Sometimes the best way to learn is simply to watch the masters, and then mimic what they do. But what if you're looking to learn how to "accidentally" turn $1 million into $1 billion -- and in just 35 years? And despite this brutal market?
Accidental billionaire?
In that case, I'd suggest you dig through your back issues of Forbes. About 10 years ago, the magazine ran an article about an "accidental billionaire" named Franklin Otis Booth Jr.
In the early 1960s, Booth tried to buy a printing company that contracted with The Los Angeles Times. The deal fell through, but he became good friends with the lawyer working on the case.
After discovering they had similar investment philosophies, they partnered up to build a 40-unit condo complex in Pasadena, Calif. -- and managed to double their money in just two years.
Booth decided he wasn't up for pursuing further real estate development, but he did agree to put $1 million into an investment partnership the lawyer put together. Thirty-five years later his stake was worth $1.2 billion -- despite multiple market crashes and prolonged bear markets.
How'd he do it?
You may already know where I'm going with this, but either way I'd suggest you stick with me. After all, who among us doesn't want to learn how to "accidentally" increase the value of our portfolio 1,000 times over just three decades?
The cynics and risk-takers among you will undoubtedly chalk Booth's success up to "luck."
Granted, his is a case of being in the right place at the right time, but the actual process that grew his fortune had very little to do with luck.
He didn't dump his money into penny stocks that took off. He didn't get in on the ground floor of EMC
And he was already a billionaire long before anyone was talking about PotashCorp
Things are about to get boring
What he did do was hand his $1 million over to that lawyer and a "clever young fellow." They, in turn, made big bets on unexciting businesses with wide moats that were selling at a discount to their fair value. These businesses all had strong brands, outstanding returns on capital, consistent or improving profit margins, and substantial cash profits.
That's all -- big bets on great companies selling at good prices.
Among their biggest winners were Coca-Cola, Washington Post -- which turned $11 million into $1.3 billion between 1973 and 2006 -- and Wesco Financial, which was run by Booth's lawyer friend and returned nearly 200 times its investment over a 31-year period.
Of course, by now I'm sure you know that the lawyer was Charlie Munger and the clever young fellow he teamed up with was none other than Warren Buffett. But here's something you may not know ...
How you can do it, too
Even if you don't have $1 million to invest, you can drastically increase your wealth by following Buffett's lead and buying great business when they're selling at good prices.
Just take a look at this data from Jeremy Siegel's book The Future for Investors. These are the top 10 "survivor" stocks of the original S&P 500, from inception until post-2000, along with the average annual return you would have secured had you held these rock-solid, well-known, well-run businesses in your portfolio.
|
Company |
Annual Return |
Average Price-to-Earnings |
|---|---|---|
|
Altria |
19.8% |
13.1 |
|
Abbott Laboratories |
16.5% |
21.4 |
|
Bristol-Myers Squibb |
16.4% |
23.5 |
|
Tootsie Roll Industries |
16.1% |
16.8 |
|
Pfizer |
16% |
26.2 |
|
Coca-Cola |
16% |
27.4 |
|
Merck |
15.9% |
25.3 |
|
PepsiCo |
15.5% |
20.4 |
|
Colgate-Palmolive |
15.2% |
21.6 |
|
Crane |
15.1% |
13.4 |
Source: Jeremy Siegel, The Future for Investors. Returns with dividends reinvested.
Follow the leader
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But with retail stocks taking a major beating over the past few months, Coach now represents a great business selling at a good price, leading Tom to conclude, "A premier international fashion brand trading at a heavy discount? Sounds like the perfect addition to our scorecard." And it could be a great addition to your portfolio, too.
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This article was originally published Aug. 13, 2008. It has been updated.
Austin Edwards owns shares of Coca-Cola and Altria. Coach is a Motley Fool Stock Advisor recommendation. Coca-Cola, Chesapeake Energy, and Pfizer are Inside Value recommendations. Pfizer is an Income Investor recommendation. The Motley Fool owns shares of Pfizer. The Motley Fool has a disclosure policy.
