In my last few columns, I’ve talked about my recent visit to my son’s seventh-grade class to discuss how ordinary Americans can achieve the American Dream of financial independence.
However, I still had a few holdouts who didn’t believe the average American on an average income could possibly save and invest their way to a net worth of $1 million or more. (Despite what you may have heard, 12-year-olds aren’t pushovers.)
[ad#Google Adsense 336×280-IA]Facing a skeptical crowd, I was forced to pull out my big gun: the story of Ronald Read, the $8 million janitor.
A longtime resident of Brattleboro, Vermont, Read died in 2014 at age 92.
He lived modestly, as you might expect for a man who worked 25 years at a gas station and then 17 more as a janitor at a local J.C. Penny.
Yet his relatives were shocked to learn that he left an estate valued at almost $8 million.
This puts the lie to the conventional wisdom that to get rich you have to be well connected, highly educated or an entrepreneur who starts his own business.
Read’s story is a revealing one. And – while I might argue that he made one serious mistake – virtually anyone could use his methods to build a personal fortune.
Here’s why…
Read made his fortune in the stock market. He had no great training in economics. But, as he proved with his own example, that’s not necessary for long-term investment success.
He owned at least 95 stocks, but was not a great stock picker. Some of his stocks – including Lehman Brothers – went to zero. The stocks he did own were mostly well-known, conservative blue chips: American Express (NYSE: AXP), Johnson & Johnson (NYSE: JNJ), Procter & Gamble (NYSE: PG), Raytheon (NYSE: RTN), General Electric (NYSE: GE), Dow Chemical (NYSE: DOW) and Wells Fargo (NYSE: WFC), to name just a few.
He was no visionary and avoided technology shares. Instead he favored – ho hum – railroads, utilities, healthcare, banks and consumer stocks.
He tended to buy companies he was familiar with, ones that paid large and growing dividends. Then he reinvested them.
How did this modest man with limited education, no business experience and far-below-average income amass a multimillion-dollar fortune?
He was patient. He thought long term and wasn’t buffeted by daily news events or the regular caterwauls of market pundits. He didn’t mistime the market because he never tried to time it.
He diversified broadly. A smart investor spreads his risks widely not only to reduce risk but also to increase his chances of holding a big winner.
He kept his investment costs minimal. He used a discounter to execute his trades. Then he took delivery of his certificates. And there were quite a few. When he died, he left behind a 5-inch-thick stack of them in a safe deposit box.
He lived frugally. Although his stock portfolio hit the multimillion-dollar mark many years before he died, he never flaunted his wealth. He was generally recognized in the same flannel jacket and baseball cap. His most expensive possession was a 2007 Toyota Yaris valued at $5,000. He foraged for his own firewood and would often park several blocks away to avoid paying parking tolls.
So what did Read get wrong? From an investment standpoint, virtually nothing.
But I’d question whether it was wise to never enjoy the fruits of his success while he was alive. I’m not saying he should have spent most of his money. But he certainly could have treated himself (or someone he loved) to something special every once in a while.
Then again, this must not have been important to him. (And, after all, it was his money.) Clearly, he enjoyed living modestly, something beyond the imagination of many Americans today.
However, his local library and hospital in Brattleboro must be grateful.
Read left them more than $5 million.
Good investing,
Alex
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Source: Investment U