In a booming market, we’re regaled with stories of people making extraordinary amounts of wealth in a relatively short space of time.
These tales of untold riches can fan the fires of envy…which brings forth the ‘fear of missing out’ syndrome.
But be careful what you wish for.
If you haven’t been around markets long enough, you’ve probably not read about how those once high-flying investors came back to Earth with an almighty thud.
For those who have been to this rodeo before, you’ll remember Alan Bond and Christopher Skase.
Aesop’s fable, The Tortoise and the Hare, teaches us that slow and steady wins the race.
When you fall into the trap of thinking you’re smarter and better than others, it has a habit of making you act carelessly and arrogantly.
The key to successful long-term (and I stress, long-term) investment is to have the humility and good graces to know you don’t know all that much.
And believe me, knowing that is not a weakness, it’s a strength.
It stops you from being tempted into investments you know nothing about and have no idea on how to assess the downside.
Unfortunately, hubris — borne from a lucky, short-term winning streak — tends to express itself in cockiness and a swagger of overconfidence.
In Aesop’s fable, the hare believed his superior speed more than compensated for a distinct lack of discipline.
The hare, self-satisfied in his ability, thought he could afford to race ahead and dose off.
Whereas the tortoise stuck diligently and persistently to his task.
In a case of life mimicking art, here’s a real tortoise and hare story.
The hare
Richard Fuscone was a retired bond executive with one of Wall Street’s famed institutions, Merrill Lynch.
According to The New York Times:
‘When Mr. Fuscone retired from Merrill Lynch in 2000, the view among his peers was that his best days lay ahead of him.
‘Just 49 years old, he was young, ambitious, sat on a pile of high-flying Merrill Lynch stock and, as many others in investment banking were doing at the time, he was ready to strike out on his own and make some real money.’
Confident his dotcom boom winning touch would continue, Fuscone established his own investment company.
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Money flowed in.
Life was good…actually, it was better than good.
He had all the trappings of success…including a Greenwich (Connecticut) mansion. From The New York Times:
‘Mr. Fuscone became well-known for the lavish benefits that he threw at his mansion. Guests still recall the thrill of dining and dancing atop a see-through covering on the home’s indoor swimming pool.’
The mansion, described as one of Greenwich’s finest, had two elevators, two pools, and a seven-car garage.
In 2005, Fuscone borrowed US$12 million to expand his already expansive home.
No worries. Markets were on the up. What could possibly go wrong?
Then came the credit crisis of 2008.
You’d think a smart guy who’d been around markets for so long could have spotted this crisis coming from a mile away…nope. Greed and hubris blinded him.
He had raced so far ahead of the pack, he lost sight of what was normal.
Fuscone’s investment business — with a portfolio that obviously reflected the cavalier and wanton way he conducted himself privately — failed.
The US$25 million Fuscone had sunk into his business…well, it too sunk.
In 2010, unable to maintain the US$66,000 monthly (yes, monthly) mortgage payment on his Greenwich palace, Fuscone filed for bankruptcy.
The mansion, once valued at US$32 million, was snapped up by a (cashed-up) neighbour for US$8 million…a quarter of the boom time value.
At his bankruptcy hearing, Fuscone told the judge:
‘It has become a dire situation…the only source of liquidity is whatever my wife is able to sell in terms of personal furnishings.’
Pride does indeed cometh before a fall.
The tortoise
Grace Groner was born on 4 April 1909 in Lake Forest, Illinois. At the age of 12, she was orphaned when both her parents died.
In 1931, after graduating from Lake Forest College, she started working as a secretary for Abbott Laboratories and remained working there for 43 years.
In 1935, Grace invested US$180 to buy three Abbott Laboratories shares (valued at US$60 each).
Being conditioned by the Great Depression, Grace lived a frugal life spending less than what she earned.
Her life was rich in terms of friends and community service:
‘Despite living in one of the wealthiest communities in the US, Grace lived humbly.
‘Although Grace never wed nor had any children, she was outgoing and had numerous friends.
‘She was certainly not a miser either.
‘Grace volunteered at her local church, donated money anonymously in her community, and even travelled in her later years.’
Grace Groner passed away in 2010 (aged 100), the same year that Richard Fuscone filed for bankruptcy.
What happened to those three shares she bought back in 1935?
To quote from the Stock Market School:
‘Grace Groner held her shares over 70 years, and through the power of capital gains, share splits, and reinvestment of the dividends she amassed a fortune.
‘At the time of her death at age 100 on January 19th, 2010, Grace owned more than 100,000 shares of Abbott Laboratories which were valued at approximately [US]$7 million.
‘Just prior to her death, she had established the Grace Elizabeth Groner Foundation which now oversees her entire estate which generates $300,000 per year for internships for service-oriented students of her alma mater, Lake Forest College.’
Some people might say Grace got lucky in putting all her capital in a stock that happened to perform well.
But that overlooks the fact she worked at Abbott Laboratories for 43 years. Grace would have known that company inside out.
Given her community service and generousity, I can’t imagine Grace working for a company that didn’t reflect her values.
Aside from the ‘all the eggs in one basket’ aspect, the moral of Grace’s story is about how the application of discipline and patience can produce long-term, lasting results.
When it comes to investing, my advice is to run your own race. There will always be someone making more money than you or enjoying a better lifestyle. But that’s only what you see.
What you don’t see is how these visible trappings of success are being attained.
Is it from high-risk behaviour that pays off today but gets punished tomorrow?
Long-term, slow, and steady tends to win the wealth-creation race.
And for those who think Warren Buffett is the exception to this rule, you’d be wrong.
As reported by CNBC in September 2020:
‘Currently, at 90, he [Buffett] has a net worth of more than $81 billion…$70 billion (of his fortune) came after he qualified for Social Security benefits, in his mid-60s.
‘…those who attach all of Buffett’s success to investing acumen miss an important point.
‘The real key to his success is that he’s been a phenomenal investor for three quarters of a century.
‘Had he started investing in his 30s and retired in his 60s, few people would have ever heard of him.’
I’m guessing most people don’t realise that 85% of Buffett’s wealth has been accumulated since he turned 65.
Run your own race.
Regards,
 |
Vern Gowdie,
Editor, The Daily Reckoning Australia
PS: Our publication The Daily Reckoning is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.
