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Most investing anecdotes invoke the celebrity investor: Carl Icahn, Bill Ackman, David Einhorn, Ray Dalio, or some such. Of course, no one is the subject of more anecdotes than Warren Buffett. When it comes to capturing investor interest, Buffett is the gift that keeps giving.
Yes, the aforementioned investors are billionaires, but their billionaire status isn’t due to investing. It’s due to the business of investing. The difference transcends semantics. Icahn et al. became billionaires by accumulating billions of dollars to manage and then diverting a portion of any gains and fees for assets under management into their own account. It’s highly unlikely that you or I will replicate their success.
My interest, therefore, tends to be piqued by the quotidian. I’m interested in the obscure investor who actually invested his way to wealth.
Last year, I wrote about a janitor (yes, janitor) who invested his way to wealth. When Vermont resident and former janitor Ronald Read died at age 92, he left behind a stock portfolio valued at $8 million. (Impressive when you consider that Salary.com reports $25,900 as the median annual income for a full-time janitor.)
While organizing my personal papers this weekend, I unearthed an October 1978 Forbes article written by respected financial columnist John Train. The article, “How Mr. Womack Made a Killing,” featured a pig farmer and a successful individual investor named Mr. Womack (first name lost to posterity) from Baytown, Texas. Through 40 years of investing, Mr. Womack never had a loss on balance.
I had long forgotten I possessed Train’s article. After rereading it, I realized why I had kept it all these years. I had incorporated many of Mr. Womack’s investing strategies when I began investing for my own account while a college student in the mid-’80s. To this day, I remain philosophically moored to Mr. Womack’s investing approach, which is worth passing along.
First, Mr. Womack equated investing with farming: There’s a growing season and a harvesting season. You can’t rush the process. Mr. Womack approached investing similarly. You can’t make money buying stocks every day, week or month of the year. Not surprisingly, Mr. Womack’s holding periods were measured in years.
Second, Mr. Womack always attempted to buy low. This usually meant buying into bad news. When Mr. Womack would read that stocks were trading at new lows and that experts were predicting further declines, he would buy a large bundle of stocks. Mr. Womack was a disciplined contrarian.
Third, Mr. Womack bought what he knew. Here, he emulated Warren Buffett (though it’s unlikely Mr. Womack knew of Mr. Buffett). Mr. Womack would buy solid, profitable companies – pecan growers, machine makers, furniture manufacturers, etc. – whose businesses were easy to understand. What’s more, he was sure to buy only dividend-paying stocks, and sure to buy only those dividend payers whose dividends were secure.
Fourth, Mr. Womack never fretted about buying at a bottom or selling at a top. He was content to buy or sell in the bottom or top range of price fluctuations. He reasoned that you can profit even if you sell too soon into a rising market. You can also profit if you sell into a declining market. With so many profit probabilities, Mr. Womack reasoned, it’s worth waiting for a low cost basis.
Fifth, Mr. Womack had no compunction about “sending good money after bad.” In other words, he had no compunction about buying more shares if the price continued to drop after his initial purchase. This strategy both lowered his cost basis and increased his income yield. Therefore, it increased his probability of selling at a profit later.
In short, Mr. Womack kept it simple, but he kept it effective. He perfected the fundamentals: Buy lower, sell higher; focus on what you know; buy dividends at a value price, and buy more if the price continues to fall; maintain equanimity; and most important, practice patience.
Successful investing, as Mr. Womack knew, is like successful farming. It can’t be rushed.
This Is Making Ordinary People Rich
Ordinary people across America are getting insanely rich. Take Gladys Holm. She never earned more than $15,000 a year as a secretary. But by making one simple move, she was able to leave an $18 million fortune to a children’s hospital when she died. There’s many more just like her.