| The Anne Scheiber story ... an attachment to DGIS |
as noted by Taggart
Stock pickers who can beat the market over a long period are like .400 hitters. When one turns up, it's big news. Thus did Money magazine think it had a sensation in the story of Anne Scheiber, an amateur investor who died a year ago with a large fortune. The cover of it's January issue shouted "10 Secrets From The Investor Who Turned $5000 into $22 Million." Unfortunately, Money got it's numbers wrong. Scheiber was a successful investor. She was not, as claimed, the peer of Warren Buffett or the superior of John neff. According to the magazine, Scheiber retired from a low-level job at the IRS in 1943 and made stocks her full-time hobby. Earlier she had lost some of her hard-earned savings in the market, but this time she learned from her mistakes. Her astute eye for growth stocks enabled her to transform $5,000 of savings into a $20 million pot by the time she died last year at 101. She left the money to Yeshiva University, and, said Money, the pot has grown to $22 Million. Wow! Warren Buffett, move over. John Neff, hang your head in shame. Money said Scheiber's portfolio grew at a compound annual rate of 22%, only slightly trailing Warren Buffett's record.There's only one thing wrong with this tale. It isn't true.
Go through the arithmetic.
Turning $5,000 into $22 million over 52 years is not a growth of 22% ayear but one of 17.5%.
"A regrettable mistake," says Money managing editor and article author Frank Lalli.
That's just the beginning. The starting date and the starting value presented by Money are wrong. Key fact in the Money magazine account: "In 1944...she started fresh with a $5,000 account at Merrill Lynch Pierce Fenner & Beane." The $5,000 might have been the opening balance of her Merrill account, but it almost certainly wasn't the extent of her investment portfolio at the time. "I think there was a little confusion," says Benjamin Clark, who knew Scheiber for 25 years and is the executor of her estate. "She retired to New York in 1943 or 1944, but she was in the market long before that." Scheiber's 1936 tax return shows she was already receiving dividends of $900 (plus about $3,000 in capital gains), Clark says. That dividend number never shrank, as would have been the case had there been significant pre-1944 losses. Instead, the dividends kept growing, says Clark. The market's average dividend yield in 1936 was 4.3%. That suggests that Scheiber already had something like $21,000 in stocks in 1936-four times what Money said she had when her investing saga began. Scheiber had a spartan lifestyle. In those Depression days even a modest salary would stretch fairly far, and Clark says she saved 80% of her salary. That means she was contributing cash to the investment pot between 1936 and 1943. Even ignoring the input of fresh cash, the difference between starting in 1944 with $5,000 and starting in 1936 with $21,000 is tremendous.
Not counting additional cash, Scheiber probably earned about 12.5%. That's better than the 11% annual performance of the Standard & Poor's 500 index, but not as good as the 14.7% return on small stocks., according to data compiled by Ibbotson Associates. If you allow for probable additional cash input, she about matched the S&P 500. Nice, but no magazine cover miracle. Scheiber did come up with at least one home run-an early investment in Schering Corp. (now Schering-Plough). She was also wise enough to avoid the drain of capital gain taxes and brokerage commissions by almost never trading. She was like Warren Buffett in this regard. Was she in his league as an investor? Far from it. Her wealth sprang from an unusual mix of austerity, longevity and compound interest. From it's Scheiber myth, Money magazine draws some grand conclusions about how the little investor can beat the averages: Buy growth stocks, invest in leading brands, go to shareholders' meetings.
The facts support a much more limited lesson: Live on next to no money, survive in good health to past 100 and let your savings compound for 60 years. With that going for her, Scheiber would have gotten as rich had she invested in a diversified basket of stocks, today's index funds, and never attended a single shareholders meeting or read a financial statement.
Here's what Money magazine had to say in the "letters" section of their magazine of March 1996.
Note how the 22% compounded becomes 17.5% without admitting "any errors or omissions".
"January's cover story, "How She Turned $5,000 into $22 Million (and How You Might Too...)," intrigued and inspired Money readers. While expressing compassion and concern for Anne Scheiber's lonely, loveless life, those of you who sent us mail admired her fierce commitment to the simple rules that shaped her investment success from 1944 until her death last year at 101. Among them: Invest in leading brands, favor companies with growing earnings, invest in small increments (a rule that not only added diversity to her portfolio but caused her to pick up extra shares when prices were low) and avoid going overboard when prices were high. Two others: Reinvest your dividends, and hold on to stocks you believe in (no matter what the market does). That time-tested investing style brought her an average annual return of 17.5%, well ahead of the S&P 500's 12.4% for that same period and the 13.9% posted by Vanguard superstar John Neff from 1964 to 1995." |
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