The biggest epiphany I have had in investing is the notion that Warren Buffett proposed that success probability is a strong function of time horizon. To recap, he stated that any random investment bought today and sold tomorrow carries a success probability (SP) of 50%. If bought today and sold exactly 1 year from now the SP(1 year) = 60%. SP(5 years) = 95% and SP(10 years) = 99%. That is powerful because it suggests that anyone can make money if you are willing to wait for it. The following story I heard years ago and serves as reinforcement to the above assertion. Enjoy: Anne Scheiber, who turned a $5,000 investment in 1944 into $22 million by the time of her death at the age of 101 in 1995. Anne Scheiber worked as an IRS auditor for 23 years, never earning more than $3150/year. The one important lesson she learned auditing tax returns was that the surest way to become rich in America is by accumulating stocks. She accumulated stocks in brand name companies she understood and then reinvested dividends for decades. She never sold, in order to avoid paying taxes and commissions. She also never sold even during the 1972-1974 bear market as well as the 1987 market crash because she had high conviction in her stocks picks. She also held a diversified portfolio of almost 100 individual securities in brand names such as Coca-Cola (KO), PepsiCo (PEP), Bristol-Myers (BMY), Schering Plough (acquired by Pfizer in 2009). She read annual reports with the same inquisitive mind she audited tax returns during her tenure at the IRS and also attended annual shareholders meetings. Anne Scheiber did her own research on stocks, and was focusing her attention on strong franchises which have the opportunity to increase earnings and pay higher dividends over time. In her later years she reinvested her dividends into tax free municipal bonds, which is why her portfolio had a 30% allocation to fixed income at the time of her death. At the time of her death, her portfolio was throwing off $750,000 in dividend and interest income annually. She donated her whole fortune to Yeshiva University, even though she never attended it herself. When I first came across this story years ago it was concluded with the final statement: She donated so that the IRS could not get even one penny. Every time I give to my favorite charity like Angels Among Us I am thinking that for every dollar I give, Obama is matching that with at least 40 cents. That really makes me smile!!
Posted on: Sat, 15 Nov 2014 02:05:22 +0000
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