Stop me if you’ve heard this one before: Twenty years ago, if you’d bought $5,000 worth of Amazon stock and held it, you’d be sitting on more than $2.4 million today.
Or if you bought $5,000 worth of Microsoft stock over thirty year ago and reinvested the dividends, you’d be sitting on more than $8 million today.
You might be thinking this is absurd, but I’m simply pointing you to the facts.
You might be thinking these numbers are unachievable but they are stories of normal everyday people out there who prove the contrary.
Let’s look at the example of Grace Goner.
Grace Goner had rough beginnings. She was orphaned at the age of 12. And to any outsider, it appeared that life didn’t get any better from there. She lived in a tiny one-bedroom cottage in Lake Forest, Ill. She never married. She never had kids. She never drove a car.
She bought her clothes at rummage sales. She worked most of her life as a secretary for a pharmaceutical company.
So when Grace died in 2010 and left Lake Forest College a gift of $7 million to be used for scholarships, it came as a very big surprise.
How did Grace Goner, a simple little old lady manage to amass a fortune resulting in a seven figure net worth?
The answer is the stock market.
After graduating in 1931, Grace began work as a secretary at pharmaceutical company Abbott. A few years later, around 1935, she bought three shares of Abbott, which cost her $180 – about $2,900 in today’s dollars.
And what did she do after that? The answer is nothing.
Well not exactly nothing. She reinvested dividends whenever she received them but she did nothing in terms of trading (buying and selling stock).
Unlike Wall Street traders who buy and sell stock based on emotion, news and current events, Grace simply sat on her shares.
She sat on her hands through the depths of the Great Depression and through a massive World War. She was patient though the Cuban Missile Crisis, and Vietnam, and Korea, and the historic inflation of the 1970s. She waited and rode out the oil crises, the asian financial crises and the dot com bubble. She was patient and waited through Republican and Democrat administrations, through periods of political liberalism and conservatism.
She simply let the company that is Abbott do its thing.
She knew that the more products about released and sold, the more profits it would make and the more her stocks would be worth.
And this is the first lesson of Grace Goners story. The power of buy and hold investing.
Patience is vastly underrated in todays investment world. All the talk is about day trading and high frequency trading. But for the long term investor, patience can be rewarded as seen by Grace’s story. Simply pick shares in wonderful companies and let it do the work for you. Let the salespeople sell and the management teams execute. You simply have to sit back and let your wealth compound over time.
Another lesson of this story is thriftiness.
Ms. Groner was rigorously frugal due to her Depression-era upbringing.
“She did not have the (material) needs that other people have,” William Marlatt, her attorney and longtime friend told the Chicago Tribune. “She could have lived in any house in Lake Forest but she chose not to.…She enjoyed other people, and every friend she had was a friend for who she was. They weren’t friends for what she had.”
She was a conservative spender and thrifty in her ways which allowed her to build up capital in order to buy the 3 shares in Abbott worth $60 each.
And what I find amazing is that even after she become a millionaire, she didn’t live like one.
This lived a life true to herself. It also brings up the whole debate on how money doesn’t equal happiness. But I’ll leave that for another day. For now let’s consume the lessons Grace has imparted and live life on our own terms.