The almost unbelievable story of Anne Scheiber who turned $5,000 into $22 Million with a simple buy and hold strategy has been told quite some times now, unfortunately sometimes with wrong numbers. Here is what she did in her long life of 101 years:
- Anne Scheiber invested in leading brands, which she called franchise names. These were leading companies that created products she admired like Coca-Cola, Bristol-Myers and Allied Chemical.
- She favored firms with growing earnings and tended to ignore a stock's price to earnings ratio. Important for her was the company's ability to increase profits. She reasoned that stocks are overpriced sometimes and underpriced others but if the company's income rises year after year the buy price doesn't matter.
- Investments were taken by her in small pieces. She essentially put fresh money she earned as an IRS auditor to work and bought small lots of shares. Her extreme ability or better said fanaticism to cut down her real life expenses allowed her to invest the better part of her salary.
- She never sold a stock in which she believed. Neither in the bear market of the '70s nor during the crash of '87 she was worried. Instead she thought the general market had gotten overpriced, and she was convinced her stocks would come back.
- In order to cut taxes she reinvested her dividends in tax exempt bonds. When she died, she had 60% in stocks, 30% in bonds and 10% in cash.
- Her compensation for her poor life - saving every possible cent and investing it in stocks - was to attend her companies' New York City shareholder meetings. She demanded answers from the CEO, just as she did when she was an auditor. She also loved the freebies at these meetings, filled her bag with the food served and lived on it for days.
--
When Anne Scheiber died at 101 on Jan. 9, 1995, her 10 top stockholdings were worth nearly $6.2 million.
No. of Dec. 11 1995 Company (symbol) shares owned price gain SCHERING-PLOUGH (sgp) 64,000 $59.25 62% PEPSICO (pep) 27,000 57.50 65 ALLIED SIGNAL (ald) 20,934 49.25 44 LOEWS (ltr) 14,061 78.00 75 BRISTOL-MYERS SQUIBB (bmy) 10,080 84.50 45 COCA-COLA (ko) 9,048 79.25 60 ALLEGHENY POWER SYSTEM (ayp) 8,000 28.25 30 ROCKWELL INTERNATIONAL (rok) 4,640 51.75 46 UNOCAL (ucl) 3,690 28.75 10 EXXON (xon) 1,664 84.00 39
Sources: Merrill Lynch, Benjamin Clark
--
The orignal money article quoted an average growth of 22% for the long period of 52 years. With such numbers Scheiber would have rivaled even Warren Buffett's record. There's only one thing wrong with this tale. It isn't true. Turning $5,000 into $22 million over 52 years is only a growth of 17.5% a year. Furthermore Anne Scheiber loved stocks her whole life long and there is evidence that she started much earlier than 1944 investing, albeit only partially successful.
--
It shows quite clearly that there were many mistakes in the original article:
- $5k to $22m in 50 years (1944-1995) is 18.3% p.a. not 22% p.a.
- Anne received $900 in dividends in 1936. At the average market yield of 4.3%, this meant she had capital of about $21k not $5k, and she started at least as early as 1936 and not 1944.
- Anne was saving 80% of her $3,150 salary between 1936 and 1944. So there was probably additional cash input to the portfolio during these 8 years.
Ignoring the additional cash input, going from $21k to $22m over 59 years (1936 to 1995) gives... 12.5% p.a. Better and longer than Hetty Green, but considering the S&P 500 did 11% p.a. over the same period, with its small stocks getting 14.7% p.a., one has to wonder if her record is truly outstanding after all.
I think the more important points to take away are being patient (Anne was down 50% during the 70's but didn't sell) and consistent (Anne only bought companies she understood, mostly leading brands, and reinvested all her dividends).
Side note: Like Hetty, Anne was frugal to the point of being miserly. She wore the same clothes year in, year out, walked everywhere, and filled up bags of food to take home at shareholder meetings
No comments:
Post a Comment