How to Make a Buck

Every businessman knows that it is hard to make a fortune in these days of high income taxes. Last week American Motors President George Romney gave chapter and verse on how hard it is even for the high-salaried executive with stock options in a front-running corporation whose stock has soared.

When word was let out by the SEC that Romney had sold 10,000 shares of American Motors in January at $90 a share, the stock was caught in a flurry of selling; American Motors lost 9 1/2 points in two days before holding at 69. Romney hastily called a press conference to explain it all. He had not sold the stock, said Romney, for any lack of faith: "I sold it because there is no other way by which I can increase my outright investment in the company's future." Big Money. Between 1948 and 1954, as a vice president whose salary rose from $35,000 to $75,000 a year, Romney had managed to buy 3,240 shares, usually a hundred at a time. When he became president in 1954, he got a chance at big money with an option for 35,000 shares at $9.56 a share. After that, American Motors' stock dropped below the option price. But when it started up, Romney was in a bind. He had voluntarily cut his salary when the company was in the red, placed a $225,000 limit on his salary and bonuses when business picked up. Thus, he had not been able to save anywhere near enough money for a major stock purchase. "I had to borrow to pick up those options," said he. "A fellow in my position under the tax laws is not in a position to buy stock except by borrowing." Romney borrowed enough money to buy 20,500 shares, leaving 14,500 shares still to go. At that it was a gamble: with American Motors' spotty dividend record, the carrying charges on a big loan could be a sizable expense. As American Motors moved ahead, Romney got two more sets of options over a period of years: one for 21,000 additional shares at $31.82 1/2-per share in 1958, another for 21,000 shares at $56.29 last September. But he lacked the funds to pick up any large blocks of stock.

Bright Future. By selling 10,000 shares (leaving him with 13,740), Romney got $900,000, of which $200,000 went to pay the capital-gains tax, another $200,000 for debts remaining from the first purchase, and $70,000 for tithing to Romney's Mormon church. His net: some $430,000. This is about $200,000 short of what he needs to pick up the last 14,500 shares on the first option, plus another 12,600 shares becoming available this year on his other two options. By paying off his first debt, Romney can now borrow again, add in his net $430,000 gain and thus buy those 27,100 shares this year. His grand total: 40,840 shares, or 28% more than when he started. If he can figure out a way to pick up the 29,400 shares he still has coming in options, presumably by going through the maneuver again, he will own about 1% of American Motors' stock, worth about $5,000,000 at current prices.

As for American Motors' business, said Romney, "the future never looked brighter." Current-quarter earnings are estimated to be better than last year's $2.10 a share; the assembly plants are on a six-day, three-shift basis, with production scheduled for 280,873 units in the first six months, 23% better than last year.

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