Anne Scheiber’s story sounds almost too good to be true: A retired IRS auditor, who came from nothing and never made more than a few thousand dollars per year, turned her $5,000 nest egg into a $22 million fortune through decades of prudent saving and investing.
Like I said, almost too good to be true.
And therein lies the rub…
Ever since Scheiber first came to public attention (posthumously) in the pages of Money Magazine, people have been arguing over the truth of this whole story.
It all makes for a compelling — and inspiring — read: No one had known that this little old lady, who shunned any trappings of luxury or vanity, had secretly built a multi-million dollar investment empire until she bequeathed it all to Yeshiva University upon her death.
But, whether in haste or carelessness, Money Magazine botched a number or two in its Scheiber profile. According to her executor, Anne likely started her incredible investing run with a sum of money closer to $20,000 rather than the reported $5,000.
That, of course, would mean that her funds compounded at a much lower rate than initially believed.
In turn, this (unconfirmed) revelation has led some cranks among us to doubt the veracity of her financial success and discredit the magnitude of her investing acumen.
Which, to be blunt, is totally crazy.
Even the harshest revision of Scheiber’s annual returns has her compounding money at a slightly higher rate than the S&P 500 — for more than fifty years. Beating the benchmark is impressive over any length of time, let alone half a century.
That’s a record that anyone would be proud to call their own.
Here’s what we know for sure: Anne Scheiber started with nothing, worked a low-paying job at the IRS, started investing at some point, turned her full attention to her portfolio after retiring in 1944, and ended up with $22 million at the time of her death in 1995.
That’s good enough for me.
Don’t miss the forest for the trees. Or let an errant fact or two from Money Magazine cast a pall over this achievement. Whether she earned 22% or 17.5% or 12.5% annual returns, there is much that we can learn from the life and legacy of Anne Scheiber.
Let the magic of compounding do its thing
Compounding works best over very long periods of time. So, if you’re after life-changing returns, plan on either starting early or sticking around for a while.
Anne Scheiber opted for the latter course.
She did not start investing in earnest until after her retirement in 1944, but made up for lost time by living until the ripe old age of 101. Unlike many investors, especially those that try to “catch up” after a late start, she didn’t jump in and out of the market at every bump in the road. Once she got in, she stayed in.
What makes Scheiber’s dedication — and even keel — all the more impressive is that she suffered a catastrophic loss early on that could easily have soured her on the whole investing experience.
As Money Magazine tells it:
In the depths of the Depression, when she was already 38 years old and earning only a little more than $3,000 a year, Anne Scheiber invested a major portion of her life savings in stocks. She entrusted the money to the youngest of her four brothers, Bernard, who was getting started at 22 as a Wall Street broker. He did well picking issues for her as the market drifted upward in 1933 and ‘34. But his firm did not. It went bust suddenly, and Anne lost all her money.
Scheiber, though, was not deterred.
During her career as an IRS auditor, she noticed that wealthy people tended to own a lot of common stock. So she decided to emulate them. Even though she knew from personal experience that success was far from guaranteed.
When she retired at the age of 51, she poured all of her energy into beating the market and amassing a fortune for herself. Her longevity made that possible — and allowed the magic of compounding to take full effect.
Buy, hold, and never let go
One of Anne Scheiber’s biggest moves came in 1950 when she purchased 1,000 shares of the Schering-Plough pharmaceutical company.
What did she do next?
Nothing.
Scheiber left her Schering-Plough position alone and, thanks to stock splits and dividend reinvestment, ended up with 128,000 shares worth $7.5 million. To fill out the rest of her portfolio, she focused on blue-chip companies like Exxon, Chrysler, Coca-Cola, and Pepsi. No get-rich-quick schemes or meme stocks here.
Ultimately, Scheiber’s success was less about prescient stock picking and more about steadfast adherence to her buy-and-hold investment strategy.
In fact, that might be underselling it: Scheiber outright refused to ever sell any of her stocks — mostly due to her distaste for paying brokerage transaction fees.
“She just held on to what she bought and never sold anything,” said William Fay of Merrill Lynch, who handled Scheiber’s account. “She believed in those companies. She just stayed with them. She didn’t care if the market was up or down.”
Buy-and-hold investing is not for the faint of heart. You will be severely tested during downturns and bombarded with FOMO in manic bull markets. But, if you let your wealth snowball roll, everything will turn out just fine. Actually, much better than fine.
Scheiber dutifully did just that. She left her brokerage account alone, allowing her dividends to reinvest and compound. “For a long time in the rotten bear market of the ‘70s, many of her drug stocks were down — some by as much as 50%,” said Fay. “But she hung on because she believed in them.”
“She didn’t panic in the crash of ‘87 either. She thought the general market had gotten overpriced, plus she was convinced her stocks would come back.”
Letting your winners run for years at a time is what separates the best investors from the trailing pack. Very few people possess the patience or fortitude these days to hold on to stocks for months, let alone decades.
Many times, a stock appears to be spinning its wheels — going nowhere — causing investors to sell right before a big gain. But, by embracing the example of Anne Scheiber, you won’t make that mistake.
Buy what you know
Somewhere up in New England, Peter Lynch is smiling approvingly at this one.
As you’ll see in a minute, Anne Scheiber did not build a well-rounded life. She was consumed with making money and had few interests outside of investing. In fairness, though, she leveraged those few interests for all that they were worth.
Scheiber liked movies, so she pored over issues of Variety magazine to learn more about the best-performing entertainment companies. This led her to invest in top names like Loews, Columbia, Paramount, and (best of all) Capital Cities/ABC.
As Scheiber grew older, she learned a lot about the pharmaceutical biz through osmosis from her day-to-day life. Besides Schering-Plough, she also invested in Pfizer and Bristol Myers.
A long-time investor in Coca-Cola, Scheiber didn’t know what to make of upstart Pepsi — until she tasted it. “When Pepsi-Cola came along, she tried it,” said Fay, “and then bought PepsiCo when it was the new kid on the block.”
In some circles, “buy what you know” investing gets a bad rap — but that’s mostly based on a misconception.
“Buy what you know” doesn’t mean that you should run out and blindly buy shares in your favorite companies without conducting any research or due diligence. But, rather, using familiar companies and products as a jumping-off point for investment ideas.
Scheiber understood that distinction. Despite being a movie buff, she didn’t buy shares of every movie company in sight — but studied and researched and selected the very cream of the Hollywood crop.
馃幍 Money can’t buy me love 馃幎
Now, it’s time for the cautionary tale portion of the story.
Anne Scheiber was not a happy person. She didn’t seek wealth to free herself from the shackles of debt or to travel the world in retirement, but as an obsessive act of revenge against those she felt had wronged her.
That included her parents, the brother who once lost all of her money, and the IRS for never promoting her. Scheiber probably did not get a fair shake from some or all of the above, but she allowed bitterness and resentment to so isolate her that she had nothing else in her life except to watch her portfolio balance go up.
Famously hard-hitting journalistic outfit People Magazine once described her thus:
Only a handful of people knew Anne Scheiber, and few can recall her smiling. Instead they remember a friendless, pathologically frugal woman .....
Ouch.
Even the person who knew Scheiber best — her stock broker — had little good to say. “At some level, a recluse like her must get some psychic reward to keep going on that way,” said William Fay. “But, to you and me, her life was terrible.”
“A big day for her was walking down to the Merrill Lynch vault near Wall Street to visit her stock certificates. She did that a lot.”
Scheiber took frugality to the extreme — cutting her expenses to the bone and choosing to live alone in a tiny one-bedroom apartment in Manhattan. “She was basically an unhappy person,” said Fay, “totally consumed by her securities accounts and her money.”
Never lose sight of the fact that your investments should serve you and make your life better. Frugality is all well and good — in moderation — but there must come a time when you sit back and enjoy the fruits of your labor. Delayed gratification doesn’t mean no gratification.
A happy coda to the Scheiber story: Anne’s redemption did not come in her lifetime, but with the selfless act of bequeathing her entire $22 million fortune to Yeshiva University in her will. She hoped that this gift (in the form of scholarships and financial aid) would provide female Jewish students more educational and employment opportunities than she enjoyed.
“Here’s a woman who for 101 years was childless and now becomes a mother to a whole community,” said the president of Yeshiva University in 1995. “Not only now, but for generations to come.”
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Mussar Haskels:
1] Money can't buy you happiness. Or real friends.
2] When you don't spend and invest in the future - it pays dividends. If you invest in ruchniyus - it will pay dividends FOREVER.
3] She is in the Olam Ha-emes and CERTAINLY enjoying the rewards of her Tzdaka for the rest of forever. Isn't that better than so many of us who spend hundreds of thousands and even millions of dollars over a lifetime on vacations and other depletables? Not to mention the thousands of people [the recepients of her largesse and their families] who benefit daily in a very real way.
