Letter To A Grandson ... and a Generation
Cover Story, by Mark Robertson, Managing Partner October 1st, 2014
Start. Start as early as possible. One wish. A wish that we could have started sooner.
I spent last Wednesday night with a group of long-term investors in Lansing, Michigan … home to the Capital Area chapter of the National Association of Investors. President Cynthia Leet led off the session, challenging the group to encourage young people to embrace long-term investing. (There were a couple of relatively young people in the audience. Huzzah!) There is one guarantee and constant in the world of investing. Gather a room full of experienced investors and the sentiment is unanimous. Start. Start as early as possible. One wish. A wish that we could have started sooner …
Our daughter and her husband live near East Lansing. You’ve met Lindsay in the past — featured in our August 2009 NOT less capable when it comes to math or investing. Far from it. But (collectively) girls can be overly cautious and drawn to things labeled “guaranteed return” when something else is more appropriate. Your grandmother discovered this a few years ago with her own investing account. Your grandmother is not alone and she is VERY CAPABLE.
Comparing Predictions vs. Results. First thing to remember: Stock prices fluctuate. Mr. Bogle is right. The average 4-year forecast for the span shown here is 8%. The average 4-year annualized return is 6%. The forecast bars on the right hand side remain near historical lows. But for someone 6 days old, we’ll be investing. Investing regularly in the best companies because that’s where magic, miracles and Freedom can happen.
A great man named Jack Bogle also shared that “The typical worker saving diligently since 1982 should have had $373,000 in a qualified plan by age 60. Instead, that saver has $100,000…” Mr. Bogle is the founder of Vanguard, created the original index fund and is a proponent of passive investing. He’s been doing this long enough that we should heed his warnings about long-term return expectations and excessive costs.
You will hear about the wealth gap. Another way to think of this is that some people have more freedom to do the things they want (or need) to do than others. Some people want to have enough resources in order that they can freely help others who need it. Help others. Help often.
All of these gaps represent a massive opportunity. Because learning is the answer. Your mother is a great teacher and much of this will probably come natural to you. Your father is one of the hardest working people I’ve ever known. One of the best solutions to the quest for Freedom was inspired by a man named George Nicholson, Jr. a little over 70 years ago. He inspired the concept of investment clubs and nurtured the notion of a people’s capitalism — the power of mauling the mysteries of long-term investing that can enable dreams (remember John Lennon) to become true. Big words, perhaps. But really as simple as imagining that Freedom is possible. Imagine freely. Imagine often.
The recipe is pretty simple. Invest regularly. Invest in the Best. Collect, care for and accumulate the best companies when they’re “on sale.” Do this with friends. Tell your friends. Share. Share often.
One of your great grandfathers speaks of his investment club experience as “money from no where.” “It seems as simple as scraping the spare change off the refrigerator and — with time — it becomes a surprisingly large amount of [Freedom.]” Another great grandfather describes an investment conference where he and your great grandmother had a fascinating discussion with a nice person from a company called Biomet. $2000 invested in Biomet in 1982 was worth nearly $1,000,000 in the late 1990s. It’s a fact. (For more, see Bare Naked Million portfolio. (This demonstration portfolio was inspired by a subscriber who was curious about investing a $1,000,000 lump sum back on 12/31/2006.)
The Bare Naked Million dashboard is now up to $2,237,475 (10.9% per year) and is built using a moderately passive approach. The core is the Vanguard Growth Fund (VUG) and is supplemented with industry leaders when their return forecasts are elevated. There have been two selling transactions since inception. By comparison, investing that million dollars into the Wilshire 5000 (VTSMX) would now be worth $1,613,900 or 6.4% per year. That +4.5 percentage point advantage is HUGE over time.
Our Lincoln Fund will have much more modest beginnings (like $0, true shoestring genesis) but will grow and build in the years ahead with little effort outside of summoning the necessary discipline to accumulate regularly. We’ll watch for opportunities to latch on to leadership companies but the heavy lifting — much like the Bare Naked approach — will come from investing in baskets like VUG for a while to come. For now, Welcome to the Club, Lincoln. Imagine at will. Often.
Mark Robertson
Mark Robertson is founder and managing partner of Manifest Investing, a source for research and portfolio management focusing on strategic long term investors.