Dearborn about ten minutes before our scheduled time, and asked the maître d' if Ms. Volkmer had arrived. He said she had not, so I chose to wait near the door.

About two minutes later, a tall, gorgeous blonde breezed through the doors wearing a fashionable skirt and blouse and two-inch heels that made her nearly as tall as I was.

"Jonathan?" she asked.

"Yes. You must be Marlena."

The social convention was for a man not to shake hands with a woman unless she proffered her hand, which Marlena did not. She spoke to the maître d', and we were shown to a table near a window and were handed menus. I thanked him, and he left, with a waiter quickly replacing him. I ordered a bottle of Cabernet, and the waiter left to get it while we looked over the menus.

When he returned, he followed the usual practice of providing me the cork and pouring a small amount of wine into my glass. Between Jeri and Beth, I'd learned the right way to handle it — I smelled the cork to see if there was any hint of fungus or vinegar, then tasted the wine he'd poured.

"It's fine, thank you," I said.

He poured for Marlena, then for me, and set the bottle on the table. We were ready to order, so he took our orders, then left to put them in with the kitchen.

"I was surprised when Maja told me you were close to my age," Marlena said. "When did you graduate?"

"High School? 1981. I'm working on my degree part-time. Did you go to college?"

She smiled, "A cultured man! Asking what year I graduated is the same as asking my age!"

I smiled, "I do know that social convention."

"I have a degree in marketing from Purdue. How did someone so young achieve so much so fast? Maja said you're from a small town in Ohio."

"Goshen, which is about thirty miles northeast of Cincinnati. Mind if I ask where you're from before I tell the story?"

"Plainfield. I went to Purdue, met the guy who became my ex, and moved to Indianapolis."

"I'm the son of a single mom who raised me on her own from the time I was born, though she did have some help from a friend when she was kicked out of her house for getting pregnant at sixteen."

"The 50s and 60s were such a wonderful time in that regard," Marlena said, shaking her head.

"I don't disagree. That situation led me to look for a way out, and when I was in High School, I called my uncle — my mom's sister's husband — and asked him to help me find an entry-level job in Chicago for when I graduated. He's friends with Noel Spurgeon, the principal at Spurgeon Capital, and arranged for a job in the mailroom. Nearly as soon as I began work, I asked for study materials with the goal of earning my securities licenses. I studied, enrolled at Circle, and was promoted to mailroom supervisor.

"I earned a pair of securities licenses and was promoted to analyst, and also given permission to start my own hedge fund with my money and some money from friends. I produced excellent analysis and made several calls that generated significant gains for Spurgeon Capital. As a result, I was named Chief Analyst and promoted to head the newly formed Research Department.

"Once that department was created, I introduced computer analysis and identified further opportunities for profit. I also increased my Assets Under Management — what we call AUM. That now stands at about $250 million in my fund, and another $450 million I'm temporarily managing in another fund I was asked to take over when the manager of that fund left Spurgeon."

"In three years?"

"Three years of aggressive, diligent, hard work. I am, as they say, just that good."

Marlena laughed, "That's more than just a little bit of ego!"

"As I said to someone at work — if I don't promote myself, who will? If I don't exude complete confidence in my own abilities, why should anyone else have confidence in me?"

"And your returns are really as good as Maja says?"

"I expect to triple the gains of the S&P 500 this year, though I cannot guarantee that. We expect the Dow to be in negative territory for the year, and the Wilshire 5000 to trail the S&P. Last year, I more than doubled the S&P and nearly doubled the Dow and Wilshire 5000. As I said, I can't promise to achieve those results every year, but I do expect to continue beating the market.

"Fundamentally, if I beat the market by more than four percentage points, your total return, including deductions for fees, expenses, and commissions, would still be ahead of the gains you'd have in either a Dow or S&P mutual fund. I can show you the numbers, and I have spreadsheets which break down the gains and show how what I just said is accurate. Government regulations require me to add the caveat that, as with any financial product, you could lose some or all of your investment."

"The government forces you to say that?"

"They do, because it's true. It's the same with the disclaimer you'll see on all our material — past performance is no guarantee of future results. That's also a true statement. What the prospectus and marketing material show is a track record, and while mine is relatively short, Spurgeon Capital has outperformed the market every year since its founding in 1971."

"Your fees are charged no matter what, right?"

"The 2% management fee is charged on January 1 or at the inception of the investment, pro-rated quarterly. That covers all expenses, including salaries, benefits, equipment, office space, and so on. Our profits come from the 20% that we take once we achieve at least 8% returns — the average long-term gains for the stock market. That 20% is charged on any gains above 8%. And lest you think I have no skin in the game, my money is in the fund right next to my clients' money, as is some of Noel Spurgeon's money."

"Of that $700 million, how much is yours?"

"It's a bit more complicated than just giving you a number, as my money is in my Cincinnatus Fund and the Spurgeon Select Fund. I have no money in the Arrow Fund, which I'm managing temporarily because the broker who managed it left Spurgeon Capital. Noel Spurgeon has money in every fund. My total personal assets are about $2 million. His total assets are around $400 million. The total capitalization of the firm is about $5 billion."

"How much did Maja tell you about my situation?"

"Just the briefest outline, though, unless you're barred from investing for some reason, or are involved in something illegal, I don't need to know."

"I'm curious what she said."

"That you were in your mid-twenties and had been married for three years before your recent divorce. You have a two-year-old daughter, live in a condo on North Lake Shore Drive, and you bought a Jag from Maja. The only other thing she said is you received a divorce settlement that was above our investment minimums and were looking for financial advice."

"I have about $30 million after buying the condo and the Jag."

"Tell me if it's none of my business, please, but was your husband's money earned or inherited?"

"Inherited. At the first settlement conference, I tore up the pre-nup in his face. I took it all, minus what he used to pay both sets of attorneys, though I'm sure his brother will take care of him."

"Infidelity?" I asked.

"Banging our barely fifteen-year-old babysitter in our bed. It was either the cash or the cops. His choice."

The waiter brought our salads, and we began eating.

"What are you looking to do?" I asked.

"I need advice, at a minimum. Maja said you'd give me advice even if I wasn't ready to move my money to you."

"It's about building a relationship. You've known me for about ten minutes, and I totally understand needing to feel comfortable before making the kind of commitment we're exploring. What are your goals?"

"That's a good question," she said. "I think the first part is to make sure my daughter and I never have to worry about money, and we can travel and do the things we want to do."

"Are you seeking only income or growth as well?"

"I wouldn't mind turning a small fortune into a big one!"

"Where is your money now?"

"An account with First Chicago. I received the first $2.5 million right away; the remaining $28 million arrived last Monday."

"OK. Do you have a number in mind for an annual income?"

"$250,000 would probably do it, given I paid cash for the condo and Jag, and have no debt."

"Then the first thing to do would be to move about $3,000,000 into US government securities. You can have First Chicago do that for you. As long as interest rates stay above 8%, which they will for the foreseeable future, you'll have at least $240,000 in tax-free income per year. That covers your living expenses and discretionary spending.