It was extremely difficult, but I had played seven holes without asking my partner the question I was “dying” to know; how many shares of Equity Funding did he own in his mutual fund?  He seemed very relaxed ...  even cheerful.  Yet, I felt his mutual fund had to own a ton of the stock.  For me, in not asking, it was like driving by a car crash and forcing yourself not to look.  You know it’s none of your business.  It has nothing to do with you and yet, for whatever reason, in a macabre way you still want to know ... what happened?  My resolve lasted for an hour and a half.  By then I had to ask!

       H. Alden Johnson was president of Massachusetts Financial Services.  It was the oldest mutual fund in the country having started in 1924 and by 1973 was the biggest as well.  It was very old Boston.  “Augie,” as he was called, was also the portfolio manager of their lead mutual fund, Massachusetts Investors Trust.  MFS was a privately- owned partnership and represented the very top of the Boston investment pyramid.   Augie Johnson was the senior partner ...  the man at the top of the pyramid.

       The news had broken in the Boston newspapers the day before.  Equity Funding, a major financial service company … Some things never change! … was revealed to be a total fraud.  Trading was halted. Virtually every major investment institution in Boston owned the stock.  And they owned it in size!

      Augie, standing on the green, smiled at my question.  “None … absolutely none,” he said shaking his head side to side.  “What?” I asked incredulously.  “How did you miss it?” “I visited … Stanley,” he said derisively.  Stanley was said as though the name instantly created a bad taste in his mouth.   Stanley Goldblum, the CEO of Equity Funding, was the accused architect of the fraud.

      “His office was on the top floor of an office building in downtown Beverly Hills,” Augie went on. “The secretary showed me into a large corner office where I sat down in front of an empty marble- topped desk.  Stanley was standing with his back to me, looking out over the city, talking and gesturing on the phone.  After a few minutes of this, I sensed he was performing for me.  Then the noise “hit” me!  It was a gurgling sound.  I turned to see where it was coming from.  In the back of the room was a large Greek statue.  Water was arcing up from the statue’s private parts into a surrounding pool.  Before Stanley Goldblum had hung up the phone, I decided I was not going to own the stock!”

       H. Alden Johnson’s kishka, Yiddish for gut instinct, proved to be exactly correct.  The trick is having enough self-confidence to trust that instinct.   Imagine H. Alden Johnson sitting in Bernie Madoff’s office.  It would have been priceless!

Francis Patrick Boland

2/15/2011