One person that I think small investors of today can learn a lot from is Hetty Green. Mrs. Green, born Henrietta Howland Robinson in 1834, increased her investment holdings from $6 million in 1865 to $100 million, in cash, by 1900. And while the average investor doesn’t have six million dollars to start with, the lesson to be learned is far greater than the amount an individual has to invest.
The goal for this “infamous” investor was “to make and keep 6% every year.” How was this accomplished? Hetty Green never aimed for the “big hit” or large gains in the stock market. Instead, she sought reasonable gains which were secured and then rolled over to “real estate mortgages, government and municipal bonds, and other safe, income-oriented investments.” The money was moved out of the safe investments when the stock market was at extreme panic lows.
There are two points about the preceding paragraph that I feel are important. First, seek reasonable gains or “fair” profits. Never set out to beat the stock market. The market will fail to perform at some point, either individually or as a whole, and that is the opportunity to buy the stocks that you want. As you’ll see in the section About This Site, We only seek to exceed the rate of return on “guaranteed” money while all stock purchases are done after the price has reached an extreme on the downside. Seeking “fair” profits implies that an investor considers selling a stock after achieving the goal of exceeding the return of “guaranteed” money rates.
The second point is that without panics or crashes small investors have little chance of succeeding in the stock market, especially through the use of mutual funds and ETFs. Real wealth in stocks is built on understanding values and then seizing those values, en mass, whenever possible. Most great “speculators” have secured their wealth by investing during panics and with the selection of very few companies, typically 3 or 4. With the government constantly trying to smooth out the business cycle, what ends up happening is a concerted effort to keep the wealth of our nation in the same powerful hands with the guise of protecting the average citizen.
Unfortunately, there was a tremendous price for Hetty Green to pay in order achieve such outstanding gains. Mrs. Green was known to avoid spending money at every turn. As an example, when her son was in need of medical attention on his leg, she concocted her own remedy. Her son later had to have his leg amputated due to the lack of proper medical attention.
After getting married to Ned Green, a well known speculator, Hetty's image didn't improve. In fact, Hetty Green was known as the "Witch of Wall Street." With her black dress and hat, miserly ways along with above average financial success didn't endear Hetty to the male dominated confines of Wall Street. However, her 9.50% after-tax returns certainly couldn't be ignored.
Sources:
- Fisher, Kenneth L. 100 Minds That Made The Market. Business Classics. 1993.
- Lewis, Arthur H. The Day They Shook the Plum Tree. Harcourt, Brace & World. 1962.