How 5K Turned Into 22M

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When Anne Scheiber died at age 101, her passing was front-page news. In an act of stunning generosity, Miss Scheiber left her entire estate--$22 million--to a private religious school in New York.

Equally astonishing to many people was the revelation that this humble woman made her fortune in the stock market by starting with a $5,000 investment more than 50 years ago.

I was Miss Scheiber's stockbroker for 20 years. Though she worked as an auditor for the IRS and knew something about money, her millions were the result of simple investment strategies that can be used by anyone.

  • Stocks outperform all other investments over time. As an IRS auditor from 1920 to 1944, Miss Scheiber could see firsthand from the returns she examined over the years that the surest way to wealth in America was by investing in common stocks.

    Her first investment was in the mid-1930s, when the economy and the stock market were at their lowest points. She had a secure government job, so she had money to invest. She continued to invest through World War II, cutting back on non-essential expenses to do so.

    Through the boom of the 1950s and 1960s, the recession of the 1970s and the bull market of the 1980s, she continued to make three or four stock investments each year.

    Her early views on the stock market were right on target.
  • Don't invest before doing your homework. Though Miss Scheiber was well aware of the risks of investing in the stock market, she reduced the odds of failure by researching companies before investing in them.

    She never listened to tips or rumors. Instead, she questioned me and my predecessors, sometimes showing up unannounced to ask about things she didn't understand and to consult the firm's research.

    She also kept herself well-informed by reading newspapers, magazines and anything else that might help her pick a winning stock in a particular industry.

    Example: Back in the 1940s, Miss Scheiber thought that the stocks of the big movie studios might be worthwhile investments. Before she bought any shares, however, she kept meticulous records of the movie box-office results found in Variety. This exercise helped her determine which studios had the best films. Then she looked at the financials of the studios she favored.
  • Invest in well-known companies that make high-quality products. When Miss Scheiber died, she owned about 100 different stocks, and I don't think any of these were bad investments.

    Miss Scheiber only bought industry leaders she thought would stand the test of time. Her portfolio included Coca-Cola, PepsiCo, Loews, Bristol-Myers Squibb, Monsanto, Phillips Petroleum, Homestake Mining and Schering-Plough. All were established companies when she bought them.

    Miss Scheiber bought a few stocks solely for their high dividends, which she used for income. But mostly she bought companies that research told her would keep growing over the years.
  • Diversity your portfolio. No one could accuse Miss Scheiber of putting all her eggs in one basket. Even most mutual funds today aren't as well diversified as her portfolio was when she died. The stocks she owned were in a variety of industries, from consumer products and drugs to energy and mining.

    Her strategy was to focus on a different industry at a time. She knew that even if a few of her investments went bad, they wouldn't hurt her total portfolio too much.

    She was so widely diversified that she was bound to have enough winning stocks to make up for an occasional loss. She didn't care if a stock declined temporarily--she always believed that a good company's stock would go back up.
  • Invest for the long term. Miss Scheiber started out planning to never sell. She was certainly prepared to sell if she had to, but it wasn't her intention to make money fast. She only bought 100 or 200 shares at a time, and most of the dividends from her stocks were used to buy other stocks. Her buy-and-hold strategy insulated her from short-term market swings and put long-term economic growth on her side.

    Example: Miss Scheiber originally bought 500 shares of Schering-Plough in 1953 for $6,000. At the time of her death, the investment had grown to be worth about $4 million.
  • Be a tax-wise investor. The more you make in the stock market, the more important it is to seek relief from taxation. The only time Miss Scheiber broke her own investment rules was to limit her taxes on the income generated by her investments.

    In her later years, the cash flows from all her investments reached $750,000 a year---most of it tax-free. That is because she reinvested her cash flow in tax-exempt securities.

    In addition, all of the corporate mergers and takeovers of 1994 produced for Miss Scheiber about $300,000 in realized capital gains--all of it taxable.

    But 1994 also produced big losses in the few bond funds she held because of rising interest rates. So she sold shares in her bond funds at a loss to offset the taxable gains from her stocks. Selling investments to offset taxes is not for everyone. You must be fully aware of what you are doing.
  • Money isn't everything. Making lots of money in the stock market is part of the American dream. Riches provide the ability to buy and to what you want.

    Miss Scheiber wasn't interested in any of that. She could have lived lavishly over the years, but she chose not to. Instead she lived frugally in a small apartment. She watched her money, took care of herself and lived a long life.

    In the end, she knew that despite amassing great wealth, she couldn't take it with her. Rather than squandering her millions before she died, she used her wealth to help society.

Excerpt from: Bottom Line Year Book 1997, based on William Fay, who was Anne Scheiber's stockbroker and friend for the past 20 years.

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