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SKARBECK: Amazing patience paid off for Grace

March 20, 2010

Ken Skarbeck InvestingA story recently circulated in the national media about Grace Groner, a woman from Illinois who had passed away and left $7 million to Lake Forest College. The article initially grabbed my attention because both of my parents were Lake Forest graduates. Most fascinating was the account of how Groner accumulated the financial wherewithal to make her bequest.

Back in 1935, she invested $180 in Abbott Laboratories stock and never sold it. This one decision became the entire investment career of Grace Groner.

For $180 to grow to $7 million over 74 years requires a 15.34-percent annual rate of return. And while 15 percent is a very nice return, what makes the financial math so powerful is the internal compounding of that high rate over a long time.

Knowing that the cell phone bill you paid last month could turn into multiple millions is enough to make anyone pause and think. Also, consider the patience required in holding this investment. It couldn’t have been easy for Groner. Over the years, if for any reason she had sold her stock, we would likely have never heard about Grace Groner. So, let’s contemplate some of the obstacles she might have had to overcome to become a multimillionaire.

First, considering the way most investors behave today, it is a miracle Groner did not sell sometime in, say, 1936, after holding the stock for one year. Why not? After all, she had a nice 15-percent gain. She could have cashed out her $207.61, paid the capital gains tax and pocketed the balance. She could even boast to her bridge club the old cliche: “You can’t go broke taking a profit.” But she ignored the urge to sell.

It is shocking to note that, by today’s standards, just by making it past the first year without selling her stock, Groner became a more patient investor than the typical mutual fund manager. Sadly, many professional investors don’t understand the value of investing with long-term horizons.

One day 25 years later, Groner’s neighbor honked as he drove by in his new Studebaker. She thought for a moment about selling her stock, now worth $6,400, and paying cash for a new car. Somehow, she got past that impulse and time ticked away.

Early in 1987, 52 years after her initial investment, Groner’s Abbott stock crossed $300,000 in value. A friend suggested she see a financial adviser to help her with that growing sum of money. The consultant scolded her for having “all her eggs in one basket” and developed a plan that would diversify her assets among several mutual funds.

She was told this would lower her risk and help her sleep better at night. Not having had any sleeping problems in the past, Groner woke up after a solid eight hours and decided her investment would remain untouched.

Later that same year, on one day, Oct. 19, 1987 (Black Monday), the stock market crashed 22 percent. Groner’s Abbott stock sank 33 percent from its peak for a loss of more than $100,000. She soon fielded another call from the consultant, wondering if she was ready to reconsider her stock holding. How could she possibly not take action in light of this nerve-wracking episode? We’ll consider her thinking when we come back to this topic in two weeks.•

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Skarbeck is managing partner of Indianapolis-based Aldebaran Capital LLC, a money management firm. His column appears every other week. Views expressed are his own. He can be reached at 818-7827 or ken@aldebarancapital.com.

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