The Janitor Who Left an $8 Million Estate
You may have seen the news last month...
Ronald Read, a longtime resident of Brattleboro, Vermont, died last June at the age of 92. He lived modestly, as you might expect for a man who worked 25 years at a gas station and then 17 more as a janitor at a local J.C. Penny.
Yet his relatives were recently shocked to learn that he left an estate valued at almost $8 million.
His story puts the lie to the conventional wisdom that to get rich you have to be well connected, highly educated or an entrepreneur who starts his own business.
Read’s story is a revealing one. And - while I might argue that he made one serious mistake - virtually anyone could use his methods to build their own personal fortune.
Read made his fortune in the stock market, where anyone with even a modest amount of capital can take an ownership stake in many of the world’s best businesses.
He had no great training in economics. But, as he proved with his own example, that’s not necessary for long-term investment success.
He owned at least 95 stocks, but was not a great stock picker. Some of his stocks - including Lehman Brothers - went to zero. The stocks he did own were mostly well-known conservative blue chips: American Express (NYSE: AXP), Johnson & Johnson (NYSE: JNJ), Procter & Gamble (NYSE: PG), Raytheon (NYSE: RTN), General Electric (NYSE: GE), Dow Chemical (NYSE: DOW) and Wells Fargo (NYSE: WFC), to name just a few.
He was no visionary and avoided technology shares. Instead he favored - ho hum - railroads, utilities, healthcare, banks and consumer stocks.
He tended to buy companies he was familiar with, ones that paid large and growing dividends. Then he reinvested them. (My colleague Marc Lichtenfeld will attest to the success of this strategy.)
So how did this modest man with limited education, no business experience and far-below-average income amass a multimillion-dollar fortune?
Let me count the ways...
He diversified broadly. Some investment pros will tell you the key to making a fortune is a concentrated portfolio with a small number of names. The assumption, of course, is this small number will do exceptionally well. But what if it doesn’t? A smart investor spreads his risks widely not only to reduce risk but also to increase his chances of holding a big winner.
He kept his investment costs minimal. He didn’t use a full-service broker or other high-paid advisor. In fact, he used a discounter only to execute his trades. Then he took delivery of his certificates. And there were quite a few. When he died, he left behind a 5-inch-thick stack of them in a safe deposit box.
He never paid taxes on his gains. This is also how Warren Buffett became one of the world’s richest men, regularly claiming that his favorite holding period is “forever.” The advantage of this is you don’t pay any capital gains taxes. After all, the capital gains tax is not a tax on capital gains. It’s a tax on transactions.
He lived frugally. Although his stock portfolio hit the multimillion-dollar mark many years ago, he didn’t flaunt his wealth. He was generally recognized in the same flannel jacket and baseball cap. His most expensive possession was a 2007 Toyota Yaris valued at $5,000. He foraged for his own firewood and would often park several blocks away to avoid paying parking tolls.
So what did Read get wrong?
From an investment standpoint, almost nothing. But I’d question whether it was wise to never enjoy the fruits of his success while he was alive. I’m not saying he should have spent most of his money or even a significant part of it. But he might have treated himself (or someone he loved) to something special every once in a while.
Then again, that must not have been important to him. (And, after all, it was his money.) Clearly, he enjoyed living modestly, something beyond the imagination of many Americans today.
On the other hand, his local library and hospital in Brattleboro must be grateful.
Read bequeathed them more than three-quarters of his estate.
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