As value investors, both KC Lau and I had spent time studying the portfolios and investment philosophies of investment legends like Warren Buffett.
But, the thing is: “Can we (ordinary people) do what Buffett is doing?”. Is such a method of investing only for the smart, intelligent, and wealthy?
What if I could introduce you to a person who:
- Was born poor,
- Finished high school,
- and earned a modest living throughout his life
…but yet, accumulated an estate of nearly US$ 8 million at the age of 92 when he passed on in 2014. His estate consisted mostly of U.S. stocks and they had been bequeathed to his family & friends, the local hospital, and a library. But to me, his real legacy is his wealth accumulation story, which is studied by investors worldwide even today.
This person is Ronald Read, probably the world’s most famous janitor.
So, how did he (a janitor) accumulate such massive wealth?
Well, according to reports, studies have shown that there are 5 main factors that contributed to Ronald Read’s wealth. Here, I’ll make a list of what these are and I’ll share my perspective on the extent how we can practice them so that we can improve our financial lives:
Factor 1: Frugality
Ronald Read was not known to be a multimillionaire by his family and friends. It is reported that he lived a modest lifestyle to the extent that he was believed to be a poor person who couldn’t afford his meals. Definitely, there was a huge gap between the amount of wealth he had and the amount he chose to spend.
While I don’t think or advocate an extremely frugal lifestyle, if your desire is to build portfolios, there is no way you can do so if you:
- Earn $5k a month = Spend $5k a month.
- Earn $10k a month = Spend $10k a month.
- Earn $15k a month = Spend $15k a month.
The faster way to raising money for investments would be:
- Earn $5k a month = Spend $3k a month (Invest $2k a month)
- Earn $10k a month = Spend $4k a month (Invest $6k a month)
- Earn $15k a month = Spend $5k a month (Invest $10k a month)
Personally, that’s what I did. As my income grew over time, I was “slow” to have an upgrade in lifestyle. I prefer to invest the bulk of my active income and would spend my passive income (dividends) for enjoyment (eg. movies, dinners, travels and … etc).
Factor 2: Big Wealth from Boring Companies
At 92, Ronald Read owned at least 95 stocks in his portfolio. From reports, Read held onto these stocks for the long-term, which refers to years and decades. So, the top 5 stocks that Read held in his portfolio were as follows:
- Wells Fargo: US$ 511k
- Procter & Gamble: US$ 364k
- Colgate-Palmolive: US$ 252k
- AMEX: US$ 199K
- J.M. Smucker: US$ 189k
Here, we can see that Read has a tendency to focus on “boring companies” that he can understand. He doesn’t try to predict, speculate or catch the “new wave” in the market. He keeps investing simple. Also, Read’s choice of stocks are stocks that are financially strong and pay out dividends. It is reported that Read would reinvest his dividends received in these stocks and so, had compounded wealth.
Factor 3: Mistakes & Diversification
Ronald Read had invested in Lehman Brothers, which went bankrupt in 2008. In that sense, his investment was a mistake. But still, his portfolio remained strong as it was well-diversified into 95 other stocks that are financially solid.
Like most, I did make my fair share of investment mistakes. They are chances for me to learn and improve as an investor. Even today, I’m still learning. The more I’d learned, the greater my chances of making better investments. So, what is vital in investing is to “just start” after you have adopted the right mindset and investing skills and “learn as you gain more experiences”.
Factor 4: An Attitude of Learning
Ronald relied upon The Wall Street Journal, Barron’s, and the local library in the feed of his investment knowledge.
Personally, I’m impressed with his attitude of learning. No college degree. It’s ok as there is always a public library and affordable resources to read and learn.
That is a huge contrast to many people who have university degrees, but yet, do not want to read annual reports and learn how to invest before investing. Today as I write, I’m positive that we have more time, effort, and energy to learn about investing as a result of bookstores and technology. So, if you feel that you aren’t that smart or wealthy to be successful in investing, just look at Ronald Read.
All in all, the 4 factors that could contribute to our wealth as investors are:
Grow income faster than expenses.
Boring companies can produce big wealth in the long term.
Expect mistakes and build a diversified portfolio.
Continue to have an attitude of learning and improvement.
By Ian Tai For KC Tan
