| Wednesday, February 15, 2006 |
| Frugal Females Found |
| Occasionally we hear amazing stories of frugal females who over a lifetime of living beneath their means and saving and investing have managed to amass fortunes. Generally because these women do not have immediate family they bequeath this wealth to a private university, non-profit organization, or even to our government to help pay down our national debt. Margaret Elizabeth Taylor, a widow since 1977, died at age 98 (Nov. 2005) and having no surviving siblings or children "bequeathed her $1.1 million estate to the federal government and requested that it be used to help pay down the $8.1 trillion national debt."Woman Leaves Fortune to Pay Nation's Debt Anna Patocka, who worked as a cook, died at age 95 (July 2005), and left "$1 million to local organizations". "She didn't make a million by inheriting it," friend Helen Linhart said. "She saved it." GRAFTON, N.D.: Woman leaves behind $1 million Anne Scheiber, who worked for the IRS as an auditor, died at age 101 (1995), and left $22 million to "Yeshiva University, with the stipulation that the money be used to establish a scholarship and loan fund for deserving female students at YU's sister institution of Stern College" The Butterfly Effect (Anne Scheiber) The fact that these women had so much wealth to bequeath surprised the folks who knew them. Each was a secret millionaire. The money was accumulated by hard work, consistent savings, and wise investing. Anne Scheiber made quite the news splash when her bequest was made public in 1996. I remember the article in TIME magazine and the news stories which made much of her stagnant career at the Internal Revenue Service. She was someone who had a law degree and was obviously smart, but because of her gender she spent her entire IRS career in a junior position and never received a promotion nor much of a raise. This prompted her to vow never to enrich the IRS if she could help it. To keep that vow she never sold the stocks she purchased and each stock had the dividends reinvested. This meant her money just grew and grew since only sales would trigger a tax payment. While she was a wise investor, she was also an extremely frugal woman. She saved approximately 80% of her take home pay when working. She lived in a rent controlled apartment, almost never purchased new clothes, and for entertainment attended annual shareholder meetings of corporations she invested in and after using her auditing background to grill the executives would fill her handbag with the free food at the buffet and live off that for days. I find reading these stories inspiring. There is something about knowing that these women had control of themselves and their wealth and did with it as they saw fit. While some may say "but how deprived they must have been, wearing the same clothes and eating left-over stale food". I really don't see it that way. They obviously felt that clothes were not important. You could almost look at it as they were wearing a self-made uniform day in and day out. Nothing so wrong with that. I enjoy food too much to eat stale stuff, but who knows how much I will enjoy food when I am 90? I think that is part of the problem, these women lived so long that most of the folks who did know them and spoke of them reminisced of the 80, 90, or 100 year old woman. What were these females like in their 20's, 30's, or 40's? What personal experiences kept them on their frugal paths? I wish we found these ladies while they were still alive and could tell us their full stories... http://www.bostongalsopenwallet.com/2006/02/frugal-females-found.html |
Showing posts with label anne scheiber. Show all posts
Showing posts with label anne scheiber. Show all posts
Friday 16 December 2011
Stories of frugal females who amass their fortunes through hardwork, consistent savings and wise investing.
The Othmers' Story
The Othmers' Story
The Washington Post, Tuesday, July 14, 1998; Page A15
Donald Othmer, a professor of chemical engineering in Brooklyn, died three years ago. His wife Mildred, a former teacher and a buyer for her mother's dress store, died in April. Both were in their nineties. They lived quiet, unpretentious lives -- which is why it came as a shock to their friends to learn that their combined estates were worth $800 million and that they had given nearly everything to charity.
How did the Othmers get so rich? Like many other Americans, they simply put their money into sound stock market investments and left it there for a long time.
This they had in common with a woman named Anne Scheiber, who worked as a government drone, never making more than $4,000 a year. In 1944, she put a total of $5,000 into stocks such as Coca-Cola and Merck, and when she died in 1995, she left her estate to Yeshiva University. It was worth $22 million.
As for the Othmers: In the early 1960s, they turned $25,000 each over to Warren Buffett, an old family friend from their hometown of Omaha. "They just rode along," Buffett told the New York Times. The investment "never changed their lives."
In 1970, when the Othmers received stock in Buffett's new company, Berkshire Hathaway Inc. (which invests in other companies such as Gillette and American Express), it was trading at $42 a share. Last week, it was $77,000 a share. Mildred Othmer's 7,500 shares alone are worth $578 million. Donald's, which were sold on his death when the price was lower, were worth $210 million.
The Othmers were smart -- or lucky -- to pick Buffett to manage their money, but that's not the lesson of this story. After all, even if they had simply put their funds into the broad market, they still would have ended up with a fortune of between $50 million and $100 million.
No, the lesson is to live modestly, invest sensibly, don't touch the money and grow rich. This lesson is at the heart of the current debate over transforming Social Security.
Today, it is a government-run plan by which Americans retiring over the next few decades will get minuscule (or even negative) returns on a lifetime of payroll contributions. But reformers, including New York Democratic Sen. Daniel Patrick Moynihan, want instead to create a system of private accounts by which retirees can get the returns that the stock market has been generating for the past century.
Why shouldn't every worker be able to get the returns -- and build the nest eggs -- that Anne Scheiber and the Othmers built? They can -- but only if they have money to save. Currently, 10 percent of every worker's pay is going to taxes to fund Social Security retirement benefits. No wonder Americans are strapped.
William Beach of the Heritage Foundation has calculated that the average single black woman born in 1960 will receive lifetime benefits from Social Security totaling $173,000. But, Beach found, if the woman invests the same money that now goes to Social Security taxes in a mixed portfolio of stocks and bonds instead, she will accumulate $414,000.
Blacks, in particular, are victimized by the Social Security retirement system, since they don't live as long as whites -- and thus don't collect benefits for as long. Under a private retirement plan, they could pass assets on to their heirs.
There are other lessons in the Othmers' story:
(1) Frugality pays. Donald Othmer was a smart scientist who contributed to more than 40 patents at Eastman Kodak. But his wealth came from following the simple virtues. The Times wrote that as a boy "he developed a lifelong frugality as he earned money picking dandelions from neighbors' lawns [and] delivering newspapers." He and his wife "lived comfortably but not ostentatiously and rarely talked about their money."
Thomas Stanley and William Danko, authors of the surprise bestseller "The Millionaire Next Door," came to similar conclusions about the rich people they studied for their book. They wrote that "frugal" is the best adjective to describe millionaires. More own Fords than any other car, and only 25 percent of the men studied paid more than $600 for a suit in their lives.
(2) Saving pays. This is a notion that should be drummed into the head of every young person. Put away money early, and don't touch it. If you can leave it undisturbed in a decent investment for a long time, it will grow to immense proportions through the miracle of compounding.
Savings can also be eroded by capital gains taxes, but both Scheiber and the Othmers managed to avoid them by not selling their stocks, then passing them on to their heirs. Still, the cut in capital gains from 20 percent to 15 percent that Congress just passed is a move in the right direction that will boost savings.
(3) Philanthropy will boom. The Othmers' estates will provide $190 million to Brooklyn Polytechnic University, where Donald taught, $160 million to Long Island College Hospital, $75 million to Planned Parenthood and so on.
Rich people, more and more, are giving back what they've earned in an effort to make society better. They would rather make these choices themselves than leave them to Uncle Sam, so they are preserving their estates against taxes.
Eliminating the estate tax entirely could touch off a philanthropic flood. But, even without that change, generous Americans like Scheiber and the Othmers are turning frugality into wealth into good deeds. They deserve attention and praise.
Investing: You Don't Have to Learn the Hard Way
| Little minds are interested in the extraordinary; great minds in the commonplace. - Elbert Hubbard All of us have heard the expression that experience is the best teacher. Like many old expressions, you must be careful how you interpret its meaning. In reality, the best way to learn is by observing the past successes and failures of others. Our own lifetime is limited. By utilizing the knowledge gained by others, we can determine the financial strategies most likely to succeed without wasting the time and effort required by our own trial and error experiences. A logical place to start our observations is to review the investment guidelines used by some of the most successful stock market investors of all time. Their guiding principles, based on decades of experience, should be thoroughly tested against most of the conditions any stock market investor is likely to encounter. The following brief biographical sketches summarize the wisdom provided by five super successful stock investors: Benjamin Graham, 1894 - 1976. Benjamin Graham, considered one of the fathers of modern stock market investing, achieved a 17 percent average annual return on his stock market investments from 1929 to 1956. This is extraordinary, considering that the time period from 1929 to 1945 included the 1929 stock market crash and the Great Depression, and represented one of the most difficult time periods in economic history to make money in the stock market. Graham argued that the distinction between investment and speculation was an important one that was often misused by financial professionals. Graham felt that investors should concentrate on the task of locating the stock of companies with sound financial standing that was priced well below the value of the company, irregardless of the general outlook of the economy or the stock market. By applying these principles to select a diversified group of stocks and by maintaining a long-term approach, the investor separated himself from the speculator and would eventually be rewarded. Warren Buffett, 1930 to present. Warren Buffett is probably the most successful stock investor of all time. Solely due to his stock picking abilities, on any given day Buffett is either the richest man in America or one of the richest men in America. From 1957 to the present (over 40 years!), Buffett has achieved an average annual return of more than 25 percent per year on his stock investments. However, Buffett did not achieve this enviable record using some complicated investment strategy or by borrowing money to magnify his investment returns. Instead, some simple, familiar themes begin to emerge when you study his investment philosophies. Buffett buys stock in what he calls franchise companies - companies that produce products that society needs or wants. He buys these stocks with the intent of never selling them. He meticulously studies each business of interest, and only buys the stock of companies in sound financial condition that can be purchased well below his assessment of their intrinsic value. Buffet only buys stocks of companies that he understands. Some of his largest stock investment returns have been made in household names like Capital Cities/ABC, Coca-Cola, and The Washington Post. Anne Scheiber, 1894 - 1995. Anne Scheiber is probably unknown to most people. However, her accomplishment of creating a $20 million estate by investing in the stock market over approximately 50 years makes her a very successful amateur investor. There is some debate over her true investment return over the 50-year time span, but it appears that it probably ranged between 12 and 17 percent per year. Scheiber learned by reviewing the tax returns of wealthy individuals during her career as a tax auditor with the Internal Revenue Service that stocks were a proven way to get rich in America. Her investment strategies were simple: invest in companies that create products that you know and admire, continue to invest, never sell stocks you believe in, and keep informed of your current investments. In fact, Scheiber's top ten stock investments before she died included such well known companies as Coca-Cola, Exxon, and Bristol-Myers Squibb. National Association of Investment Clubs (NAIC), 1940 to present. NAIC is probably the best, well kept secret for the individual stock market investor anywhere. NAIC is a national organization that anyone can join that assists individual investors and investment clubs by providing investment education. Over the years, NAIC has developed an investing philosophy that can be used by anyone to identify a diversified group of growth stocks that are selected to double in value in five years. The national annual average return for the stocks owned by thousands of investment clubs associated with NAIC throughout America have frequently outperformed stock market averages for the past 30 years. Peter Lynch, 1944 to the present. Peter Lynch may be the most widely recognized stock market investor. From 1977 to 1990, Lynch piloted the now famous Magellan Mutual Fund to an amazing 29 percent average annual return. He is the author of several popular books, appears as a guest speaker on numerous television programs, and is a columnist for several magazines. Lynch's investment philosophy and advice for others is simple: invest in what you know, ignore the advice of others (including professional investors), ignore market fluctuations, and look for companies undiscovered by professional investors. These biographical sketches should convince you that anyone, regardless of background or training, can succeed in the stock market. Individual investors can compete head to head with professional investors and, more importantly, investment principles between successful individual and professional investors are often very similar. Considering the complexity of the stock market, it is surprising that so many common threads run through these widely diverse, but successful, stock market investors. These common threads or guidelines for stock market success can be summarized as follows: · Invest for the long term · Diversify your investments · Invest regularly · Avoid market forecasting · Know what you are investing in. What could be easier? The financial community seems to always make things more complicated and confusing than they need to be. Never confuse sophistication with success. Simple, proven strategies followed religiously often produce superior results. |
Thursday 15 December 2011
Through investing, even a tramp can become a millionaire...
Published in Investing on 31 March 2010
Through investing, even a tramp can become a millionaire...
Earlier this week, news emerged of a remarkable man who managed to amass a sizeable fortune while living rough.
Curt Degerman, from the Swedish town of Skellefteå, died of a heart attack 18 months ago at the age of 60. Local people knew Degerman as a tramp that scraped together a living by collecting scrap metal and food and drink cans for recycling. For 40 years, he lived a solitary existence, rummaging through bins for recyclables and eating leftovers from fast-food restaurants.
However, after his death, it emerged that "Tin Can Curt" was an avid reader of the financial pages and an astute investor. By reading Dagens Industri -- the Swedish equivalent of theFinancial Times -- in his local library, Degerman invested his collected deposits carefully. On his death, his fortune was estimated at more than £1.1 million.
A predictable family feud
Somewhat inevitably, news of Degerman's secret wealth sparked a family feud among his relatives. Degerman's Will left his estate to a cousin who visited him often. However, another cousin contested the Will on the basis that his father, Degerman's uncle, was the legal heir.
A Swedish judge urged the feuding heirs not to waste their money on legal fees and, instead, reach a private arrangement, which they have now done.
What's in a tramp's portfolio?
Apparently, Degerman was an academic child, but dropped out of education and mainstream society in his late teens following personal problems. So, how had he invested his money -- and what can we learn from him?
Degerman clearly knew that investing in businesses produces the best long-term returns, as the majority of his portfolio was in stock market-listed companies. Also, he knew about tax planning, because his share portfolio (worth £731,000) was held in a Swiss bank account. Degerman also saw gold as a shrewd investment: his safety-deposit box held 124 gold bars worth £250,000.
Despite never spending any money, Degerman also had £4,300 in his current account and a further £275 of spare cash at home. Thus, despite not needing any cash, he kept some liquidity at hand, perhaps to fund his next share purchase?
Other 'wiser misers'
To me, this is a familiar tale of a 'wiser miser' who amasses considerable wealth but has no interest in spending it. Similar stories of eccentric millionaires emerge frequently, often revealed by a generous charitable donation on death.
For example, in the Motley Fool UK Investment Guide, we told the tale of Anne Scheiber, a childless New Yorker who died in 1995 at the age of 101. From working as an auditor in the US Internal Revenue Service, Scheiber noticed that the very wealthy kept a large proportion of their fortune in stocks and shares.
Despite having never earned more than $4,000 a year, this recluse turned her modest income and a $5,000 nest egg into a $22 million portfolio of blue-chip businesses. On her death, Scheiber generously donated her entire estate to New York City's Jewish Yeshiva University to establish scholarships for disadvantaged female students.
Likewise, investment genius Warren Buffett lives a simple life. Despite his personal wealth of $47 billion, placing him third on the Forbes Rich List, the 79-year-old CEO of Berkshire Hathaway cares nothing for possessions.
In her brilliant biography of Buffett, The Snowball, Alice Schroeder describes how Buffett still lives in the modest house he bought in 1957 for $31,500. The Sage of Omaha also drives a 20-year-old car and only replaces appliances when beyond repair.
For Buffett, the important thing is to live by his own 'internal scorecard' -- the set of values and beliefs by which he measures himself and by which he wishes to be measured. Hence, just like Anne Scheiber, his friend Bill Gates of Microsoft and other tycoons, Buffett is a philanthropist. Indeed, he intends to leave his entire estate to charity.
In summary, by cutting your expenses to the bone and investing a large proportion of your take-home pay in big businesses (perhaps via a low-cost index tracker), you too could amass a sizeable fortune. However, I don't recommend taking this to extremes by living as a vagabond!
The Ultimate Buy and Hold Investor: Anne Scheiber
The Ultimate Buy and Hold Investor: Anne Scheiber
Anne Scheiber, who died in 1995 at the age of 101, became an investing legend after her death.
She took $5,000 in the 1940s, invested it in the stock market, and when she died was worth $22 million. Not shabby.
How did she do it? Patience. Discipline. And investing in the best companies in America. From Time Magazine:
By the time she retired from a $3,150-a-year auditor’s job at the Internal Revenue Service in 1943, she was already investing her $5,000 savings account in a stock portfolio. During her career reviewing other people’s assets, she had noticed that most who left substantial estates had accumulated their money through common stocks. So Scheiber, who had earned a law degree and passed the Washington bar exam before joining the irs, studied the stock markets with the same precision that she had applied to reviewing tax returns.Fond of movies, she first invested in Hollywood studios, including Universal and Paramount, and kept a tally of their attendance rates. She also bought stock in about 100 blue chips and large franchise corporations, such as Coca-Cola and PepsiCo, and drug companies like Bristol-Myers Squibb and Schering-Plough. Her investments grew quickly, says William Fay, her stockbroker for 25 years. “After World War II, stocks really took off. While $5,000 sounds like a nominal amount, it could have increased fivefold in five years,” says Fay, who retired from Merrill Lynch two years ago. At Scheiber’s death, her portfolio had increased more than 4,000 times. Especially profitable were 1,000 shares in Schering-Plough that she had originally bought in 1950 for $10,000; by 1994 they had grown to 60,000 shares worth $4 million.
You think you can’t do it. Why not? She did.
If you hold the stock market long enough, you’ll make money. As it turns out over the last 100 years- you would have made a lot of it.
Her strategy? From Time:
Her strategy was simple: don’t worry about daily market fluctuations; reinvest dividends; hang tough.
Too many investors spend too much time obsessing over 50 cent increments in their stock price. They look at their portfolios on-line daily (sometimes hourly or several times an hour.) They fret over one 20% drop (or have a “sell” order if the stock does ever drop that much.) They don’t look to invest for the long haul- which is ten years or more.
The question to be asked, however, is: if what Anne Scheiber did seems so easy (who doesn’t know the top 50 stocks in the country right now? What if you put $100 into each tomorrow?)- where are the other Anne Scheibers?
It turns out that discpline and patience are rare attributes. Not many investors have it (or they’d all be as rich as she was.)
You can learn those skills.
Interestingly, on various websites that repeat her remarkable story, they don’t get it right. They say things like she was a billionaire when she died (um…no.) Another one said she invested a little here and there. Um…no. And others act like she didn’t know what she was doing (according to Time Magazine she actually attended shareholder meetings and asked questions.)
Just because she was a “little old lady” when she died at age 101, doesn’t mean she was clueless.
She made more money than many on Wall Street.
She proved it doesn’t take fancy insider information. It doesn’t take buying the next “great” thing (she bought established companies.) It does take buying companies that make money and holding them.
Afraid it’s too late for you because you’re, gasp, old? She was no youngster herself- beginning when she was well into middle age.
What’s your excuse?
While most people become poorer the older they get, Anne Scheiber became wealthier.
1. Anne Scheiber died in 1995 at the age of 101. For years she had lived by herself in a tiny run-down apartment in Manhattan. The paint on her walls was peeling and everything was covered with dust. Scheiber lived on Social Security and a small monthly pension which she began receiving when she retired from the IRS in 1943. At age 51, when she retired, she was making only $3,150 per year. Those who knew her say she was the model of thrift. She didn’t spend money on herself. When her furniture wore out, she kept on using it. She wouldn’t even subscribe to a newspaper, rather she went to the library once per week to read The Wall Street Journal. Norman Lamm, the president of Yeshiva University was literally blown away when he learned that this poor old woman left her entire estate to his university – $22 million! How did she do it? One day at a time. She had managed to save $5000 by the time she retired in 1943. She invested that in stocks. "By 1950, she had made enough profit to buy 1000 shares of Schering-Plough Corporation stock, then valued at $10,000. And she held onto that stock, letting its value build. Today those original shares have split enough times to produce 128,000 shares, worth $7.5 million"
2. Anne Scheiber understood the value of investing for the long haul. Whether her stocks went up or down, she never sold it off. When she earned dividends, she kept investing and reinvesting them. While most people become poorer the older they get, she became wealthier.
To Invest is not enough We must make Wise Investments.
Anne Scheiber could have invested her nest egg unwisely and died penniless. She became wealthy because she wisely invested her resources.
http://www.barberville.net/sermon246.htm
2. Anne Scheiber understood the value of investing for the long haul. Whether her stocks went up or down, she never sold it off. When she earned dividends, she kept investing and reinvesting them. While most people become poorer the older they get, she became wealthier.
To Invest is not enough We must make Wise Investments.
Anne Scheiber could have invested her nest egg unwisely and died penniless. She became wealthy because she wisely invested her resources.
http://www.barberville.net/sermon246.htm
The Story of Anne Scheiber: Discipline Trumps Math Ability
April 12, 2007
The Story of Anne Scheiber: Discipline Trumps Math Ability
Consider the remarkable case of Anne Scheiber. She represents not only the superb returns that can be enjoyed from a dedicated and systematic buy and hold strategy, but also the pluck to jump back in the game after losing everything...
She didn't do it with high-flying internet stocks. What's even better, Anne's time-tested investing style is important because it embodies one of three criteria for achieving great results.
It's a simple strategy and can be used by anyone — even small investors.
She relied on patience and sticking with her investment strategy - and above all the discipline to keep adding to her investments on a regular basis and over a long period of time.
On her modest salary as an auditor for the Internal Revenue Service (just over $3000 a year), she managed to invest $5000 over the next ten years. When she died in January 1995 at the age of 101, that modest investment had grown to $20 million. That's not a misprint. $20 million!
Her secret?
Miss Scheiber invested in stocks of companies that she knew and understood. Companies whose products she used. She loved the movies. So she invested in the production companies like Columbia pictures. She drank Coke and Pepsi and bought shares in both. She invested in the companies that made medications she took - Schering Plough and Bristol Myers Squibb. And so on.
Once can achieve the same thing by investing in a mutual fund, if you don't know what stocks to pick OR more importantly, if you're just starting your portfolio and you need diversification to blot out risk. (See: All Risk is Not Created Equal)
She invested regularly and with discipline -- making it the first priority BEFORE she had the latest Manolo's, Prada or Gucci -- through thick and thin for over forty years. Through the bear market of 1973-1974. Through the crash of 1987.
She invested in herself first so later she could have any designer she wanted!
Don't be misled or confused about the need for intricate trading strategies, greater math ability, or get rich quick 'secrets'. (There are none!)
It's about a conscious choice you're going to make today that says: "I can do this; I can own the responsibility for my financial future; and I can do it without pain. I can start right where I am today and still make an impact!"
Discipline -- a dedicated and systematic investment approach -- trumps sophisticated market knowledge. Combined with Diversification and a Longer-Term holding period, you have the only formula you need for success in investing.
Remember, the Tortoise and the Hare fable -- Slow and steady wins the race!
http://the411.typepad.com/weblog/2007/04/the_story_of_an.html
The Story of Anne Scheiber: Discipline Trumps Math Ability
Consider the remarkable case of Anne Scheiber. She represents not only the superb returns that can be enjoyed from a dedicated and systematic buy and hold strategy, but also the pluck to jump back in the game after losing everything...
She didn't do it with high-flying internet stocks. What's even better, Anne's time-tested investing style is important because it embodies one of three criteria for achieving great results.
It's a simple strategy and can be used by anyone — even small investors.
She relied on patience and sticking with her investment strategy - and above all the discipline to keep adding to her investments on a regular basis and over a long period of time.
On her modest salary as an auditor for the Internal Revenue Service (just over $3000 a year), she managed to invest $5000 over the next ten years. When she died in January 1995 at the age of 101, that modest investment had grown to $20 million. That's not a misprint. $20 million!
Her secret?
Miss Scheiber invested in stocks of companies that she knew and understood. Companies whose products she used. She loved the movies. So she invested in the production companies like Columbia pictures. She drank Coke and Pepsi and bought shares in both. She invested in the companies that made medications she took - Schering Plough and Bristol Myers Squibb. And so on.
Once can achieve the same thing by investing in a mutual fund, if you don't know what stocks to pick OR more importantly, if you're just starting your portfolio and you need diversification to blot out risk. (See: All Risk is Not Created Equal)
She invested regularly and with discipline -- making it the first priority BEFORE she had the latest Manolo's, Prada or Gucci -- through thick and thin for over forty years. Through the bear market of 1973-1974. Through the crash of 1987.
She invested in herself first so later she could have any designer she wanted!
Don't be misled or confused about the need for intricate trading strategies, greater math ability, or get rich quick 'secrets'. (There are none!)
It's about a conscious choice you're going to make today that says: "I can do this; I can own the responsibility for my financial future; and I can do it without pain. I can start right where I am today and still make an impact!"
Discipline -- a dedicated and systematic investment approach -- trumps sophisticated market knowledge. Combined with Diversification and a Longer-Term holding period, you have the only formula you need for success in investing.
Remember, the Tortoise and the Hare fable -- Slow and steady wins the race!
http://the411.typepad.com/weblog/2007/04/the_story_of_an.html
Buy-and-Hold: Golden Strategy That Takes an Iron Will
Buy-and-Hold: Golden Strategy That Takes an Iron Will
Anne Scheiber's life was no happy tale. Embittered after the federal government failed to promote her from her IRS auditing job at the end of 1944, she retired and spent the next 51 years mostly alone, living on the Westside of Manhattan.
Her only hobby was investing. She apparently put every penny she had into stocks, rarely selling, her broker would later explain.
By the time she died in 1995, Scheiber had amassed a $22-million fortune in about 100 stocks--all of which she left to a stunned, but grateful, Yeshiva University.
If Scheiber's story is something of a cliche--"aged, frugal recluse buys and holds stocks, leaves millions to charity"--it's too bad we all can't be beneficiaries of such cliches.
But then, many investors have in fact benefited handsomely in the 1990s from the same basic investment philosophy: Just buy stocks and don't sell them. Period.
The proven long-term success of buy-and-hold is the basis for the retirement savings plan boom of the past decade, of course. Americans are encouraged to invest regularly in the market, avoid the temptation to sell when stocks suddenly sink, and trust that when retirement happens in 10, 20 or 30 years, a hefty nest egg will be there to fund it.
And why doubt that? Since Dec. 31, 1989, the Dow Jones industrial average has risen 192%, from 2,753.20 to 8,031.22 at Friday's close.
Even better: Measured from the start of the 1980s bull market on Aug. 13, 1982, the Dow has increased a spectacular tenfold.
What's more, if buy-and-hold still is good enough for Warren Buffett--perhaps the greatest living spokesmodel for that investment style--it still should be good enough for the rest of us, right?
Yet as stock prices have zoomed this year, adding to the huge gains of 1995 and 1996, many investors have understandably grown uneasy. The nagging worry is that stocks might have reached such historically high levels that buying and holding at these prices may never pay off.
On days like Friday--when the Dow sank 156.78 points, or 1.9%, as bond yields surged on concerns about the economy's growth rate--investors' darkest concerns about the market's future can surface.
*
Is there a danger in trusting buy-and-hold at this point?
Certainly not if you have 51 years, like Anne Scheiber did. Academic studies show that the longer your time horizon, the lower the possibility of losing money in stocks.
That's not terribly surprising: Over time, the economy's natural tendency is to grow, because humankind's tendency is to strive to achieve more. If you own stocks, you own a piece of the economy--so you participate in its growth.
But over shorter periods--and that includes periods as long as a decade--it is indeed possible to lose money in stocks. Consider: The Dow index was at 890 on Dec. 31, 1971. Ten years later, on Dec. 31, 1981, the Dow was at 875. Your return after a decade of buy-and-hold was a negative 1.7%.
True, the 1970s were a miserable time for financial assets overall, as inflation soared with rocketing oil prices, sending interest rates soaring as well. But we don't even have to look back that far to discover just how difficult it can be to stick with a buy-and-hold strategy.
From the late 1980s through 1991, major drug stocks such as Merck & Co. and Pfizer Inc. were among Wall Street's favorites. They were well-run businesses, and the long-term demand for their products seemed assured.
By December 1991, Merck was trading at $56 a share, or a lofty 31 times its earnings per share that year.
Then came the Clinton administration's push for national health care. Suddenly, the drug companies found their pricing policies under attack. The stellar long-term earnings growth that Wall Street anticipated seemed very much in doubt. And the stocks fell into a decline that lasted more than two years and which shaved 40% to 50% from their peak 1991 prices.
Merck, for example, bottomed at $28.13 in 1994, which meant a paper loss of 50% for someone who bought at the peak in 1991.
If that had been you, could you have held through that horrendous decline? You should have: Today, Merck is at $98.81 a share, or 76% above its 1991 year-end level. After restructuring its business, Merck's earnings began to surge again in 1995 and 1996.
And this year, the drug stocks have once again become market darlings. But therein lies the problem: Merck is again trading for a high price-to-earnings ratio--26 times estimated 1997 results.
*
That doesn't necessarily mean that Merck is primed to drop 50%, as it did in 1992-94. But it does mean that if you own that stock--any stock, for that matter--you must allow for the possibility of a deep decline from these current high levels, something much worse than the just-short-of-10% pullbacks the market has experienced twice in the last 14 months.
Anne Scheiber, angry recluse that she was said to be, somehow managed to show no emotion at all about the stock market's many ups and downs in her 51 years of investing. A cynic might say she had nothing on which to spend her money, anyway. But the point is, she managed to remain true to buy-and-hold, when many other investors were probably selling out at the market's lows.
Mark Hulbert, editor of the Hulbert Financial Digest newsletter in Alexandria, Va., and a student of market history, worries that too few investors will have Scheiber's iron stomach when the tide eventually turns for the market overall, as it did for the drug stocks in 1992.
"I am cynical about all of these people genuflecting at the altar of buy-and-hold," Hulbert says. "They're not buy-and-hold--that's just what is working now," so investors are happy to go with the flow, he says.
Most investors, Hulbert maintains, are too new to the market to imagine how psychologically painful a major and sustained loss in their portfolio would be.
What is key to judging how much of your assets should be in stocks is your tolerance for risk, your tolerance for loss and, of course, your time horizon. But as a simple rule of thumb, many Warren Buffett disciples like to use this line: If, for whatever reason, you can't take a temporary, 50% loss in your portfolio, then you don't belong in the stock market.
For the relative handful of pros who really invest like Buffett, what the market does on a short-term basis isn't important. Their faith in buying and holding stocks derives from their long-term faith in the underlying businesses.
George Mairs, the 69-year-old manager of the $324-million Mairs & Power growth stock fund in St. Paul, Minn., owns just 33 stocks in the fund. He is among the least active traders in the fund business--he almost never sells. And his results speak for themselves: Mairs & Power Growth has beaten the Standard & Poor's 500 index every year in this decade.
Does Mairs fear that buy-and-hold isn't a great idea at these market levels? Hardly. High-quality stocks aren't cheap, he says, but neither does he find them to be drastically overpriced. "It's the long-term earnings stream that we look at," he says. "If the earnings are going to be there, we don't worry too much.
"What we want to do is own businesses," Mairs says. "If we like a business for the long term, we don't worry about what the stock value is on a week-to-week basis."
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
How Patient Can You Be?
"Buy and hold" sounds great on paper, but it can require enormous patience. Major drug stocks, for example, soared 94% between March, 1990 and December, 1991, as measured by the Standard & Poor's index of five major drug companies. But when the threat of federalized health care surfaced in 1992, drug stocks began a sustained decline that lasted more than two years--and slashed the S&P drug index by 42%. With the stocks again rocketing this year, 1992-1994 stands as a sobering reminder of how bad things can get. S&P drug stock index, quarterly closes and latest
Source: Bloomberg News
Anne Scheiber's story: An amateur investor with a large fortune
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. 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." |
http://www.financialwebring.org/gummy-stuff/Scheiber.htm
Anne Scheiber's investment legacy provides a powerful example of what we can achieve if we are methodical and patient with our money.
FOOL'S SCHOOL DAILY Q&A
It's Never Too Late to Invest
Ask A Foolish Question
By Selena Maranjian (TMF Selena)
May 7, 2002
Q. I'm middle-aged and don't earn much money. Can I really invest? And would my investments really ever amount to much?
A. It's never too late (or early!) to begin investing. For a little inspiration, look to the amazing story of Anne Scheiber. Most people haven't heard of her, but she's one of the world's greatest investors. In 1932, Ms. Scheiber was a 38-year-old IRS auditor. Intrigued by the stock market, she forked over most of her life savings to her brother, a young stockbroker on Wall Street, who lost it.
Determined to try again, but this time relying on herself, she saved $5,000 and plunked it back into stocks in 1944 (at the age of 50). By the time she died in 1995 (at the age of 101), her money had grown to $20 million. How'd she do it?
Well, for starters, she was a long-term, involved investor. She didn't buy a stock today and sell it tomorrow. She attended shareholder meetings and followed her companies closely. She bought big, consumer-brand companies like PepsiCo, Schering-Plough, Chrysler (now DaimlerChrysler), and Coca-Cola, and she reinvested her dividends. She placed her faith -- and her money -- in these growing companies and watched their earnings grow higher over decades. And, when she died, Anne donated it all to Yeshiva University in New York.
Anne wasn't totally Foolish, though, as she didn't stop to smell the roses enough. Those who knew her say she was a recluse in her small, rent-controlled apartment. Never married and painfully frugal, she wore the same coat year after year and skipped meals to save money. Fools generally enjoy not just investing and compounding long-term profits, but also family, friends, and the pursuit of happiness.
Anne Scheiber's investment legacy provides a powerful example of what we can achieve if we are methodical and patient with our money.
http://www.fool.com/foolu/askfoolu/2002/askfoolu020507.htm
It's Never Too Late to Invest
Ask A Foolish Question
By Selena Maranjian (TMF Selena)
May 7, 2002
Q. I'm middle-aged and don't earn much money. Can I really invest? And would my investments really ever amount to much?
A. It's never too late (or early!) to begin investing. For a little inspiration, look to the amazing story of Anne Scheiber. Most people haven't heard of her, but she's one of the world's greatest investors. In 1932, Ms. Scheiber was a 38-year-old IRS auditor. Intrigued by the stock market, she forked over most of her life savings to her brother, a young stockbroker on Wall Street, who lost it.
Determined to try again, but this time relying on herself, she saved $5,000 and plunked it back into stocks in 1944 (at the age of 50). By the time she died in 1995 (at the age of 101), her money had grown to $20 million. How'd she do it?
Well, for starters, she was a long-term, involved investor. She didn't buy a stock today and sell it tomorrow. She attended shareholder meetings and followed her companies closely. She bought big, consumer-brand companies like PepsiCo, Schering-Plough, Chrysler (now DaimlerChrysler), and Coca-Cola, and she reinvested her dividends. She placed her faith -- and her money -- in these growing companies and watched their earnings grow higher over decades. And, when she died, Anne donated it all to Yeshiva University in New York.
Anne wasn't totally Foolish, though, as she didn't stop to smell the roses enough. Those who knew her say she was a recluse in her small, rent-controlled apartment. Never married and painfully frugal, she wore the same coat year after year and skipped meals to save money. Fools generally enjoy not just investing and compounding long-term profits, but also family, friends, and the pursuit of happiness.
Anne Scheiber's investment legacy provides a powerful example of what we can achieve if we are methodical and patient with our money.
http://www.fool.com/foolu/askfoolu/2002/askfoolu020507.htm
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