Investment Legacy

Originally published November 6, 2000

One of the greatest lessons I ever learned about the stock market came from my grandfather, a man who never bought a share in his life.

By Cory Johnson

About a month ago, I was having a difficult interview with Jozef Straus, the CEO of JDS Uniphase (JDSU) . Sitting in a San Francisco Ritz-Carlton suite, he distractedly wolfed down a kosher salad from a styrofoam box, giving me useless, one-word answers. But I got his attention when I told him of a conversation I’d had with my grandfather, a conversation that taught me the biggest lesson the stock market has to offer.

My grandfather Lyle Johnson wasn’t a big investor actually, he never owned a single share of stock. Grandpa wasn’t a cosmopolitan man, either. He never made it past the eighth grade. In 84 years, I don’t think he traveled outside Michigan more than a few dozen times. Six feet tall and lean, he was strong and quiet, with an easy laugh and a ready handshake.

In 1955, he started Johnson Carpet in a backyard garage on Lacross Street in Grand Rapids, Mich. With a lot of help from my three uncles and my grandmother Ruth, it eventually grew into a nine-store operation, stretching into Ohio. All of his six kids and at least half of his 15 grandchildren worked in the store at some point.

Long before Jeff Bezos, my grandfather was using discounted prices and devoted customer service as his opportunity to break into the market. He refused to mark up carpet more than $2 a yard, which angered the competition so much that they convinced some of the mills to stop selling to Johnson Carpet.

Grandpa was able to cut costs by doing most of the installation himself, though after a few decades he destroyed his kneecaps using a “kicker” a carpet stretcher where you bang the carpet into the corners, one knee smash at a time. But he never stopped, and wouldn’t retire until well into his 70s, when Parkinson’s began the inexorable march that finally killed him last week.

One night at my grandparents’ cottage on Blue Lake, deep in the woods of western Michigan, I started probing Grandpa about the intricacies of the carpet business. Usually he was the one asking questions. He would follow my every fascination tirelessly: How do jazz musicians know who plays when? Who decides what goes on the cover of a magazine? Why would an editor change the words that a writer wrote? How do trades really happen at the New York Stock Exchange?

I was starting to figure things out in the business world the importance of operating margins and profit margins, the hard choices involved in picking winners, the cost of capital and of lost opportunities. So sitting in the rocking chair, gesturing gently with his long hands, he carefully explained the carpet business to me the relationship with the mill, the cost of the carpet roll, the installation process, customer frequency.

“So let me get this straight,” I asked. “After all expenses, your profit margin on invested capital is less than 5 percent?”

“Well, some years are better than others,” he said. “But it’s probably closer to 2 or 3 percent.”

I was surprised. Cisco Systems (CSCO) has a profit margin of 64 percent, but even utilities turn out 10 percent margins. Hell, U.S. Treasury Bonds would have earned twice as much as carpet had. My father tried to convince my grandfather to invest in stocks. His answer was always the same: “I’m better off investing in a roll of carpet.”

“Three percent?” I asked Grandpa carefully, not wanting to offend. “Did you ever think, even just a fleeting thought, that you would have been better off putting it in a savings account, or investing in bonds or something that would have given you a better rate of return?”

A slight smile crossed his lips: I still hadn’t learned a thing. “I provided jobs for everyone in my family,” he said. “A lot of other people, too. People had families, they bought houses. We gave a lot of good people good lives, and that’s enough for me.”

Years later, when I told that story to Straus, he sprang up from the couch. “Yes, yes, this is it,” he said in his thick Czech accent. He excitedly pulled his BlackBerry from his suit jacket. “Look at this, look at this. This is an e-mail from one of my employees I never met. But this is what she says. …”

He went on to read an e-mail from a lowly JDS Uniphase employee who’d been laid up with some illness, spending her invalid days watching the JDSU stock rise. It never faltered as her health recovered. “This is what it is all about,” said Straus. “Entrepreneurship comes not from profit desire it comes from a desire to do something for people, for family.”

It’s a lesson, I think, that only a grandfather can teach. But the rest of us can still learn.

Originally published in The Industry Standard.
Reprinted with consent of the author.

Copyright(c) 2000 Standard Media International