CNBC in 2015 reported “how a janitor amassed an $8M fortune . . .”
His name was “Ronald Read, a Vermont gas station attendant and janitor, invested in recognizable names when he amassed an $8 million fortune . . .”
CNBC went on to explain that “to reach Read’s $8 million fortune, . . . investors would have to invest about $300 a month at an 8 percent interest rate over 65 years. ”
All this shows that Robert Read was very smart and systematic with money, especially for a janitor. He was also lucky enough to live to the age of 92 and watch his investments grow for 65 years.
But could Robert Read have done better?
As followers of this blog know, a certain trash dump worker achieved 25.56% yearly returns in the ten years through 2016. Since 2016, his investments have stagnated and his yearly returns have gone down to only 21.4% in the eleven years through 2017.
How well could Robert Read have done had he followed this blog? This spreadsheet does confirm that $300 per month saved over 65 years and compounding at 8.39% per year would have resulted in a balance of $8,026,461.20. But if Robert Read had been as wise as the trash dump worker, his $300 per month saved over 65 years and compounding at 21.4% per year would have resulted in a balance of $5 billion.
My point is that the yearly return you get on your investments matters a lot. Robert Read “invested in recognizable names” that paid dividends. I think investing in recognizable names was Read’s biggest mistake. Names that people recognize are the first names that people buy and bid up in price, so recognized names are impossible to buy cheaply. In order to get the highest returns, investors need to buy UNRECOGNIZED names with zero debt, high inside ownership, and market capitalizations low relative to tangible net asset value. Appreciation in the share prices comes IN THE PROCESS of the market recognizing the name.
And buying into companies that pay dividends is not such a bad idea, but it is if the company gets the money for dividends not from operating profit, but from borrowing.