INVESTOR TRAINED ABOARD JET

THE BALTIMORE SUN

Douglas G. Ober sits back in his chair and lets a rare smile break through his normal quiet intensity. The youthful-looking chairman of Adams Express Co. and Petroleum & Resources Corp., two Baltimore investment firms, is thinking about his first job, and how it helped prepare him for a career of dealing with numbers in stressful times.

Mr. Ober's first job as an aeronautical engineer placed him at the mercy of gung-ho Navy pilots, testing jets at the Patuxent River Naval Air Station during the Vietnam War. He remembers one roundtrip flight to Bermuda on an F-4 jet at Mach 2: the whole trip took 45 minutes.

"If you can imagine sitting on top of the engine of a Mack truck going 85 miles per hour down the highway, and multiplying that sound by 10," he says, rolling his eyes.

For someone who could stay cool at that speed, and keep track of the numbers whizzing by on the aircraft's many meters and dials, it's been a breeze to keep his powder dry during the stock market's occasional turbulent times, including the October 1987 stock market crash. It also provides a sense of perspective to work for a firm that's been around 140 years.

Back in 1854, Adams Express was incorporated as a delivery company, one of the three major pony express services, along with American Express Co. and, later, Wells, Fargo & Co.

Adams Express, which founder Alvin Adams started as a small Vermont delivery service in 1840, became the largest of the three, with operations along the Eastern seaboard, and as far west as California when the gold rush exploded. At its peak in the 1880s, the company had 7,800 employees, 1,826 wagons and 2,235 horses.

By the turn of the century, all three delivery companies had used their retained earnings to accumulate a portfolio of securities investments, mostly in railroad and shipping companies.

During World War I, the government consolidated the three companies and required them to sell their delivery service assets to a newly formed management company.

In 1929, Adams combined its own securities portfolio with the remaining financial assets of that company by buying out the shares of its competitors, American Express and Wells, Fargo. That's how, in the year of the great stock market crash, Adams converted itself into an investment company, managing money for a pool of clients much like a mutual fund. It wasn't until 1976 that Adams moved to Baltimore, escaping the taxes of New York City.

The company's sole purpose is to invest the assets under its management. But Adams is one of the oldest "closed-end investment companies," with a fixed number of shares that trade on the stock market. That means that when investors want Adams Express shares the price of the stock rises, sometimes independently of the value of the managed assets. But the company itself doesn't receive any new funds.

Open-ended mutual funds, by contrast, can be flooded with money to invest when they are popular -- they just issue new shares -- and often must liquidate assets to pay shareholders when times are bad.

Shareholders of closed-end funds don't participate directly in the appreciation of the company's portfolio. But they do benefit indirectly: when the stock price rises, and when the capital gains and dividends are distributed each quarter.

The last two factors usually are more important than the stock price. For instance, in 1993 the stock of Adams Express fell 10.6 percent. But its total return -- assuming all capital gains and dividends were reinvested in the stock -- was a positive 2.9 percent. Meanwhile the value of Adams' securities portfolio -- a mix of domestic growth and income stocks -- rose 8.5 percent.

Likewise for Petroleum & Resources, which must invest at least 70 percent of its assets in energy-related companies: an 8.9 percent gain for the stock alone last year, but a 19.8 percent total return. The value of Petroleum's assets only rose 14.7 percent last year.

Both companies' one-year returns put them below the average of their peer mutual funds, according to Lipper Analytical Services Inc. in New York. Taking a longer view, Adams' total annualized return for the 15 years that ended last year was 16.4 percent, compared with a 15.8 percent return for the Standard & Poor's 500 stock index. Petroleum turned in a 15-year return of 13.0 percent.

"Because we have a fixed number of shares and a fixed asset base, we can take a longer view of the economy and our investments," Mr. Ober says. That helps explain why more than two-thirds of the company's shareholders are over 65 (according to a 1991 survey), and more than two-thirds have held the stock for more than 20 years.

One downside, though, is that except by buying stocks that increase in value, the only way the company can raise more money is to issue new shares, which Adams did last year for only the third time in its history. It sold $116 million worth of stock, raising assets under management to $840 million at the end of last year; assets were down to $798 million at the end of June. Petroleum, 10 percent of whose shares are owned by Adams, had $352 million under management on June 30.

That limit on raising funds can keep management focused on investment issues. "They're looking to perform, but they're not looking to grow the business," points out A. Michael Lipper, president of Lipper Analytical Services.

Both companies are chaired by Mr. Ober; they share the same board of directors; and both are run by the same three-person investment committee, which comprises Mr. Ober, Joseph Truta the president of Adams), and Richard F. Koloski (the president of Petroleum).

Because the stock of both companies is trading at a discount to their net asset value -- Adams' discount is about 11 percent; Petroleum's is just under 3 percent -- investors may be able to pick up a bargain if they expect the respective investment styles to pay off.

It's unlikely those styles will change any time soon. Mr. Ober, a Baltimore native, is only 48 years old. He's been chairman since 1991, 10 years after he joined the company from the First National Bank of Maryland, and plans to stick it out until he retires.

After all, he says, again flashing that rare smile, "All my assets are invested in the company."

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