Lake Forest University, located just north of Chicago in Lake Forest, Illinois, recently got a gift from an alum, a very nice gift. About $7 million to be exact. The donor, who died at the age of 100, wasn’t a captain of industry or a banker or even the founder of an Internet startup.
Grace Groner was, instead, a woman who had been adopted by a family and eventually sent to college at Lake Forest. After graduating, she became a secretary at Abbott Laboratories, which was, apparently, the only job she ever had. She remained single throughout her life, never owned a car and lived in a small house she had inherited near the Lake Forest campus.
But back in 1935, she also did a little investing. Since she was working at Abbott, she bought three shares of the company’s stock for $60 a share. Then she held them for 75 years. And that’s where the $7 million she left to her alma mater came from.
I am fascinated by this story, and checked out an inflation table to figure out how much $180 in 1935 dollars would amount to today. The answer is that the 1,482% in GDP inflation since then makes her $180 equivalent to $2,667 in 2010. It’s still a pretty modest amount. (I don’t know all the details, but I’d wager that Ms. Groner just rolled the periodic dividends that she received right back into the stock.)
Ms. Groner was fortunate in many ways. First, unlike many companies, Abbott Labs didn’t bite the dust during the Great Depression. Second, she bought her one investment at a time when the market was lower than a snake’s belly in a wagon rut.
But if you tell this story to anyone who understands investing they’ll just wince and shake their head in wonder.
They know that buying just one stock is a bad idea. In fact, it’s just about the highest-risk strategy there is, off-the-chart high.
I know this because, as a growth investor, I’m sometimes taken to task by a friend of mine who’s a financial advisor. He sees my aggressive 10-stock personal portfolio as crazy risky. He advises his clients to have dozens of issues in their retirement portfolios, including value stocks, income stocks, sector funds, index funds, Treasuries, munis and cash, all in carefully calculated proportions and rebalanced.
Good idea, of course, but I suspect that there are more investors on Grace Groner’s end of the diversification spectrum than on my friend’s.
Your returns are probably a lot higher than those of your financial advisor friend’s as well.
I’m a long term investor with a concentrated portfolio myself. I focus on only the highest quality companies I can identify and then I use options to acquire shares as cheaply as I can and then work to continually lower my cost basis over time.
The more you diversify into conventional investing vehicles (mutual funds, ETFs, etc.) the more you embrace mediocrity.