At Patient Capital we often repeat an adage that “time, not timing” is the key to long term investment success.
In a noisy world that appears to become nosier by the day, we are constantly bombarded by an endless stream of short-term dopamine hits such as Meta Reels, Tweets, or stock quotes flashing on screens. The more these fleeting stimuli cloud our vision, the harder it is to peer into the long-term. Our long-term view is only further obscured by immediate fears of war, recession, and fiscal dysfunction domestically and abroad. Yet, wealth is created through economic value compounded over years, decades, and even centuries. It’s hard to overstate just how powerful slow compounding is in wealth accumulation.
Many normal, everyday people have accrued substantial wealth from letting compounding work its magic. In 2014, Ronald Read, a former janitor and gas station attendant from Vermont died at the age of 92. His $8M fortune shocked his family and the charities to which he bequeathed his wealth. How did someone from such humble means amass such wealth? Simply, but not easily. Read consistently spent less than he earned. He bought and held enduring blue-chip companies over his long life.
Another ordinary person, Grace Groner was orphaned at the age of 12. She never married, drove, or had children. She worked as a secretary and lived alone in a one-bedroom house. When she died at age 100, she left $7M to charity. Grace spent less than she earned, invested consistently, and held patiently.
Edward Avedisan’s story is quite remarkable. An accomplished flutist for the Boston Symphony Orchestra, he never made more than $100,000 in annual income, but persistently invested in companies he studied carefully. At the time of his death last December, Avedisan managed to bequeath $100M to his alma mater, Boston University’s Medical School plus give away another $25M to other charities! The Wall Street Journal reported on how he achieved such a feat. He was single until age 57, never had children and lived much of his adult life in a modest Boston apartment. He started investing in the early 1980s and favored technology stocks, like Microsoft Corp. He studied prospectuses and bought stock in initial public offerings. Through market cycles, he held his winners. He told the Boston Globe: “I didn’t go for the in and out.”
Perhaps most impressively, Anne Scheiber worked as an auditor for the IRS. Despite excellent job performance, Scheiber was actively discriminated against as a Jewish woman – never promoted and never earning more than $3,150 annually over her 19 years at the government agency. She retired at the age of 51 in 1944 and focused on managing her portfolio for the next 51 years of her life. Scheiber died at the age of 101 with a portfolio of dividend stocks worth over $22 million, generating over $750,000 in annual dividend income at the time of her death.
As with many things in life, sitting back and letting compounding do its work is easier said than done. Even the most sophisticated investors make the mistake of being too short-term. Warren Buffett, one of the richest people on Earth earned his fortune investing. He holds winners longer than nearly everyone, a lesson he seems to have learned the hard way. Buffett purchased a 5% stake in the Walt Disney Corporation for $5M in 1966, and promptly sold it in 1967 for a 50% gain. Impressive annual return! Except selling was a big mistake. Today, that same 5% stake would be worth a staggering $8.5B.
A few years after the Disney investment, Mr. Buffett was serving on the board of Grinnell College, when a young entrepreneur named Robert Noyce returned to his alma mater, seeking venture capital for a new startup, NM Electronics. Grinnell invested $300,000 in the fledgling enterprise in 1970, before its initial public offering one year later under a new name, Intel Corporation. From 1974-1980, with Mr. Buffett on its board of trustees, the college gradually liquidated its 0.5% stake for a $14M profit. Had the endowment held, the stake would be worth approximately $1.7B! While Mr. Buffett might have missed Intel, he certainly hasn’t missed the principle of time, not timing. First becoming a Billionaire in 1986 at the age of 56 and worth $104B today at 92, Mr. Buffett has accumulated more than 99% of his wealth in the later years of his life.
Founding father Benjamin Franklin’s maxim: “Money makes money. And the money that money makes, makes money.” He bequeathed $1,000 each to his hometown and adopted hometown of Boston and Philadelphia. The bequest had two key conditions: the money could not be drawn on for 100 years, and the rest could not be distributed for 200 years. Talk about long term! By 1990, The New York Times reported that the combined bequests were worth over $6.5M, a whopping 6,500X the original amount! How about a 300-year time horizon?
Ronald, Grace, Edward and Anne understood well a simple lesson that is anything but easy. The secret to success when it comes to building wealth is time, not timing.
The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. Investors cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.
The views expressed in this report reflect those of Patient Capital Management portfolio manager(s) as of the date of the report. Any views are subject to change at any time based on market or other conditions, and Patient Capital Management disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results.
©2023 Patient Capital Management, LLC