Investing, in the general sense, isn’t very hard. All you need is a few dollars and a Schwab account. Buy a mutual fund or ETF and over time it is likely to grow. Investing in yourself is also important. Maybe it’s working out, eating better or learning a new skill. But when it comes to money, the ultimate question is ‘what makes someone a successful investor and what is the metric used to determine the line between a good and a bad one?’ Often times the answer is personal.
There has always been a theory that the best investors are well educated folks who studied at the top schools in the nation. They understand markets and companies and can time the things just right. We hear about them all the time. The Warren Buffet’s and Peter Lynch’s of the world get massive praise for their skill of beating the market, as they should. But, there are millions of others that were highly successful that we will never hear about. Why? Most likely it is due to the fact that the values of their portfolios were not in the hundreds of millions or billions. Nor were they attached to a public mutual fund, private equity fund or know for externally providing advice. They were the ‘you and me’ type of people in the world. What many call the ‘millionaire next door.’
One of these unknown investors was Ronald Read. Mr. Read’s story is bittersweet (which we will get to later), but it is an important lesson in successful investor behavior.
Ronald was born in 1921 and his upbringing was not for the weak. He grew up in Dummerston, Vermont, in an impoverished farming family. Known for the daily grind of walking or hitchhiking four miles to school every day, Ronald enlisted into the US Army during World War II and worked as a military policeman. Upon his return to civilian life is where his successful investing story begins.
For the next 25 years after returning home, Ronald worked as a gas station attendant and mechanic before retiring for the first time. Like many disciplined folks who enjoy having a purpose for their day, his retirement lasted all of one year before he took a part time job. For the next 17 years, he worked as a part-time janitor with JC Penney. All in all, he had a 42 year working career. Pretty standard for most Americans.
Read ultimately passed away in 2014 at the full age of 93. Only after his passing did the world realize that his legacy wasn’t only the memories that he left with his immediate friends, family and his duty to his country, but that he amassed a fortune that was left behind for charity and his family. How did he do it?
In Read’s high school yearbook, the quote he chose for under his name was, “It is tranquil people who accomplish much.” Nothing could be truer of his story. Read didn’t chase the next hot stock, didn’t study the chart of the day or look to sexy derivatives, alternatives or hedge funds to do the work. He relied on a disciplined approach of Dollar Cost Averaging—investing the same amount of money in a target security at regular intervals over a certain period of time, regardless of price—much like your 401k. He invested his money into quality blue chip companies who paid healthy dividends, over and over again during his working career. He didn’t spend these dividends, but instead reinvested them into more stock.
The chart below gives an example of Dollar Cost Averaging (DCA) versus trying to time the market by investing cash at low points. This time line represents a massive period of inflation, the tech bubble and the Great Financial Crisis (GFC). In essence, Mr. Read was the black line. He ignored the noise and kept investing, earning dividends and growing his wealth.
Read’s portfolio consisted of 100 or so stocks in order to spread his risk among many sectors of the economy (a.k.a. diversification). Many would think, ‘I bet he made a fortune in technology stocks, right?’ Well, no. He actually did not invest in technology stocks as, like many in his generation, he stated that he didn’t understand them and didn’t use many of the products they sold and produced. He stuck with what he knew. Companies like JP Morgan, Proctor & Gamble and Johnson & Johnson. These companies have products that line our medicine cabinets and kitchens and act as the lifeblood to much of our society today. This was true 50 years ago and continues to be true more than 72 years later. They also pay an investor for the risk they take in the form of generous dividend payments.
You are probably wondering how much a man of modest means actually accumulated with his envious savings skills. Was it two million dollars… three million? Try close to eight million dollars at the time of his death! By consistently saving and Dollar Cost Averaging his funds into quality investments that also paid him, Read was able to amass a fortune that most would consider inconceivable. Let’s not forget that he did this through multiple wars, the stock market crashes of 1987 and 2000 and the financial crisis of 2008, which likely cut his portfolio in half. He didn’t waver, understanding that the ebbs and flows of the economy and life are normal and out of his control. He let the market do the work for him.
Read ultimately donated a large portion of his estate to charity and institutions that meant something to him. A very noble move on his part. We are all a creation of those who helped us, no matter how ‘self-made’ we are.
As mentioned earlier, Read’s story is bittersweet. Yes, he amassed a fortune that most of us will never see and he did it by means of an ordinary income. But, did he enjoy any of it? Did he get to see his family experience some of the finer things in life? Did he have regrets in the end? Only he would know.
These types of stories always spark conversation around balance. Balance of how you use your time. Balance of how much you work. Balance of how much you save versus spend. For someone like Mr. Read, who ended up giving his assets to family and charity, I can’t help but revisit the question, ‘would you rather give with warm hands or cold hands?’ It seems that his choice was cold.
There are multiple lessons we can learn from Mr. Read’s story:
1. The first is that it doesn’t take wealth to create wealth. It takes behavior and discipline. Read steadily saved and invested over his career. He didn’t chase sexy investments, try to control the uncontrollable (i.e. beat the market) or buy a bunch of expensive products hawked by salespeople that walk away with big commissions and leave the investor with subpar returns. He ignored the noise.
2. Education doesn’t equal success. Investing is one of the few things in life that the more training you have doesn’t necessarily equate to better success. Sure, you can make investing blunders (we all do) by not knowing, but investing is much more about behavior, consistency and time. 30 years of good returns substantially outperforms a couple years of extraordinary returns. The party never lasts forever.
3. Life is finite, balance is key. It would be wrong to judge how anyone wants to spend their time or money, but we can’t help but think of what the quality of life may be been for Mr. Read had he simply saved half of what he did and spent the other half. He still could have amassed riches that are beyond most people’s imaginations.
That said, I have learned that just like many know how to spend money like it’s their last day on earth, there are just as many who simply don’t know how to spend it. All in, Mr. Read created a legacy that will hopefully change many lives for decades to come. Case in point—I guarantee that while serving his country in WWII, he never would image someone blogging about his life and the riches he left behind.