Whether highly qualified or educated individuals are better off in investing than the uneducated or not so highly qualified? Many of us think that well educated have access to more information and because of that, they are in a better position to manage their money. However, the reality in many cases is different.
Your EDUCATION is the least required eligibility for investing!
Let me share with you three stories which I was reading few days back. The first story is about a lady Grace Groner.
# Grace Groner Story
Grace Groner was orphaned at age 12. She was never married. She never drove a car. She lived most of her life alone in a one-bedroom house and worked her whole career as a secretary. She lived a humble and quiet life.
She bought her clothes at rummage sales, didn’t own a car and worked most of her life as a secretary for a pharmaceutical company.
“She did not have the (material) needs that other people have,” William Marlatt, her attorney, and a longtime friend told the Chigal Tribune. “She could have lived in any house in Lake Forest but she chose not to.…She enjoyed other people, and every friend she had was a friend for who she was. They weren’t friends for what she had.”
She lived a simple life and saved aggressively in equity. Ms. Groner worked for 43 years as a secretary for Abbott Laboratories. In 1935, she bought three specially issued shares of Abbott for $180. She never sold a share, even after repeated stock splits. She also kept reinvesting the dividends. By the time of her death, she owned more than 100,000 shares valued at about $7 million.
1935 to 2010 is almost 75 years of staying invested without diluting the investment created $7 million. On January 19, 2010, Groner died. After her death, it was revealed that her estate totaled in excess of seven million dollars and was left to a foundation she had established prior to her death. She expressed her desire that the income should be used to benefit students of Lake Forest College by funding independent study, internships, international study, and service projects, as well as a possible grant to a student attending pharmacy school. Upon being told of this, college president Stephen D. Schutt is said to have exclaimed, “Oh, my God.” Refer the Wikipedia for more reference on her.
I am not saying you to live such a frugal, alone life to create such a huge wealth. Also, I am not suggesting you invest in few direct stocks to create such a huge wealth. But, I am trying to say something about what we can learn from her.
Without having a great educational background, no such ancestral property or knowledge about the stock market, just her sheer simple living within the means and stay invested irrespective of the market condition is what helped her to achieve this.
# Richard Fuscone Story
On the same year (2010) when people surprised by hearing about the story of Grace Groner, the former vice chairman of Merrill Lynch Mr.Ricahrd Fuscone declared himself as bankrupt. Richard Fuscone, former vice chairman of Merrill Lynch declared personal bankruptcy, fighting off foreclosure on two homes, one of which was nearly 20,000 square feet and had a $66,000 a month mortgage.
Fuscone was the opposite of Grace Groner; educated at Harvard and the University of Chicago, he became so successful in the investment industry that he retired in his 40s to “pursue personal and charitable interests.” But heavy borrowing and illiquid investments did him in. The same year Grace Groner left a veritable fortune to charity, Richard filed for bankruptcy.
By being highly educated and especially in the finance field, Fuscone case makes us believe one thing that investment is in no way related to what you have as your educational qualification.
Investing is not about knowing finance. It is more about how you behave with money.
# Harry Markowitz Story
Harry Markowitz won the Nobel Prize for creating modern portfolio theory, a formula that precisely calculates the optimal asset allocation to maximize return at a given level of risk. Sounds interesting and obviously we all wish to follow right?
As per Wikipedia, “Markowitz is a professor of finance at the Rady School of Management at the University of California, San Diego (UCSD). He is best known for his pioneering work in modern portfolio theory, studying the effect of asset risk, return, correlation and diversification on probable investment portfolio returns.”
However, in one interview, when asked how he is managing his money, his answer was as below.
“I should have computed the historical co-variances of the asset classes and drawn an efficient frontier. Instead, I visualized my grief if the stock market went way up and I wasn’t in it–or if it went way down and I was completely in it. My intention was to minimize my future regret. So I split my contributions 50/50 between bonds and equities.“.
What we can learn from all these three stories?
Investment is in no way related to your qualifications or the number of degrees you are holding. It is entirely a different ballgame. In investing, your behavior and risk management play a major role. When I say risk management, even though Mr.Harry Markowitz won the Nobel award for managing the risk and asset allocation, he himself failed to follow it. The reason is, risk management mainly depends on your past. Hence, even though he knows well, he followed the conservative approach of allocating a SIMPLE strategy of 50:50 between debt and equity.
Investment is simple, not required any special qualification or IQ to manage it. But we hardly follow if something is simple.
When someone asked Charlie Munger about if the Berkshire strategy of wealth creation is so simple, then why people not copied it? Charlie Munger replied saying ” More investors don’t copy our model because our model is too simple. Most people believe you can’t be an expert if it’s too simple”.
Conclusion:-Investment in no way related to what your qualifications are or how much IQ you have. Instead, it is mainly a game of managing your behavior and risk. These things sadly can’t be learned from schools.
Request you to watch this wonderful video of of Morgan Housel, based on which I tried to write this article.