A Quiet Billionaire

Most investors have heard of Warren Buffett, Peter Lynch and Sir John Templeton, but what about Herbert Wertheim? Dr. Wertheim is worth $2.3 billion according to Forbes. In a recent Forbes Magazine article, he credits his substantial wealth to buying individual stocks and holding them forever. Dr. Wertheim said, “My goal is to buy and almost never sell.”[1]

His strategy follows the tracks of Messrs. Buffett and Lynch of owning great companies and holding them for years. His two largest holdings are Apple and Microsoft “purchased decades ago during their IPOs.”

Apple and Microsoft look like no-brainers today, but these industry titans suffered mightily on their way to greatness.  Since 1980, Apple has suffered 14 calendar year losses. In 2000, it fell 71% followed by a 57% drop in 2008.  If you purchased Apple in 1980 and held it through 1997 you made $8. Would you have held it for 17 years only to make $8?[2]

Microsoft stock fell 63% in 2000, 22% in 2002, and 45% in 2008. If you purchased Microsoft in January 2000, you had to wait until November 2015 before it traded above your purchase price.[3]

Dr. Wertheim is an optometrist by training and is keen on understanding patents. He put his knowledge to work when he discovered a “small airline-parts maker” by the name of Heico. At the time of his discovery it was trading for 33 cents per share.  At the time of his purchase “Heico was a disaster.” However, he understood what needed to be done to make the company better. His original investment of $5 million is now worth $800 million![4]

How can we benefit from Dr. Wertheim’s insight?

  • Buy companies and investments you know – a classic Peter Lynch move. In addition, make sure you understand what you’re buying. If you can’t explain what a company does to others, don’t buy it.
  • Apply courage and fortitude as needed. During the dark trading days of Apple and Microsoft, he held on to the stocks. He did not panic and sell his holdings. He adds, “If a stock continues to go down, and you believe in it and did your research, then you buy more.”
  • Buy and hold. If you own good investments, then hold them forever. Trying to time the market based on economic indicators, price levels, or expert opinions is folly.
  • Give your money away. Dr. Wertheim and his wife Nicole have pledged to give half their wealth away to groups and organizations they support. In fact, they have signed the Bill Gates and Warren Buffett Giving Pledge.
  • Enjoy your life. He and his wife travel often and enjoy the gift of time. According to Dr. Wertheim, “Having time is the most precious thing.”

His story is one of rags to riches and worth a read. You probably won’t become a billionaire, but you may pick up a few extra dollars by following the lead of great investors like Dr. Wertheim.

Humble yourselves before the Lord, and he will exalt you. ~ James 4:10

February 21, 2019

Bill Parrott is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

 

 

 

 

[1] https://www.forbes.com/sites/maddieberg/2019/02/19/the-greatest-investor-youve-never-heard-of-an-optometrist-who-beat-the-odds-to-become-a-billionaire/#7e309eb722e8, By Madeline Berg, 2/19/2019.

[2] Morningstar Office Hypothetical.

[3] Ibid

[4] https://www.forbes.com/sites/maddieberg/2019/02/19/the-greatest-investor-youve-never-heard-of-an-optometrist-who-beat-the-odds-to-become-a-billionaire/#7e309eb722e8, By Madeline Berg, 2/19/2019.

Optimists Rule

Optimists and visionaries have built our great country. Railroads, autos, airlines, rockets, and computers were created by individuals who focused on changing the world. They didn’t let “experts” tell them their ideas were a waste of time or their inventions wouldn’t work. The Wright Brothers, Henry Ford, Amelia Earhart, Andrew Carnegie, John D. Rockefeller, Katharine Graham, Thomas Edison, Steve Jobs, and other luminaries obsessed about success. They were tenacious and resolute as they pursued their goals. They were bold. Thomas Edison said, “I have not failed, I’ve just found 10,000 ways that won’t work.” Amelia Earhart added, “Courage is the price that life exacts for granting peace.”

One study of self-made millionaires found that “67% said their optimism was critical to their success.” The same study reported that “78% of the poor admitted to being pessimists.”[1]

The fourth quarter of 2018 was a difficult time to own stocks as the Dow Jones Industrial Average fell 12.5%. Pessimists and naysayers are coming out of the woodwork saying this is the beginning of the end. Several market pontificators are calling for stocks to fall further because of our country’s debt level, the bubble in junk bonds, the inverted yield curve, the Federal Reserve, Bitcoin, the trade war, the wall, etc. More than a few analysts believe the stock market could crater 50% or more and one analyst believes it “could fall by 70%.”[2] Will their predictions come true? Who knows? Maybe.

During the Great Recession (10/15/2007 – 3/2/2009) the S&P 500 fell 53.1%. If you invested all your assets in the Vanguard S&P 500 Index Fund (VFINX) on the day the downturn started, you would’ve made 109%, or 6.8% per year if you still owned the fund today despite the 53% drop. By comparison, if you owned the Vanguard Short-Term Bond Fund you would’ve made 5.29%, or .45% per year. Stocks significantly outperformed bonds despite one of the worst market corrections in history.[3]

Warren Buffett is worth $84 billion. His company, Berkshire Hathaway, has treated him, and his shareholders, well. From 1965 to 2017 it generated an average annual return of 20.9%. During this historic run the stock suffered a few significant setbacks. From March 1973 to January 1975 it dropped 59.1%; 10/2/1987 to 10/27/1987, 37.1%; 6/19/1998 to 3/10/2000, 48.9%; 9/19/08 to 3/5/2009, 50.7%.[4] If Mr. Buffett panicked and sold his holdings during these down drafts, he wouldn’t have the net worth he has today.

Bill Gates is worth $90 billion. From 1986 to 2018 Microsoft stock generated an average annual return of 25.2%. It dropped 62.9% in 2000, 22% in 2002, and 44.4% in 2008. For 16 years the stock didn’t move; it traded flat from January 2000 to April 2016.[5] If Mr. Gates sold his stock and parked it in cash until conditions were better, his wealth would be less than it is today.

Amazon stock has made Jeff Bezos the richest man in the world (before his divorce) with a net worth of $112 billion. Amazon stock has been a rocket ship averaging 35.9% from 1997 to 2018. It, too, has suffered significant corrections. In 2000 it dropped 79.6%, 30.5% in 2001, 15.8% in 2004, 16.3% in 2006, 44.7% in 2008, and 22.2% in 2014[6]. If he sold his stock in these down years, he wouldn’t be the richest person in the world. He’d be another book peddler.

In addition to creating great wealth for their families, these modern-day optimists have donated billions of dollars to philanthropic causes. Like Rockefeller, Carnegie, Ford, Vanderbilt, and Morgan these billionaires are using their resources for good.

When I peruse the Forbes 400 list of the richest people in the world, I’m reminded that the optimists win in the end. To my knowledge there are no analyst, reporters or pessimist on the list.

I will continue to follow the lead of those who have produced great wealth through owning stocks by holding them forever. Stay invested my friends.

Where there is no vision, the people perish. ~ Proverbs 29:18

January 10, 2019

Bill Parrott is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

 

[1] https://www.businessinsider.com/studying-millionaires-showed-me-the-importance-of-optimism-2016-2, Thomas C. Corley, 4/21/2016

[2] https://admiralmarkets.com/analytics/traders-blog/2019-market-crash. January 4, 2019

[3] YCharts

[4] Berkshire Hathaway Inc. 2017 Annual Report.

[5] YCharts

[6] Morningstar Office Hypothetical.