Buy-and-Hold: Golden Strategy That Takes an Iron Will

Buy-and-Hold: Golden Strategy That Takes an Iron Will

August 10, 1997|TOM PETRUNO

http://articles.latimes.com/1997/aug/10/business/fi-21077/2

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

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."

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

Anne Scheiber's story: Most important points to take away - Being patient and consistent.

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.

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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

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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:

1. $5k to $22m in 50 years (1944-1995) is 18.3% p.a. not 22% p.a.
2. 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.
3. 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

http://www.stocksystemtrader.com/systems/anne-scheiber.html

The Story of Anne Scheiber

November 24th, 2008 

In his book The 21 Irrefutable Laws of Leadership, John Maxwell says that becoming a leader is a lot like investing successfully in the stock market. If you hope to make a fortune in a day, you won’t be successful. What matters most is what you do day by day over the long haul. This, he terms as The Law of Process.

Maxwell recounts the story of Anne Scheiber, an elderly and thrifty lady who lived in New York and worked for the Inland Revenue Service. When Scheiber retired at age fifty-one, she was only making $3,150 a year. She was treated poorly by her employer and was never promoted. Yet when Anne Scheiber died in 1995 at the age of 101, it was discovered that she left an estate to Yeshiva University worth US$22 million!

How did a public service worker with minimal salary accumulate such a staggering wealth? Here’s Maxwell’s take on it:

“By the time she retired from the IRS in 1943, Anne Scheiber had managed to save $5,000. She invested that money in stocks. By 1950 she had made enough profit to buy 1,000 shares of Schering-Plough Corporation stock, then valued at $10,000. And she held on to that stock, letting its value build. Today those original shares have split enough times to produce 128,000 shares, worth $7.5 million.

The secret to Scheiber’s success was that she spent most of her life building her worth… When she earned dividends – which kept getting larger and larger – she reinvested them. She spent her whole lifetime building…. When it came to finances, Scheiber understood and applied the Law of Process.”

The above story of Anne Scheiber was actually used by leadership guru Maxwell to illustrate an important leadership principle. But it can be equally applied to investing. I’m not sure if Maxwell got the facts right, but we can certainly learn a couple of important principles here:

1. Time in the Market
It is now how you start that is important. It is what you do day to day, and how you finish that counts. Sure it’s nice to time the market correctly but if you’re looking to make some serious bucks, time in the market counts.

Patience and consistency is everything!

2. Focused InvestingMost of Scheiber’s wealth was in a handful of stocks, the largest one being Schering-Plough. Like Warren Buffett, Scheiber is a Focused Investor. A Focused Investor puts meaningful amounts of money in a few things. Scheiber liked companies which are leading brands in their market.

Anne Scheiber

Most of us will not have the experience of picking one company which will ride on a tsunami wave. If you had bought a piece of Microsoft or Berkshire Hathaway when they started business, you would have the same ecstasy… but how many companies are like that? What are your chances of picking such companies? Nevertheless it is not impossible… imagine if you had bought and held on to Public Bank since inception. Now isn’t it worth a little time and effort to research and identify the next Public Bank?

3. Compound Growth
Whether the stock went up or down, she never thought, I’m finished building; now it’s time to cash out. She was in for the long haul, the really long haul. We are told that Anne Scheiber reinvested all of her dividends. She didn’t say lets take out some money and buy the latest LV handbag.  In fact Anne Scheiber was frugal to the point of being miserable. She lived in a rent-controlled apartment, wore the same clothes year in year out, didn’t own a car and even went to shareholder meetings so she could take home bags of food.

Don’t get me wrong… I’m not saying you shouldn’t reward yourself once in a while. In fact I would say there is a thin line between extreme thrift and greed. If you are blessed with so much money, spend some of it, give it away or whatever. Not only will you bless others, you release yourself from the trappings of greed 

“Keep your lives free from the love of money”Hebrews 13:5 (NIV)

The important lesson here is to realize the power of regular investment and compound returns. When you invest in good things and you invest regularly, your wealth will eventually multiply.

Remember attending one of those Unit Trust presentation and the Agent puts up that Regular Investment & Compound Return chart? Then everyone’s jaw would drop because your RM100/month savings can turn into a six figure sum when you retire? Start early, invest and have the discipline to keep re-investing…

Anne Scheiber loved stocks for her whole life and it is likely that she started investing much earlier than 1943 (the time she retired). Although she met with limited success initially, she came out tops in the end.

4. Hard Work
Anne Scheiber worked on her investments. She studied the companies she invested in, attended shareholder meetings and asked many questions to satisfy her curiousity and passion. Hard work with laser-like focus usually pays off.

“Successful leaders are learners. And the learning process is ongoing, a result of self-discipline and perseverance. The goal each day must be to get a little better, to build on the previous day’s progress.”John C. Maxwell

Replace the word leaders with investors. Makes sense, wouldn’t you agree?

http://www.horizon.my/2008/11/the-story-of-anne-scheiber/

Anne Scheiber: The quietest can make a great noise.

Anne Scheiber's Gift
Published: December 05, 1995

With the season of holidays and gift-giving comes the story of Anne Scheiber, a 101-year-old recluse who spent her retirement quietly turning a $5,000 nest egg into a $22 million stock portfolio. She then left the entire fortune that she had accumulated over half a century to Yeshiva University, to establish scholarships for needy women students there.

"Here's a woman who for 101 years was childless and now becomes a mother to a whole community," said the president of the university.

During her life, Ms. Scheiber had no direct contact with the university, or indeed with just about anyone except her lawyer and stockbroker. Although she clearly had a genius for finance, she founded no business. She had no close family, and no friends. She had no projects, no charities, did no volunteer work. She retired a half-century ago from the Internal Revenue Service feeling that her hard work there had gone unrewarded because of her sex. It was apparently that memory that inspired her bequest.

Ms. Scheiber's gift recalls the story of Oseola McCarty, the 87-year-old Mississippi woman who earlier this year donated $150,000 earned in a lifetime of doing other people's laundry to endow scholarships for black students at the University of Southern Mississippi. Both women lived simply, and cared nothing about possessions. That may explain why they gave their money for opportunity, rather than plaques or buildings.

Besides money, both women left us a lesson. We can touch the future in many different ways. The childless can leave their imprint on the young for generations to come. The friendless can transform a community. The quietest can make a great noise.

http://www.nytimes.com/1995/12/05/opinion/anne-scheiber-s-gift.html

Upon retiring, Anne Scheiber dedicated her life to investing in the stock market.

• December 18, 1995
 
• Vol. 44
 
• No. 25

Angel in Disguise

After Years of Resentful Frugality, Anne Scheiber Bequeaths $22 Million to Help Women Students

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ONLY A HANDFUL OF PEOPLE KNEW Anne Scheiber, and few can recall her smiling. Instead they remember a friendless, pathologically frugal woman who seemed as bitter as Baker's chocolate. Never married and long since estranged from all but two of her nine siblings, she rented the same New York City studio apartment for 50 years and lived surrounded by furniture she had bought in 1944. She wore the same hat and coat nearly every day, regardless of the season. So the news that became public two weeks ago is doubly startling: Not only had Scheiber, who died last January at 101, built a fortune of $22 million, but she willed all of it to needy students at Yeshiva's Stern College for Women in New York City—a school she had never visited. "She got a lot of satisfaction knowing she was leaving this money," says Benjamin Clark, Scheiber's tax lawyer. "She'd say, 'Someday, when I'm long dead, there will be some women who won't have to fend for themselves.' " 

For most of her life, Scheiber was forced to do just that. Born in Brooklyn, she was raised primarily by her mother, Rose, a real estate broker, after her father had died prematurely. Scheiber started night school and went to work as a bookkeeper at 15, later entering Washington's National University (a forerunner of George Washington University) Law School. But rather than practice law after graduating in 1924, she stayed with the more secure auditor's job she had landed four years earlier with the IRS. Despite a stellar performance during the next 19 years, she was never promoted; Scheiber blamed the slight on the fact that she was a woman and a Jew. "The IRS treated her quite shabbily," says Clark. "She was very bitter." 

Upon retiring in 1943, Scheiber decided to get even by getting rich. She returned to New York City and dedicated her life to playing the stock market. "She never tried to outguess the market," says William Fay, Scheiber's broker since the '70s. Her strategy: Invest in blue-chip companies and hold on. By the time she died, her initial $5,000 investment had increased 439,900 percent. 

Clark delivered the gift to a stunned Dr. Norman Lamm, Yeshiva's president, in January. "Ms. Scheiber was a very unhappy woman whose only joy came from accumulating wealth," says Lamm, who will oversee the Anne Scheiber Scholarship and Loan Fund Awards. "Now in one fell swoop, she has managed to gain immortality." 

http://www.people.com/people/archive/article/0,,20102404,00.html

Anne Scheiber is the poster woman for "It's never too late to start investing."

The Saga of Anne Scheiber

Once more, I swerve away from animation to tell a tale every animation employee faces: earning a living and saving for retirement.

I relate the following story because a) it's a good one, and b) I've had too many people call or come through TAG's office over the years and say (more or less) that they were 63 years old and flat broke, without job prospects, and without any pension except for the piddly amount they were getting from Social Security. So listen up:

Ever heard of a woman named Anne Scheiber? Probably not, but Anne is the poster woman for "It's never too late to start investing."
Anne was an IRS examiner back in the 'forties. And thirties. Along about 1944, Anne reached retirement age and decided it was time to hang it up. And so she took retirement…on a queenly $3,150 annual government pension.
For the next fifty-four years, Anne lived quietly and simply in her small, rent-controlled apartment in New York City. She clipped coupons, shopped for discounts at the local stores, ate home a lot.
As far as anyone could tell, Anne was just one more Big Apple pensioner, squeaking by on a small and miserable fixed income. But lo and behold, when Anne passed away in 1995 at 101, her will was opened and the larger world found out that the little woman in the tiny apartment had left a $22 million dollar estate to Yeshiva University. And that her stock investments were earning around $1 million per annum, most of which she didn't spend.
So what the hell was going on? Actually something relatively simple. Back when Anne retired, she took the $5000 in savings that she had scraped together and began investing it herself.
Anne, you see, had been burned by various stock brokers during the 1930s, and had resolved to never depend on them again. She did her own research, chose her own stocks, and by the time she passed away 53 years later, her stock choices had grown at the rate of around 12.5% per year. And the paltry five grand had mushroomed to $22,000,000 and counting. (Ah, the magic of compoudning.)
Anne's strategy was simple. She did her homework. She bought quality stocks. And held them. And held them. And held them. When she died, she had 60% of her assets in stocks, 30% in bonds, and 10% in cash. The classic asset-allocation fund.
The moral of this story is not: make big run-ups on your investments every year, nor is it to live like a church mouse while you have millions tucked away. The point of the story is, no matter how old you are, no matter how far down you think you might be, you always have the ability to put money into an investment and commence building a nest egg.
If Anne Scheiber was able to do it after retirement on a three-thousand dollar a year pension, you and I and everyone else in this on-and-off business can do it.

http://animationguildblog.blogspot.com/2007/01/saga-of-anne-scheiber.html

Lessons from a Secret Multi-Millionaire: How Anne Scheiber Amassed $22 Million From Her Apartment

By Joshua Kennon, About.com Guide

In the mid 1940’s, Anne Scheiber retired from the IRS where she worked as an auditor. Using a $5,000 lump sum she had saved, and a pension of roughly $3,150, over the next 50+ years, she built a fortune from her tiny New York apartment that exceeded $22,000,000 upon her death in 1995 when she left the funds to Yeshiva University for a scholarship designed to help support deserving women. Here are some of the lessons we can learn from this ordinary woman that achieved extraordinary wealth.

1. Do your own research

Sheiber was burnt by brokers during the 1930’s so she resolved to never rely on anyone for her own financial future. Using her experience with the Internal Revenue Service, she analyzed stocks, bonds, and other assets. The result: She owned only companies with which she was comfortable. When markets collapse, one of the best ways to stay the course and maintain your investment program is to know why you own a stock, how much you think it is worth, and if the market is undervaluing it in your opinion.

2. Buy shares of excellent companies

When you’re really in this for the long-haul, you want to own excellent businesses that have durable competitive advantages, generate lots of cash, high returns on capital, have owner-oriented management, and strong balance sheets. Think about everything that has changed in the past one hundred years! We went from horse and buggies to cars to space travel, the Internet, nuclear knowledge, and a whole lot more. Yet, people still drink Coca-Cola. They still shave with Gillette razors. They still chew Wrigley gum. They still buy Johnson & Johnson products.

3. Reinvest your dividends

One of the biggest flaws with both professional and amateur investors is that they focus on changes in market capitalization or share price only. With most mature, stable companies, a substantial part of the profits are returned to shareholders in the form of cash dividends. That means you cannot measure the ultimate wealth created for investors by looking at increases in the stock price.

Famed finance professor Jeremy Siegel called reinvested dividends the “bear market protector” and “return accelerator” as they allow you to buy more shares of the company when markets crash. Over time, this drastically increases the equity you own in the company and the dividends you receive as those shares pay dividends; it’s a virtuous cycle. In most cases, the fees or costs for reinvesting dividends are either free or a nominal few dollars. This means that more of your return goes to compounding and less to frictional expenses.

4. Don’t be afraid of asset allocation

According to some sources, Anne Scheiber died with 60% of her money invested in stocks, 30% in bonds, and 10% in cash. For those of you who are unfamiliar with the concept of asset allocation, the basic idea is that it is wise for non-professional investors to keep their money divided between different types of securities such as stocks, bonds, mutual funds, international, cash, and real estate. The premise is that changes in one market won’t ripple through your entire net worth.

5. Add to your investments regularly

Regular saving and investing is important because it allows you to pick up additional stocks that fit your criteria. In addition to the first investment Scheiber made, she regularly contributed to her portfolio from the small pension she received.

6. Let your money compound uninterrupted for a very long time

Probably the biggest reason Anne Scheiber was able to amass such as substantial fortune was that she allowed the money to compound for of half a century. No, that doesn’t mean you have to live the life of a monk or deny yourself the things you want. What it means is that you learn to let your money work for you instead of constantly striving to scrape by, barely meeting expenses and maintaining your standard of living.




To learn about the power of compounding, read Pay for Retirement with a Cup of Coffee and an Egg McMuffin. With only small amounts, time can turn even the smallest sums into princely treasures.

http://beginnersinvest.about.com/od/investorsmoneymanagers/a/Anne_Scheiber.htm

Given Anne's performance, it is not unreasonable to think that 25-year-olds with $5,000 today who follow her example could amass a multimillion-dollar portfolio by age 65.

HOW SHE TURNED $5,000 INTO $22 MILLION (AND HOW YOU MIGHT TOO...)

By FRANK LALLI

January 1, 1996

(MONEY Magazine) – In the depths of the depression, when she was already 38 years old and earning only a little more than $3,000 a year, Anne Scheiber invested a major portion of her life savings in stocks. She entrusted the money to the youngest of her four brothers, Bernard, who was getting started at 22 as a Wall Street broker. He did well picking issues for her as the market drifted upward in 1933 and '34. But his firm did not. It went bust suddenly, and Anne lost all her money.

"She was bitter with my father for the rest of her life," recalls Bernard's son Laurence, 41, a New York financial services salesman. "In fact, she got more bitter the older and richer she got."

Some of her anger at her broker brother seems understandable. After all, she had accumulated the money penny by penny for years by skipping meals, wearing clothes until they frayed and even walking to work in the rain to save bus fare. You might expect her to have turned against the very idea of investing as well. But not Anne; not for a minute. She rededicated herself to her saving and investing regimen with such a vengeance that it consumed her life--while also rewarding her with astonishing wealth. Although she never married, never even had a sweetheart, she did have one love: investing.

In 1944, 10 years after her big loss, she started fresh with a $5,000 account at Merrill Lynch Pierce Fenner & Beane and slowly built the nest egg up to $20 million by the time she died last January, loveless and alone at 101. It's now worth $22 million.

Few investors, including the best-known professionals of our age, have matched her record. Her return works out to 22.1% a year, above the performance of Vanguard's venerable John Neff (13.9%), better than pioneering securities analyst Benjamin Graham (17.4%), and just below Warren Buffett (22.7%) and Fidelity Magellan's Peter Lynch (29.2%). What's more, Anne's basic time-tested investing style can easily be adopted by any small investor. It relies on dedication more than dazzling financial analysis, faith in major companies more than a flair for prescient stock picking, and patience more than the pursuit of immediate profits.

Given Anne's performance, it is not unreasonable to think that 25-year-olds with $5,000 today who follow her example could amass a multimillion-dollar portfolio by age 65. Then they could live the rest of their lives, just as Anne did, with all the money they would ever need, plus the comfort of knowing they could eventually pass on their millions as they saw fit. In Anne's case, since she was estranged from her family, her 1975 will left only $50,000 to one of her nine relatives, a niece who looked in on her from time to time. Virtually her entire $22 million went to New York City's Yeshiva University, though she never visited the school. She specifically earmarked the money to help educate the bright and needy young women among the co-ed school's 6,200 students--women not unlike herself back around World War I.

"Anne was brilliant but weird about money," says her longtime New York City attorney Ben Clark. Relatives add that her fixation ran in the family. "The Scheibers were all like that," says Laurence. No matter how much they had, they feared they would lose it all, perhaps with some justification; it happened to the family twice.

"Back in Poland around the first World War," recalls Laurence's mother Lillian, "the Scheibers had gold buried in the ground. But they traded it for paper money that became worthless." Then in this country, Anne's father suffered substantial real estate losses before dying young and forcing her mother to go to work managing property to support her nine children.

For Anne at least, the money anxiety that darkened her early years was deepened by the family's European values. Whatever money the family did get went to educate the four sons; the five daughters were on their own. Anne persevered, however. She went to work as a bookkeeper at 15 and used her wages to better herself, eventually putting herself through school at night at the predecessor of George Washington University Law School in Washington, D.C. She joined the Internal Revenue Service as an auditor in 1920 and passed the bar exam in 1926 at age 32.

Years later Anne would often dwell on the two lessons she learned during her 23 years at the IRS. First, she concluded that--back then at least--women, especially Jewish women, had little chance of getting ahead. Attorney Clark, who has reviewed her agency records, says she was consistently one of the top auditors. Although she was barely five feet tall and 100 pounds, her favorite ploy was to march in and announce: "Obviously, these books aren't the correct ones. When I come back tomorrow, show me the real books." Then she would walk out. "She was a terror," says Clark. Nonetheless, she was never promoted. When she retired in 1943, she was making just $3,150.

The second lesson she learned poring over other people's tax returns was that the surest way to get rich in America was to invest in stocks. She ultimately concluded that she couldn't do much to change other people's prejudices, but she could do a lot to take care of herself.

Anne began saving money with a fervor that bordered on the maniacal. "She was saving 80% of her salary, at least," says Clark. "For example, she didn't spend $2 on food a week. In those days you could get a hot dog lunch at Nedick's for 15¢, but I know she found an even cheaper place."

"I don't think she was spending more than $2 on food in 1985 either," says her Merrill Lynch broker of 22 years, William Fay. "She'd wear the same black coat and black hat every day winter and summer. Once one of her nieces bought her a new black coat. But Anne found out it cost $150 and refused to wear it."

Anne plowed every dime into the market. Relying on her own methodical research and Merrill's analyst reports, she steadily nibbled at the leading brand-name companies in a few businesses she felt she understood, including drugs, beverages and entertainment. "She rarely bought more than 100 shares at a time," says Fay, "and only once bought more than 200. That's when she purchased 1,000 shares of Schering-Plough in the early '50s for $10,000." Today, her Schering-Plough alone is worth about $3.8 million.

She also almost never sold anything, even stocks that went underwater for years--partly because she hated paying commissions. "She'd say to me: 'Why should I fatten up the brokers? I'm just going to buy and hold,'" Clark recalls. Her buy-and-hold strategy often produced bonanzas. "Some of her stocks, especially in entertainment, got acquired for premiums three or four times, like Capital Cities Broadcasting, which became Cap Cities--Disney," says Fay.

By the early 1980s, as she approached 90, Anne found herself facing ever-steeper income taxes on her $10 million portfolio of about 100 stocks. That annoyed her no end. At Fay's urging, she decided to shift the $40,000 in dividends she collected each month into tax-exempt bonds and notes, some paying more than 8% completely tax-free. "She never sold a stock to go into bonds," says Fay. Still, within a few years, her cash flow climbed from $500,000 a year to around $750,000, while her tax bill remained in check.

Anne bought her last two stocks in 1985, 100 shares each of Apple and MCI. "She didn't trust technology, because she didn't understand it. So she resisted investing in it," says Fay. "Also, by then she didn't want to be bothered remembering the names of new stocks."

"What she'd say over and over again was: 'Don't ever tell anyone in my family how much money I have. I'm going to leave it all to education,'" recalls Fay. "And, of course, she did."

What are the lessons of Anne Scheiber's story? Here are eight investing tips--plus two concluding thoughts.

1. Invest in leading brands. Anne called them franchise names, by which she meant leading companies that created products she admired. For example, she owned Bristol-Myers, Allied Chemical and Coca-Cola. She also followed her instincts on untested companies. "When Pepsi-Cola came along, she tried it," says Fay, "and then bought PepsiCo when it was the new kid on the block."

2. Favor firms with growing earnings. Anne tended to ignore a stock's price-to-earnings ratio. Instead, she focused on the company's ability to increase profits. She reasoned that stocks are overpriced sometimes and underpriced others but it all works out in the end if the company's income rises year after year.

3. Capitalize on your interests. Anne always enjoyed movies. So she turned that pleasure into one of her investing themes by devouring Variety in search of the best entertainment companies. She scored big with Columbia, Paramount and Loews, as well as Capital Cities Broadcasting.

4. Invest in small bites. In addition to adding diversity to her portfolio, that rule automatically caused her to pick up extra shares when prices were low and avoid going overboard when prices were high.

5. Reinvest your dividends. It's the same principle as playing with the house's money in gambling, with this advantage--it's a sure moneymaker in long-term investing

6. Never sell. Or at least, never sell a stock you believe in. "For a long time in the rotten bear market of the '70s, many of her drug stocks were down, some by as much as 50%" says Fay. "But she hung on because she believed in them. She didn't panic in the crash of '87 either. She thought the general market had gotten overpriced, plus she was convinced her stocks would come back."

7. Keep informed. Anne went to all of her companies' New York City shareholder meetings. Rain, sleet or shine, she would walk over from her rent-stabilized, $450-a-month studio apartment in her trademark black coat and hat, buttonhole the CEO and demand answers, just as she did when she was an auditor. Then she would compare her notes with what the Merrill analysts were saying. Fay adds, however, that she also attended the meetings for the freebies. "Even when she had millions, she'd show up with a bag," confirms a relative. "If there was food served, she'd fill the bag and live on it for days."

8. Save with tax-exempt bonds. They provided more safety than stocks and cut her tax bill. When she died, she had 60% in stocks, 30% in bonds and 10% in cash.

In addition to those investing ideas, Anne's life also illustrates two other lessons worth considering, especially if you hope to end up with more than enough money as she did:

9. Give something back. Her $22 million gift to Yeshiva, plus an extra $100,000 she gave to an Israeli educational group, will help countless young women realize their full potential for years to come. Yeshiva's president Norman Lamm says: "Anne Scheiber lived to be 101 years old, but here at Yeshiva University her vision and legacy will live forever." One of her relatives who wasn't left a cent, New York City bank officer Dolly Acheson, adds that the Yeshiva gift gave her a "feeling of redemption." As she puts it: "At least in the end all that money went to a very good cause."

10. And finally, enjoy your money. As intelligent as Anne Scheiber was, she failed miserably on this one. She died without one real friend; she didn't get even one phone call during her last five years of life. Says her former broker Fay: "At some level, a recluse like her must get some psychic reward to keep going on that way. But to you and me, her life was terrible. A big day for her was walking down to the Merrill Lynch vault near Wall Street to visit her stock certificates. She did that a lot."

http://money.cnn.com/magazines/moneymag/moneymag_archive/1996/01/01/207651/index.htm