“How did you know?”

She took a deep breath and smirked. Despite passing a few years ago, her lessons remain. “My neighbor showed me, but not directly,” she said. “It was the late 70’s, ’79 I think, there was trouble in the Middle East and oil prices went from roughly $13 to about $35. Inflation resulted. Prices of everything seemed to just keep going up.” At that time, interest rates in Canada were about 10% and had the potential to go higher. “My neighbor complained that the high interest rates were really hurting them when we had our weekly tea.” Mrs. G had been investing for years, carefully investing the family’s hard-earned wages and had watched Wall Street Week with Louis Rukeyser every week. A particular episode resonated with her, and she consumed everything she could about the guest on that show, a young investment manager named John Templeton. From another episode with another of her favorites, an up-and-coming Wall Street investor named Peter Lynch, said that over the long term, stocks return about 7%. This got Mrs. G thinking, “if I can get better than average returns in a bond than the long term returns in the market, I would be foolish not to have some.” She bought her first Government of Canada bonds and locked in a 12% yield. It appeared inflation was under control and rates backed off slightly to about 10%. Buying that 12% bond looked genius until another bout of inflation hit and rates soared to 20% in August of that year. Now 12% didn’t look so smart, her bond was down substantially in price. Yes, she was earning 12% but she could have done better.

At tea with her neighbor, the topic quickly turned to markets. The neighbor confessed they had sold all their bonds. “We just can’t take this anymore. Losing with no hope of ever recouping losses, interest rates are at 20% and going to 25%, you’re crazy to hold bonds.” For a moment, Mrs. G questioned her own judgement of owning her bonds and then she remembered advice from John Templeton that was more directed to stock markets, but she saw no reason it could not apply to bond prices. Sir John’s quote was “To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.” Mrs. G was going to do something that sounded crazy, she was going to buy more bonds. She could lock in a rate that was historically almost three times the long term average of the stock market. She did buy more bonds, she admitted that she missed the peak but did lock in some 18% bonds. Then she got another idea; how could this rate be beneficial forever, or at least longer than the maturity of her bonds?

Mrs. G investigated the world of annuities and found that she could invest in one that would pay her and her husband 17% until the last of them died. It seemed crazy to do that, particularly when her neighbor said rates were going to 25%. Mrs. G pulled all the cash she could and put it all into that annuity. She listened to the action of her neighbor and took that as a proxy for what the market was thinking and tied it to another piece of sage advice from Sir John who said: “If you want to have better performance than the crowd, you must do things differently than the crowd.”

a long sigh, Mrs. G said she felt bad for her neighbors. “I zigged when everyone else zagged, and that has made all the difference. For a moment, I thought of selling my bonds as they went down in price but that made no sense, why lock in a loss that isn’t necessary? I’m really thankful for the lesson my neighbor taught me, even though that’s not exactly what she intended. You’re so young but the lesson I would pass on to you is if you’re not grateful, you’re not rich – no matter how much money you have.”

You are missed Mrs. G, but never forgotten.