I wrote this to show that average, everyday people can be their own portfolio managers and manage their own investment portfolios to achieve financial independence, reach financial goals, and accumulate wealth.
Here I tell the investment success story of a woman who did exactly that.
She did it, and so can you. Consider the remarkable case of Anne Scheiber. She represents not only the superb returns that can be enjoyed from a skillful and consistent buy and hold strategy, but also the fortitude to jump back in the game after losing everything.
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 1934. But his firm did not. It went bust suddenly, and Anne lost all her money. 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, 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 $22 million by the time she died in 1995. (If she had simply mirrored the S&P 500, she would have gained 12.4 percent a year.) Few investors, including some of the best-known investment professionals of our time, have matched her record. Her return works out to 22.1 percent a year, above the performance of Vanguard’s venerable John Neff (13.9 percent), better than pioneering securities analyst Benjamin Graham (17.4 percent), and just below Warren Buffett (22.7 percent) and Fidelity Magellan’s Peter Lynch (29.2 percent).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, and buying what you understand in your circle of competence 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 50. 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. This is true financial independence.
In Anne’s case, because she was estranged from her family, her 1995 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, even though she never visited the school.
Anne went to work as a bookkeeper at 15. She 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.
When she retired in 1943, she was making just $3,150 per year. 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 plowed every dime into the market. Relying on her own methodical research and Merrill’s analyst reports, she steadily and consistently bought (and held) the leading brand-name companies in a few businesses she felt she understood (her circle of competence), including drugs, beverages, and entertainment. She rarely bought more than 100 shares at a time 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.
PROFITS FROM THE GRAVE
When Anne Scheiber died at 101 on January 9, 1995, her 10 top stockholdings, starting with her largest position, were worth nearly $6.2 million. On December 11, 1995, they were trading at $9.8 million, for a true hands-off profit of 58 percent in 11 months.
Her buy and hold strategy often produced stellar returns. Some of her stocks, especially in entertainment, got acquired for premiums three or four times, like Capital Cities Broadcasting, which became Cap Cities-Disney. 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. She didn’t like this and she decided to shift the $40,000 in dividends she collected each month into taxexempt bonds and notes, some paying more than 8 percent completely tax free. 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 Scheiber was just a typical working person, earning a low salary and having little savings. But she made a difference to her financial life by being highly disciplined, rational, consistent, and prudent in her investment methodology. Her investment success story legacy provides a powerful example of what you can achieve if you are methodical and patient with your money. The aim is to buy stock in companies you understand that are solid and growing with long-term potential.
The approach she used focuses on the underlying value of the stock and is often considered synonymous with value investing. It ignores the stock market, the general economic climate, and prevailing market sentiment.
Investment Success Story Contributed
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