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Have you heard about Apple’s (AAPL) foray into the electric car world? There are rumors of an iCar, a possible alliance with Tesla (TSLA), driver-less technology, and who knows what else. I guess when you are the world’s most valuable company with $178 Billion sitting in the bank, just about anything is possible. However, GM and Chrysler have been in the car business for a long time and they don’t seem to have money burning holes in their pockets.
Personally, I was much more interested in the story about Ronald Read, the former gas station attendant that amassed an $8 million nest egg before he passed away last year at age 92. His story appealed to me on many levels, not the least of which being that I am a 3rd generation gas station attendant myself. My grandfather opened his first service station in the 1930’s, my father took it over in the 1970’s, and I worked there on weekends and summers through my college years pumping gas and providing maps or directions to lost travelers.
Things change, though. Full-service gas stations gave way to self-service, GPS replaced maps, and maybe the gasoline powered car’s days are numbered. On the other hand, the lessons we can learn from Mr. Read are just as relevant today as they were back when what was good for GM was good for America. In fact, I can relate what we do at ATX Portfolio Advisors with how he amassed his fortune just as easily as I can with how he got started by pumping gas.
The first question I ask folks that are considering investing is “are you TIRED?” That’s not meant to imply they look as if they could use some more sleep, it’s an acronym for 5 principles I consider to be necessary to be a successful investor. Here’s how Mr. Read embodied those principles:
Time is the first principle and maybe the most important. Investing isn't a short term proposition, and Mr. Read had the good fortune of living a long time. It’s been said that compound interest is the 8th Wonder of the World, but that’s only if there is enough time to make it work. For Mr. Read to have amassed $8 million on what were probably minimum wages, he would have had to have started investing very early in life and achieved slightly better than average returns. Let’s say he started when he was 18 years old in 1940. If he put away $10 per month increasing 4% per year and earned 12.5% (about 1% more than the S&P 500® with dividends reinvested for the same time frame), he would have had $1,404,666 saved by the time he retired in 1998 at age 76. If his portfolio continued to grow at 12.5%, he would have amassed $8,219,795 by the end of 2013.
Inclination is defined by Merriam-Webster as a feeling of wanting to do something: a tendency to do something. Almost certainly Mr. Read wanted to invest and acted on his tendency to save. This is also the attribute that is the most impactful to deciding whether to go it alone as an investor or hire an advisor.
Resources aren't the scarcest commodity when it comes to investment information, but before the age of the internet, Mr. Read probably had to work a little harder to find information like stock prices, annual reports, and business news. According to his friends and family, the only clue that he was quietly amassing an $8 million fortune was his habit of reading the Wall Street Journal. Perhaps that is why his local library received a $1.2 million gift from his estate.
Expertise may be the most overrated of my principles. After all, according to the Oracle of Omaha himself, Warren Buffet[i], “You don't need to be a rocket scientist,” he has said. “Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” It’s worth pointing out that if you abide by the other four principles, you probably would be considered an expert by many.
Discipline is the final principle and competes with Time for top billing (DIETR just isn't as catchy). Mr. Read showed discipline on many levels. He clearly lived beneath his means, "You'd never know the man was a millionaire," his attorney Laurie Rowell[ii] said. "The last time he came here, he parked far away in a spot where there were no meters so he could save the coins." Oh, and did I mention he drove a second-hand Toyota Yaris?
Think of all the opportunities over the years that he had to panic and sell everything, but did not: WWII, Cold War, Korean War, Cuban Missile Crisis, Kennedy Assassination, Vietnam War, OPEC crisis, inflation, bubbles, busts, deflation, etc. No, he just kept buying and stuffing the certificates in his safe deposit box.
Frugality, regular saving, and buy & hold investing. That's a road map for anyone wanting to improve their station in life.
You just have to be TIRED.
2/21/15 Rate Snapshot
| Bond | 1-Year | 2-Year | 3-Year | 5-Year | 10-Year | 20-Year |
|---|---|---|---|---|---|---|
| CDs | 1.20% | 1.35% | 1.55% | 2.25% | 2.95% | NA |
| US Treasuries | 0.43% | 0.85% | 1.23% | 1.65% | 2.11% | 2.45% |
| US Agency/GSE | 0.73% | 1.15% | 1.60% | 2.10% | 3.10% | 3.66% |
| Munis(AA) | 0.83% | 1.03% | 1.32% | 1.90% | 2.93% | 3.14% |
| SPDAs(A) | NA | NA | 1.60% | 2.75% | 3.25% | NA |
[i]“The wit and wisdom of Warren Buffett,” Fortune, November 19, 2012, management.fortune.cnn.com/2012/11/19/warren-buffett-wit-wisdom/.
[ii]http://www.reuters.com/article/2015/02/04/us-usa-vermont-millionaire-idUSKBN0L82IU20150204
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The yield table categorize bonds by Standard & Poor's (S&P) rating. Bonds which are not rated by S&P were excluded. Single Premium Deferred Annuities are categorized by AM Best ratings.
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