Beating the Investment Pros at their Game
By Goh Eng Yeow
Straits Times August 20, 2017
Time in the market, rather than timing the market, is what really matters in stock returns
One of the most curious things I find in the financial markets -- where thousands of professionals are locked in daily competition -- is how little you really have to do in order to get a decent return in stocks.
Just because fund managers have access to vast amounts of resources and second-by-second information about the markets and companies they invest in, this doesn't necessarily mean that they can make more money than the average mum-and-dad investor.
In fact, one of their biggest failings is their perverse tendency to want to buy and sell shares all the time to show their bosses -- and to a certain extent, their clients -- that they are working hard and they deserve to keep their jobs.
But in my experience, the ups and downs of a market cycle can sometimes take decades to complete. However, most fund managers are unable to think beyond a year, or even a quarter, on what they plan to do with the portfolios they manage. This, in turn, can cause them to miss the sustained compounding that leads to outsized returns in an investment.
Worse, in the case of private equity funds, the fund managers are often not paid a fee until they buy something -- and this gives them an incentive to purchase, even at prices that may be too high for their clients' interests.
That immediately puts them at a disadvantage compared with a small-time investor who has time on his side to sit it out in cash if he can't find any stock to invest in, or once he has invested, to ride out the turbulence that occasionally sweeps through markets.
Still, this may not be a failing confined to fund managers.
Don't we often find that the first reaction after we buy a share is to check its price the next day -- and wonder if we had made the right decision if it hasn't gone up.
Worse, if the price plummets due to some bad news in the market that has nothing to do at all with the company's performance, the likelihood is that we will also panic and dump the shares like everyone else.
It is a typical-crowd emotion that works to the advantage of shrewd investors such as financial guru Warren Buffett, who makes no bones about the fact that his favourite investment timeframe for the stocks he holds is forever.
That is why one of the most heart-warming stories I have ever come across in the stock market is that of a remarkable woman, Ms Anne Scheiber, who showed that she could trounce professional fund managers simply by using the skills she had picked up in her job as an auditor in the United States Internal Revenue Service.
When Ms Scheiber retired at 50 in 1944, she had only US$5,000 in savings and had never earned more thanUS$4,000 a year in her life. Yet she was able to turn her paltry sum into a mind-boggling US$22 million fortune by the time she died at the ripe old age of 101 in 1995.
Her investment philosophy was simple enough for the rest of us to follow. What she did was to look for companies that she believed would continue to make money and pay her dividends as their business prospered.
That meant buying shares in companies where she had developed an understanding as to how the earnings and cash flow were generated and where she was sure that relative to the price she paid, she would still get a satisfactory outcome eventually, even if the market should run into a rough patch.
And using her capital -- modest though it might have been at the start -- she began acquiring positions in firms such as Johnson & Johnson and Coca-Cola, reinvesting the proceeds in them year after year as she watched her passive income expand.
What is more, her investment timeframe turned out to be the rest of her life, which spanned 51 years. This period encompassed several economic booms and busts, the Korean War, the Vietnam War, the first Gulf War and every kind of sociological change imaginable.
That she had been able to grow her returns by leaps and bounds, despite all the upheavals encountered, gives us a shining example of what we can do with our own stock portfolio if we display the same perseverance.
Still, that would have been cheap talk if I fail to walk the talk myself to find out if her strategy really works.
Just as well, I used money that I had squirrelled away in my supplementary retirement scheme (SRS) account to invest in the stock market -- and with the same kind of long-term investment objective Ms Scheiber had in mind.
I had opened the SRS account with United Overseas Bank in 2001 after the Government launched the scheme to complement the Central Provident Fund by encouraging us to save more for our old age.
One benefit, of course, is the tax incentive. Like the CPF, every dollar put into the SRS reduces a saver's chargeable income by a dollar, subject to a cap that stands at $15,200 a year. That helps to reduce my tax bill.
But unlike the CPF, contributions to the SRS are voluntary. For me, another advantage is that the SRS funds can be used entirely to make stock purchases, which is what I did.
And because I could only take the money out from the SRS when I reach the minimum retirement age of 62 if I do not want to incur any premature withdrawal penalty, I had along timeframe of 20 years in mind when I started out on my SRS stock investments.
To simplify matters, I decided at the onset to hold as few counters as possible since I had neither the time nor the inclination to constantly monitor how they were doing.
It ended with me holding mostly just five stocks -- the three local banks and another two blue-chips which together mimic the Straits Times Index to some extent. I rarely sell the shares that I buy in this account and I would try to add on to the holdings whenever I put fresh funds into it.
My most recent statement shows the total value of my portfolio in the SRS account is up 70 per cent over the accumulated sum invested in 16 years. That works out to a compounded return of 6.7 per cent a year.
This was no doubt helped in part by the huge rally experienced by bank stocks this year. However, the past 16 years have also been punctuated by a number of stomach-churning events such as the 2003 Sars crisis and the 2008 global financial crisis.
I have not been able to get the same sort of astronomical returns enjoyed by Ms Scheiber since my investment frame so far --16 years -- is considerably shorter than hers. But the returns have been much higher than what I would have received keeping the money in a bank savings account.
It also proves a point: By holding the same stocks for long periods and doing as little as possible to them so long as their businesses continue to prosper, I manage to avoid many of the pitfalls that beset those who are unable to simply sit still.
Time in the market, rather than timing the market, is what really matters when it comes to maximising your stock returns.
In a story too good to be true, a little old lady, living alone in a run-down one-room apartment, parlays her $5,000 nest egg into a $20 million fortune by playing the stock market. Then, before she dies, she bequeaths it all to a university that has never heard of her.
In death, she has the last laugh on her ex-employer, an outfit that denied her promotions and raises (despite a law degree, she never made more than $3,150 a year) because she was a woman. The employer was the Internal Revenue Service.
But the best part of this story is that, as a sensible small investor, you can do almost as well as the little old lady.
After talking with her broker and examining her holdings, I'm convinced that the key to her success wasn't brilliant stock-picking. It was perseverance, plus a few other common-sense ideas I'll relate in a second. But, first, look how patience pays. . . .
In 1944, the woman, whose name was Anne Scheiber, retired from the IRS and put her $5,000 into stocks. In 1950, with her profits, she bought 1,000 shares of Schering-Plough Corp., the pharmaceutical company, for about $10,000. And she just held on. Today, through stock splits, those original 1,000 shares have become 128,000 shares, worth $7.5 million.
Another of her longtime holdings, Coca-Cola Co., increased in value from $28,000 to $720,000 in just the last 15 years. That doesn't even include $62,000 in dividends.
Here are the lessons of Anne Scheiber's amazing success: Start early. Scheiber was 51 when she invested her $5,000, and 101 when she died. Her companies earned profits on their profits over and over again, and in the long run, share prices grew in tandem with corporate earnings, as they always do.
Stocks need many years for this "miracle of compounding" to work. That's why the single most important factor in stock market success is time.
If you want to emulate Schieber, you should begin much earlier -- in your twenties or thirties. At an annual growth rate of 12 percent, an investment of $1,000 in stocks today will become about $100,000 in the year 2035. Assuming inflation at 3 percent to 4 percent annually, that $100,000 will be worth about $25,000 in today's dollars. Not bad. Buy stocks. As an IRS auditor dealing with estates, Scheiber noticed that the very rich tended to own lots of common stock. This was no fluke. Throughout the century, stocks have beaten all other financial investments by a wide margin.
For example, research by Ibbotson Associates has found that since 1926 the average annual return on stocks has been 12.2 percent, compared with 5.7 percent for corporate bonds and 3.7 percent for short-term Treasury bills.
If Scheiber had invested only in bonds from 1944 to 1995, her $5,000 would have grown only to about $100,000.
In the late 1970s, Scheiber's stockbroker, William Fay of Merrill Lynch & Co., persuaded her to use some of her stock dividends to buy municipal bonds -- a sensible move for a woman in her eighties, since, in the short term, bonds are less risky than stocks. She could lock in her gains and earn interest besides.
By the time of her death, Scheiber's muni portfolio was worth a staggering $8.1 million. In fact, her stocks and bonds generated more than $800,000 in dividends and interest this year -- most of it tax free.
But moving into bonds probably reduced the total value of her portfolio, which was $22 million when her estate was assessed at the end of March, and more than $25 million today. All of the securities went to Yeshiva University. Buy and hold. "She just held onto what she bought and never sold anything," said Fay of his client. "She believed in these companies. She just stayed with them. She didn't care if the market was up or down."
Scheiber's success is dramatic proof of how well a simple buy-and-hold strategy works. All of her stocks went through rough patches. Fay said there was a time "during the '70s when Schering dropped off and lost half its value." But Scheiber didn't sell, and she was amply rewarded for her discipline.
This approach also holds down brokerage commissions and taxes, as we'll see. . . . Minimize taxes. Not only did Scheiber deny the IRS estate taxes at her death; more important, she avoided capital gains taxes during her life.
It's a pleasant quirk of our tax code that taxes on profits aren't owed until you sell an asset. If you can hold stocks until your retirement, you've created what amounts to an unlimited individual retirement account (IRA). Investors who churn their portfolios, on the other hand, incur repeated tax bites that drastically reduce the power of compounding.
Assume, for example, that Fred invests $1,000 a year in stocks, that their value increases 12 percent a year and that he sells his stocks annually, then reinvests all the proceeds in more stocks. At the end of 20 years, Fred will have $38,000 (based on a 28 percent capital gains rate).
Now consider Anne. She behaves just like Fred -- except that she holds onto the same stocks year after year. At the end of 20 years, she'll have $81,000. Apply the 28 percent rate at that point, and she's left with $58,000 -- or 50 percent more than Fred.
Great investors such as Warren Buffett understand this math very well. It's another reason they buy and hold practically forever. Buy quality. Scheiber eschewed fads. She bought solid companies with good balance sheets and strong reputations, rather than trying to find the next Microsoft in its cradle. "She focused on franchise names," said Fay. Among them: PepsiCo, Exxon, Chrysler, Warner-Lambert.
Scheiber also bought what she knew. "She was drawn to these stocks by their products," said Fay. As an elderly person, she understood pharmaceuticals, so she bought Pfizer, Bristol-Myers and Schering. As a fan of the movies, she bought Loew's, which at the time owned a chain of theaters. (She held on when Loew's branched out into tobacco and insurance.)
But the key is not so much what Scheiber bought, but how she treated her shares. "She had faith in these companies," said Fay. Never touch capital. This is the famous admonition of old wealth, and Scheiber followed it to the hilt. She left her Merrill Lynch account alone and reinvested all the dividends and interest.
"She had the mentality," said Fay, "that she had to exist on her small IRS pension and Social Security." She lived in a tiny rent-controlled apartment on West 56th Street in Manhattan that cost her $400 a month.
But Scheiber went to extremes. "She had no friends," said Fay. "She was basically an unhappy person . . . totally consumed by her securities accounts and her money."
Understand that making millions doesn't require this kind of obsession. Start early, and you may end up like Anne Scheiber -- only a lot happier.
CAPTION: THE VALUE OF HOLDING ON In 1944, Anne Scheiber invested $5,000, most of it in stocks. Here is what some of her stocks were worth as of Dec. 13, 1995:
$7.5 million Schering-Plough (pharmaceuticals)
$2.2 million Loew's (tobacco, insurance)
$1.6 million Pepsico (soft drinks, snacks)
$1 million AlliedSignal (aerospace)
$900,000 Bristol-Myers (pharmaceuticals)
$720,000 Coca-Cola (soft drinks)
$200,000 Allegheny Power System (electric utility)
$200,000 Rockwell International (aerospace)
$200,000 Pfizer (pharmaceuticals)
NOTE: No information available on how much was initially invested in each stock. SOURCE: Merrill Lynch Cash Management Account of Estate of Anne Scheiber.
Anne Scheiber was a retired IRS agent who, with only a small amount of money, amassed more than $22,000,000 by the time of her death in 1995. That's more than $34,380,000 in 2016-inflation adjusted dollars. She did it by focusing on acquiring shares of excellent businesses, holding onto stocks for decades and letting her money compound. Getty Images
Updated October 17, 2016
One of my favorite topics is self-made secret millionaires such as Anne Scheiber, a retired IRS agent who amassed $22,000,000 in wealth (Scheiber died in 1995, so adjusted for inflation, that's around $34,380,000 in current purchasing power) and Ronald Read, a janitor earning near-minimum wage but who built up an $8,000,000 portfolio that was only uncovered following his death. I'm sure my affinity for these folks is also enhanced by the fact that most secret millionaires seem to subscribe to the same brand of value investing, dividend investing, and passive investing I believe and practice to a large degree in my own portfolios and/or the portfolios of our family members.
Depending upon what the circumstances and temperament may be, long-term ownership that focuses on low turnover, reasonable costs, and tax efficiency, eschewing things like market timing and focusing on fundamentals instead.
Anne Scheiber, in particular, was one of my first case studies. Her story is inspiring and worth emulating if you want financial independence. I want to take a look at some of the investing lesson we can extract from her behavior; to appreciate how a long compounding period, prudent decisions, and a willingness to put in the work can cause capital to flourish. For anyone who has several decades of life expectancy still in front of them (and even those who don't but who want to begin the compounding process for their children, grandchildren, or other heirs), Scheiber is worth more than a glance. Take a journey with me back in time to see how this remarkable woman built her investing fortune.
In the mid-1940s, Scheiber found herself retired. She was sitting on a $5,000 lump sum of capital she had saved. She also had a pension of roughly $3,150. Anne had been burned by stock brokers during the 1930s, so she resolved to never rely on anyone for her own financial future.
Instead, given the fact she had nothing but time and didn't have to worry about getting a job, she decided to put the analysis skills she had learned at the IRS to work. She began looking for companies she wanted to own; companies she thought could continue to make money and pay her dividends as they prospered. Going through annual reports, she would analyze income statements and read balance sheets. Using her capital and cash flow, she began acquiring positions, growing her ownership year after year, watching her passive income expand.
During the 50+ year period that followed her decision to begin managing money until her death, Scheiber operated from her tiny apartment in New York City. Toward the end of her life, she quietly arranged for her fortune, which had blossomed despite booms and busts, war and peace, and every kind of sociological change imaginable, to be donated to Yeshiva University, the funds devoted to a scholarship designed to help support deserving women. The donation came as a shock -- nobody knew she had the kind of money she did, nor that she intended to give it away so selflessly.
The secret to Anne Scheiber's investing method came down to six key principles.
She had the knowledge, experience, time, and desire to analyze the underlying economics of stocks, bonds, and other assets. This gave her peace of mind when markets collapsed - and there were many times over her investing career when stocks declined by 33% to 50% - because she knew what she owned and why she owned it; understood how the earnings and cash flow were generated and that, relative to the price she paid, she was still likely to experience a satisfactory outcome if she held on no matter how bad it looked at the time.
Investors get caught up in fads every bit as real as those that sweep the culture of Parisian haute couture. Whether its specific types of companies, such as electric utilities several generations ago, or different types of strategies, such as portfolio insurance in the 1980s or index funds today, Scheiber was not one to get sucked into the secular religion du jour.
Her blasphemy? She, instead, focused on the thing she knew could make her richer: Every year, she wanted to have a bigger ownership stake in her diversified portfolio of incredible companies that sent more and more money to her as the top line and bottom line increased. This meant sticking a large portion of her funds in blue-chip stocks. While it might have been heretical, the proof was in the proverbial pudding. Her willingness to think independently from the crowd was one of her shining achievements. Without it, we wouldn't be discussing her right now.
Today, these amazing businesses are often maligned as "grandma" or "widow" companies despite the fact that, over long periods, they tend to crush the broader S&P 500 due to their huge competitive advantages and high returns on capital. They are businesses like Colgate-Palmolive and Johnson & Johnson. In years where things like airline stocks boom, dragging up the broader index returns in what will inevitably be another round of bankruptcy years from now, they get left behind. But ignore the one-year, three-year, and even five-year returns and start looking at 10 years, 15 years, 25 years or more and their constant, never-ending gushers of money show up in the intrinsic value while providing greater protection during recessions and depressions. She collected quality and stayed the course.
As her dividends grew, Anne plowed them back into buying more shares so they, in turn, could generate more dividends of their own. Dividends upon dividends upon dividends, her willingness to shovel money back into her portfolio, constantly adding to her diversified collection of ownership stakes allowed her to not only reduce risk by spreading her money out among more firms, they accelerated her compound annual growth rate. To see how extraordinarily powerful reinvested dividends can be, take a look at this historical case study of The Coca-Cola Company.
One of the biggest flaws with both professional and amateur investors is that they focus on changes in market capitalization or share price only. With most mature, stable companies, a substantial part of the profits are returned to shareholders in the form of cash dividends. That means you cannot measure the ultimate wealth created for investors by looking at increases in the stock price. You have to focus on something called total return.
Famed finance professor Jeremy Siegel called reinvested dividends the “bear market protector” and “return accelerator” as they allow you to buy more shares of the company when markets crash. Over time, this drastically increases the equity you own in the company and the dividends you receive as those shares pay dividends; it’s a virtuous cycle. In most cases, the fees or costs for reinvesting dividends are either free or a nominal few dollars. This means that more of your return goes to compounding and less to frictional expenses.
You don't have to reinvest your dividends, of course. In fact, there may be situations where you get more utility by living off your dividends, enjoying your time and letting your portfolio compound a bit more slowly. After all, what is the point of having more money toward the end of life if you didn't spend your life doing what you wanted? The key is to remember something I've told you many times over the past decade and a half: Money is a tool. Nothing more. Nothing less. It exists to work for you; to help you get the life you want. Force it to serve you. Do not serve it.
According to some sources, Anne Scheiber died with 60% of her money invested in stocks, 30% in bonds, and 10% in cash. (A lot of investors have a habit of never keeping enough cash in their portfolio.) For those of you who are unfamiliar with the concept of asset allocation, the basic idea is that it is wise for non-professional investors to keep their money divided between different types of securities such as stocks, bonds, mutual funds, international, cash, and real estate. The premise is that changes in one market won’t ripple through your entire net worth.
Legendary investor and thinker Benjamin Graham was a proponent of investors he classified as "defensive", meaning anyone who wasn't a professional, keeping no less than 25% of portfolio assets in stocks or bonds at any given time. I'm a fan of that approach as I've seen too many inexperienced men and women go 100% equity at the worst possible moment, when the world looks great, the skies are blue, and corporate profits are soaring only to sell out when the next regular economic maelstrom rages, switching into 100% bonds when it is precisely least optimal.
Figure out your desired asset allocation and stick to it. Write it into your investment policy manual. Don't be tempted to reach beyond what your risk parameters dictate. Even someone like billionaire Warren Buffett draws a hard line in the sand when it comes to certain allocation practices. For example, he won't allow his holding company, Berkshire Hathaway, to drop below $20 billion in on-hand cash reserves.
Unless you are living on the brink of dire poverty, there is almost no reason to spend your whole paycheck. Whether you're collecting pension benefits, receiving Social Security, or working a part-time job as a way to keep busy, always try to run a surplus so you can add a bit more to your holdings, even if you intend to give it away to someone else. There is something important about instilling what famed author Napoleon Hill called "the savings habit". By making yourself live within your means, and paying attention to the state of your finances, you can remove a lot of worries while building your collection of wonderful assets more quickly.
It has been said that time is the friend of the wonderful business. The longer you hold good assets, the more compound interest can work its magic. The time value of money kicks into effect and the results become truly jaw-dropping. Even better, the further out you go in time, the crazier the results get. Consider that a single $100 bill compounded for 30 years at 10% per annum would grow to $1,745. In 40 years, it would have blossomed into $4,526. Add another decade on the end, taking it to 50 years, and suddenly, that $100 bill grows to $11,739. Make it 60 years and you get $30,448. Put another way, an investor who held for 60 years would have experienced more than 61% of his or her wealth accumulation in the final 10 year period, which represented only 16.7% of the holding time.
To some degree, there is an element of luck involved here. The best thing you can do for your net worth is 1.) start compounding early, 2.) use tax shelters to your advantage, and 3.) live a long, long time. The difference between someone dying at 65 and 95 is enormous. It's an extra 30 years on top of a productive lifetime, which causes the portfolio figures to get into some double-take territory. Taking care of yourself, restricting your calories so you aren't overweight, exercising regularly, visiting a doctor for at least annual checkups, taking care of your teeth, sleeping on a disciplined schedule, reducing stress from your life... besides causing you to be happier and feel better, these are among the most important tasks on your agenda if you want to become a great investor.
To learn more about the power of compounding, read Pay for Retirement with a Cup of Coffee and an Egg McMuffin. With only small amounts, time can turn even the smallest sums into princely treasures.
The great thing about the Anne Scheibers of the world is that they aren't all that unique, at least not in the United States. It does not take a genius-level IQ, a wealthy family, or extraordinarily good luck to build serious, multi-generational levels of wealth that can change your life. Instead, it's about getting your hands on productive assets -- ownership stakes in firms that churn out more and more money for you -- and letting them do their thing. It's about structuring your financial affairs wisely so a single disaster or stock market crash can't harm you no matter how bad it looks on paper. It's about identifying risks and minimizing them as much as you can.
In other words, it doesn't require a lot of heavy lifting. Instead, you are harnessing a force of nature; something inherent to the universe itself and benefiting from it. Investors make it much harder than it is.
March 27, 2017
Once in a while I like to pull up the web traffic data for the blog and see which specific search terms are leading people to the site. It turns out a bunch of you are stumbling onto the blog each month looking for “dividend millionaires”. Now I confess I don’t know exactly what a dividend millionaire is, although it sounds pretty cool. Anyway searching that term leads people to the story of Ronald Read; a humble janitor and handy man who built a fortune through long-term investing. Since Ronald’s story seems to be a pretty popular post let’s have a look at another one, that of Anne Scheiber.
Born in 1893 in Brooklyn, New York, Anne lived an extremely unconventional lifestyle. By all accounts she was extremely reclusive and obsessively frugal. She rarely left her rent-controlled studio apartment and the only two people she seems to have known were her attorney and her broker at Merrill Lynch.
Just as with the case of Ronald Read and Margaret Dickson the best aspect of this story is the lack of any visible sign of wealth and success. During the course of her working life as an IRS auditor Anne never made more than $4,000 per year. Despite being a diligent worker she never received a promotion; an injustice that resulted from being both a woman and a Jew at a time when workplace discrimination against both would have been rife.
When Anne retired she was given a $5,000 lump sum and her annual pension was worth around $3,100. Although she was neither born into great wealth nor generated it during her working life Anne did possess two very important things. Firstly, she had an awful lot of time on her side. Despite retiring from the IRS in 1944 at the age of fifty-one Anne would go on to live for another fifty years, passing away at the age of 101 in 1995. The second was an extremely high savings rate. According to Scheiber’s attorney it was as high as 80% of her income. The fact that she never married or had children would’ve helped enormously in that respect, as would her frugality (which reportedly included wearing the same clothes since the mid-1940s) and a rent-stabilised apartment which she rarely left.
In the 1930s Anne had been burned by stock brokers; an experience which turned her towards self directed long-term investing in blue chip stocks as well as bonds. Armed with $5,000 in saving and her $3,100 annual pension Anne started down the road of buy-and-hold investing. Over the following fifty years she would go on to accumulate positions in over one hundred stocks. Her big winners included the likes of Coca-Cola, PepsiCo, Pfizer, Abbott Labs, Colgate-Palmolive and Schering-Plough.
By the time of her death in 1995 Anne’s portfolio had grown to a value of around $22 million – equivalent to around $35 million in today’s inflation adjusted terms. She left the entire fortune to Yeshiva University’s Stern College for Women and the Albert Einstein College of Medicine. Anne Scheiber’s gift would enable new generations of bright young Jewish women to get a head start in life in a way that she never could.
So what was the secret to her success? As mentioned the biggest factor at play is almost definitely Anne’s time in the market. The romantic version of the story begins with the $5,000 lump sum received at the start of her retirement, however it seems likely that Anne also held stocks and was receiving dividends whilst she was still working in the mid-to-late 1930s. Given that she lived until 1995 that means we’re talking something like sixty years of uninterrupted compounding. Needless to say a woman born in the 1890s living past one hundred was an exceptionally rare thing. Had Anne only lived an additional twenty years after retirement she would’ve died in the mid-1960s at the perfectly ‘normal’ age of 72, and we would probably never have heard her story.
To get a feel for how important the time element is let’s consider her initial $5,000 lump sum received upon retirement. Had that been left for just twenty years to compound at a rate of 10% per annum (this is just an example figure not Anne’s annual total return) then it would’ve been worth approximately $33,000 at the end of the period. What if you double the length of the time to forty years? Well, in that case the total return more than quadruples to $140,000. If you then add on just ten more years – extending the total “time in the market” to fifty years – then it quadruples again to just shy of $600,000. Time is money as they say.
The second secret to her success was her extremely unconventional lifestyle. Whilst remaining unmarried and childless is of course not uncommon it did help Anne achieve a freakishly high savings rate. Add in numerous eccentricities such as never buying new furniture and wearing the same clothes for nigh on half a century and it allowed her to hit a rate of something like 80% according to her attorney. All that cash was then put into blue chip stocks and bonds and left to compound away.
Thirdly it appears that Anne was a consummate buy-and-hold investor. Many of her investments were in the list of best performing stocks of the last fifty years and would’ve generated returns of around 15% per annum during her investing lifetime. These were mainly big healthcare companies and consumer defensives; stocks that Anne knew well and which have consistently generated extremely high quality profits. In addition she seems to have practiced sensible diversification in her portfolio. Although most of the focus will obviously be on the stocks and shares portion of her portfolio Anne also contained a healthy allocation of bonds and cash. When the bear markets came around this would have served her well.
Finally, and perhaps most important of all, she always reinvested dividends without fail. You can probably link that point to her almost obsessive levels of frugality as well. After all most of us would’ve started consuming our dividends at some point! But that wasn’t Anne Scheiber. Almost every action that she took post-retirement was about increasing her ownership of productive cash generating assets. It’s an eccentric life to lead – some might even say a little sad – but she leaves behind a huge legacy for someone who worked a 9-to-5 without ever getting a promotion.