HERE'S THE BEEF. When Hillary Rodham Clinton turned $1,000 into nearly $100,000 in 1978, she won a dangerous investment game. Betting on the future price of corn, lumber, coffee or live cattle -- her commodity of choice -- is alluring because speculators need to put up less than 10 percent of the value of what they trade. But they can make huge profits or suffer huge losses on the full value of the goods.
What's really traded is futures contracts -- agreements to buy or sell some amount of a commodity at a set price at a future time. A standard cattle contract is for 40,000 pounds of beef on the hoof. At the current price of 75 cents per pound, each contract is worth $30,000. At Chicago discount brokerage Lind Waldock & Co., traders put up just $675 to buy a cattle contract -- only 2.25 percent of the contract's value. Say someone buys six contracts for $4,050: If cattle rises by 1 cent per pound, each contract's value will rise by 1 cent times 40,000 pounds, or $400, for a total profit of $2,400, a 59 percent investment gain. Thus do pennies grow into dollars.
But if the price of cattle drops by 1 cent, the investor has lost 59 percent $4,050 is now $1,650. And, since the investor must keep on deposit at least 2.25 percent of the price of a contract, he or she must sell the contracts and swallow the loss or deposit an additional $2,400 -- and risk losing that, too. That's how dollars shrink into pennies and why most investors should steer clear.
INVESTMENT SNAPSHOT Even ace investor Warren Buffet's Berkshire Hathaway stock couldn't match Hillary's 10-month profit. Here's what $1,000 invested in October 1978 would be worth now:
Berkshire Hathaway stock $114,440 Fidelity Magellan fund $ 29,434 S&P 500-stock index $ 8,182 Note: Values are for Sept. 30, 1978, through March 30, 1994. USN&WR -- Basic data: Standard & Poor's; Morningstar Inc.
