Herbert Wertheim – Secret Buy & Hold Dividend Billionaire

Herbert Wertheim. Does the name ring a bell? I bet not.

Up until a Forbes piece a few days ago, the Philadelphia native was mostly anonymous. Heck, if you had to walk past him on a street, you would think he was just another pensioner. You cannot tell it by his appearance or lack of media attention but Herbert Wertheim is a billionaire!

To get to the ten-figure mark, Herbert invested in companies such as Apple, Alphabet (Google), BP, Heico and Microsoft. He bought many companies at IPO and still holds them today. This is the story of how Herbert Wertheim made his money.

Herbert Wertheim was not like any other boy. He was way below average. He was dyslexic and the son of an immigrant. Not a recipe for success in 1940s America. Add to this an abusive father. The chance of attaining the American dream was well and truly stacked against him. 

For much of his childhood and formative years, Wertheim bounced around hoping to spend as little time at home as possible. During this time, he hitchhiked around Florida and in the process hung around with Seminole Indians and fished in the everglades.

This constant lack of presence led Wertheim to face truancy charges at the age of 16. The judge was lenient and offered Wertheim a choice between the U.S. Navy and state reformatory. Wertheim enlisted in 1956 and was stationed in San Diego. He was only 17.

As luck would have it, the navy was exactly what Herbert Wertheim needed. “That’s where my life changed,” he says.

“They give you tests all the time to see how smart you are, and out of 135 in our class, I think I was in the top—especially in the areas of mechanics and organization.”

This led Wertheim to pursue a course in physics and chemistry. He went on to work in naval aviation.

It is at this time Wertheim began investing in stocks.

The cold war was on. The Dow Jones Industrial Average was finally starting to recover from the lows of the great depression. Aerospace stocks were leading the market.

Wertheim made his first investment in LearJet. He was 18.

The attraction of the stock was the company’s inventions, like the first auto-pilot systems. 

As to why Wertheim started to invest, he said the following:

“You take what you earn with the sweat of your brow, then you take a percentage of that and you invest it in other people’s labour.”

This is essentially what investing is, making your money work hard for you.

Make money your slave and it will work 24/7 on your behalf.

After leaving the navy, Wertheim sold encyclopaedias door-to-door before attending Brevard Community College and then the University of Florida, where he studied engineering but never graduated. He also worked for NASA at this time.

After this, Wertheim went on to study Optometry at college and opened up his practice in Florida. As well as seeing patients in the practice, he opened up an optometry lab in order to come up with new inventions.

His main job and his side hustle in essence provided him with the cashflows needed in order to start investing big time.

Wertheim’s strategy in buying stocks was can best be described as a mix of Warren Buffet, Peter Lynch and Jack Bogle. He essentially invested in things he knew – circle of competence – and disliked fees thus invested via discount brokers.

Unlike most who focus on the financial side of the business, Wertheim was more interested in the underlying growth drivers of a business. He devoted his time to reading and analysing patents. This leads him to invest in uber-successful companies such as 3M, IBM and Intel.

Wertheim also had a strong conviction in his picks.

“If you like something at $13 a share, you should like it at $12, $11 or $10 a share,” Wertheim says.

“If a stock continues to go down, and you believe in it and did your research, then you buy more. You are actually getting a better deal.”

Much like Buffet, he has the mindset of an owner as opposed to a trader. He has the long term in mind.

“My goal is to buy and almost never sell,” he says.

“I let it appreciate as much as it can and use the dividends to move forward.”

One of his most successful investments is Microsoft. He bought shares in the tech giant during its IPO in 1986. Today, his stake in Microsoft is worth more than $160 million.

Another successful investment he made was in Apple. He currently owns 1.25 million shares in apple – some bought at IPO and some bought for around $10 in the ’90s. The current value of his Apple holdings is $195 million!

Arguably, his most profitable investment has been in Heico – a small aeroplane parts maker. For this investment, he teamed up with Laurans “Larry” Mendelson. At the time, Heico was a penny stock priced at 33 cents.

Under Mendelson’s leadership, Heico improved. Heico was able to build a moat as one of only a few FAA-approved aeroplane replacement parts manufacturers. This led to strong growth over time. Over the last 28 years, Heico’s sales have compounded at a rate of 16% per year and its net profits at 19%.

Today, Heico trades for $90. Wertheim, as a buy and hold investor is its largest shareholder today. His original $5 million investment is worth more than $900 million.

Looking at more recent investments, today Wertheim has a strong conviction in BP. He recently doubled down on the company and now owns over a million shares. He is betting on its intellectual property in the hydrogen space while currently enjoying the 6% dividend.

As for what Wertheim will do with his money, he has signed up to Bill Gates and Warren Buffett’s Giving Pledge, aiming to give away more than half his wealth.

In the meantime, he can stroll around Florida and look at one of the many buildings with his name on it for which he donated money.

Lessons from Hebert Wertheim

There are a number of lessons we can learn from Herbert Wertheim’s story.

  1. Start Young – By investing at the age of 18, Wertheim allowed the power of compounding to do the heavy lifting and work in his favour.
  2. Understand the businesses you invest in – Wertheim studied more than just the financial statements. He studied the underlying drivers of the business in order to see where the business would be in 5, 10, 15 years down the line. This allowed him to have conviction in his purchases and a long term mindset. He didn’t let short term volatility affect his judgement.
  3. Fees Matter – Just like how investments compound in favour on your behalf over time, the same way fees compound against you over time. Keep costs to a minimum. That is why Wertheim used discount brokers.
  4. Enjoy life – By all accounts, Wertheim is enjoying his wealth and freedom.
  5. Leave a legacy – Reading stories of all these secret millionaires, you can see that charity is a huge part of their life. Stay grounded. Leave a legacy.