Notably she made lots of money by investing and holding on to a pharmaceutical stock called Schering Plough. From what I read, she has never sold a share… just kept holding on and buying more.

What? Buy and Hold? “That’s just not for today’s market!” … I hear you say.

Maybe so.

Last night while watching CNBC, I heard a commentator say that US stocks are trading lower now than they were 10 years ago. That includes many of the big blue chips.

I haven’t held stocks for that long, but the ones I’ve held for 3-4 years are mostly out of the money… which means I’m sitting on paper losses. So in hindsight, should I have sold 6 or 12 months ago?  Sure… but you know what they say about hindsight right?

I’ve always held the view that short of the divine, it is impossible to time the market.

Meaning that you never know when the market has peaked and when it has hit rock bottom. So why try to time the market at all? Just decide that you want to be an investor for your Life Occupation and don’t even think about quitting your job!

“When times are good, be happy; but when times are bad, consider: God has made the one as well as the other.”
Ecclesiastes 7:14 (NIV)

But having said that, I’d agree that for most people, Buy and Sell is better than Buy and Hold.

In his book Even Buffett Isn’t Perfect, author Vahan Janjigian suggests that “unless you have access to Buffett-like resources, it is better to think of yourself as a stock buyer than a business buyer.”

See unlike Buffett, I can’t afford to buy the entire company and totally ignore the share price. In contrast, if Buffett feels that Mr Market is being foolish, well he can just buy the whole company right?

There’s a big difference when you can afford to buy the whole thing. Think about it… if you bought a house and someone comes along tomorrow and tells you it’s worth 30% less, would you listen to him? You’d probably tell him to fly a kite wouldn’t you? You’ve bought the house, you can afford to pay the bank loan, you can afford to keep it for the next 10 years and you know it will go up eventually. So why listen to Mr Market?

But hang on, what about Anne Scheiber? She doesn’t have Buffett-like resources – yet Buy and Hold has worked for her!

Buy and Hold is Fantastic

… if you can pick wonderful companies and have an investment horizon of 40 years.

Both Warren Buffett and Anne Scheiber have been investors for more than 40 years.

Anne Scheiber invested in businesses that she knew and understood. She loved the movies. And she invested in Columbia, Paramount and so on. She was a Coke/Pepsi drinker and she had shares in both. She took medication, so she invested in Schering Plough and Bristol Myers Squibb.

Actually if you believe Peter Lynch, picking the right stocks is not beyond the normal person:

“Twenty years in this business convinces me that any normal person using the customary three percent of the brain can pick stocks as well as, if not better, than the average Wall Street expert.”

Oriental Holdings Berhad – What if You had Bought and Held?

I happened to be reading the Annual Report of Oriental Holdings Berhad (ORIENT) the other day and came across a statement by Chairman Dato Loh Cheng Yean:

“A holding of 1,000 stocks in Oriental when it was listed in 1964 would translate into 40,255 Oriental stocks worth RM263,670, based on the share price of RM6.55 at the end of 2007. In addition the stocks would have earned a total gross dividend of RM137,660. The gross dividends received and the appreciation in value is equivalent to a remarkable average rate of return of 14.60% for each of the 44 years.”

This sounds pretty good… see once again we’re talking 40 years. I find Oriental Holdings to be quite “remarkable” because it is such a diverse collection of different businesses which include auto assembly, auto parts manufacturing, oil palm, hotels, property etc. But 85% of its RM498 million Operating Profit is from auto and oil palm.

Oriental Holdings Bhd (ORIENT)

In the 4-5 years after the 1997 crash, Oriental’s earnings were down or at best flat, then since 2001 it started taking off and the company became a cash cow, building its Net Cash position to more than RM1.3 billion as at end-2007.

Oriental Holdings is a low profile company. I remember that I mentioned this company to a friend casually over dinner one night and she’s never heard of it. And this was no ordinary friend – she’s a Fund Manager & Analyst.

But if you had bought and held on to this company since listing, you’d be pretty happy.

Maxwell recounts the story of Anne Scheiber, an elderly and thrifty lady who lived in New York and worked for the Inland Revenue Service. When Scheiber retired at age fifty-one, she was only making $3,150 a year. She was treated poorly by her employer and was never promoted. Yet when Anne Scheiber died in 1995 at the age of 101, it was discovered that she left an estate to Yeshiva University worth US$22 million!

How did a public service worker with minimal salary accumulate such a staggering wealth? Here’s Maxwell’s take on it:

“By the time she retired from the IRS in 1943, Anne Scheiber had managed to save $5,000. She invested that money in stocks. By 1950 she had made enough profit to buy 1,000 shares of Schering-Plough Corporation stock, then valued at $10,000. And she held on to that stock, letting its value build. Today those original shares have split enough times to produce 128,000 shares, worth $7.5 million.

The secret to Scheiber’s success was that she spent most of her life building her worth… When she earned dividends – which kept getting larger and larger – she reinvested them. She spent her whole lifetime building…. When it came to finances, Scheiber understood and applied the Law of Process.”

The above story of Anne Scheiber was actually used by leadership guru Maxwell to illustrate an important leadership principle. But it can be equally applied to investing. I’m not sure if Maxwell got the facts right, but we can certainly learn a couple of important principles here:

1. Time in the Market
It is now how you start that is important. It is what you do day to day, and how you finish that counts. Sure it’s nice to time the market correctly but if you’re looking to make some serious bucks, time in the market counts.

Patience and consistency is everything!

2. Focused Investing
Most of Scheiber’s wealth was in a handful of stocks, the largest one being Schering-Plough. Like Warren Buffett, Scheiber is a Focused Investor. A Focused Investor puts meaningful amounts of money in a few things. Scheiber liked companies which are leading brands in their market.

Anne Scheiber

Most of us will not have the experience of picking one company which will ride on a tsunami wave. If you had bought a piece of Microsoft or Berkshire Hathaway when they started business, you would have the same ecstasy… but how many companies are like that? What are your chances of picking such companies? Nevertheless it is not impossible… imagine if you had bought and held on to Public Bank since inception. Now isn’t it worth a little time and effort to research and identify the next Public Bank?

3. Compound Growth
Whether the stock went up or down, she never thought, I’m finished building; now it’s time to cash out. She was in for the long haul, the really long haul. We are told that Anne Scheiber reinvested all of her dividends. She didn’t say lets take out some money and buy the latest LV handbag.  In fact Anne Scheiber was frugal to the point of being miserable. She lived in a rent-controlled apartment, wore the same clothes year in year out, didn’t own a car and even went to shareholder meetings so she could take home bags of food.

Don’t get me wrong… I’m not saying you shouldn’t reward yourself once in a while. In fact I would say there is a thin line between extreme thrift and greed. If you are blessed with so much money, spend some of it, give it away or whatever. Not only will you bless others, you release yourself from the trappings of greed

“Keep your lives free from the love of money”
Hebrews 13:5 (NIV)

The important lesson here is to realize the power of regular investment and compound returns. When you invest in good things and you invest regularly, your wealth will eventually multiply.

Remember attending one of those Unit Trust presentation and the Agent puts up that Regular Investment & Compound Return chart? Then everyone’s jaw would drop because your RM100/month savings can turn into a six figure sum when you retire? Start early, invest and have the discipline to keep re-investing…

Anne Scheiber loved stocks for her whole life and it is likely that she started investing much earlier than 1943 (the time she retired). Although she met with limited success initially, she came out tops in the end.

4. Hard Work
Anne Scheiber worked on her investments. She studied the companies she invested in, attended shareholder meetings and asked many questions to satisfy her curiousity and passion. Hard work with laser-like focus usually pays off.

“Successful leaders are learners. And the learning process is ongoing, a result of self-discipline and perseverance. The goal each day must be to get a little better, to build on the previous day’s progress.”
John C. Maxwell

Replace the word leaders with investors. Makes sense, wouldn’t you agree?