The Incredible Power of Stocks

For many people, it’s difficult to comprehend that a small investment today can grow into a fortune. But with time, patience, and compounding interest, amazing things are possible.

Making Fortunes

In the mid 1940’s, a woman named Anne Scheiber retired from the IRS where she worked as an auditor. Using a $5,000 lump sum she had saved, and a pension of roughly $3,150, over the next 50+ years, she built a fortune from her tiny New York apartment that exceeded $22,000,000 upon her death in 1995.

She put her money into stocks of companies that made things and offered services with which she was personally familiar, such as Coca-Cola, Merck and Loew's. Scheiber had a law degree, but she believed she had been thwarted in her desire to move up to better job at the Internal Revenue Service where she worked, because she was a woman. She decided not only to save until she had a fortune but also never to give a penny of her profits to the IRS. She did this simply by never selling her shares, by creating her own personal IRA, in effect, but without the up-front tax deduction.

Donald Othmer, a professor of chemical engineering in Brooklyn, and his wife Mildred, a former teacher and dress-store buyer, died within three years of each other. They lived quiet, unpretentious lives -- which is why their friends were surprised to learn that they had left estates worth $800 million and were giving nearly all of it to charity.

The Othmers started in the early 1960s by turning over $50,000 in savings to their Omaha neighbor, Warren Buffett. Obviously, having Buffett, the nation's most successful investor, manage your money, is a smart or lucky thing to do. In 1970, the Othmers converted their original holdings in the Buffett partnership into shares of Berkshire Hathaway, Inc., a company which Buffett chairs, which trades on the New York Stock Exchange and which owns shares in other large companies such as Gillette, American Express and the Washington Post Co.

In 1970, one share of Berkshire cost $42. At the time of Mrs. Othmer's death in 1998 it was trading at $70,000 (today one share of Berkshire costs about $130,000 - the highest price per share of any stock).

Guaranteed Growth

Over one-year periods between 1926 and 1997 stock returns were positive in 52 out of 72 years, or roughly three-quarters of the time. In the best year, stocks returned 54 percent; in the worst, minus-43 percent. Looking at longer periods, at five-year rolling cycles over the same era (1926-30, 1927-31, etc.), out of 68 separate, overlapping periods, stock returns were positive 61 times. Over 15-year rolling periods (there were 58 of them) stock returns were positive every time.

Points to Remember

It's never, never, never too late to start investing.
It doesn't take a fortune to make a fortune.
Be familiar with and stay informed about companies you invest in.
In the short run, the markey is very risky, but in the long run, it is not.
Consistently strong stock returns go to those who buy and hold, and who stay in the markey for long periods of time.