The remarkable life and lessons of Ronald Read, the $8 million janitor
Washington Post, April 26 2015
You may have read about the remarkable life and times of Ronald Read. He was the gas station attendant and lifelong resident of Windham County, Vt., who had quietly accumulated a portfolio worth a fortune. As theBrattleboro Reformer reported earlier this year, Read died last June at age 92. Despite his relatively modest wages, he left an estate with “stock holdings and property” valued at nearly $8 million. His bequest was to leave most of it to the Brattleboro Memorial Hospital and Brooks Memorial Library.
His close friends and family were shocked when they learned the value of his estate.
There is wisdom to be learned from Read’s investing and life experiences. How a man of modest means accumulated so much wealth contains exemplary lessons for saving that apply to all of us. But there is also a cautionary tale about recognizing the value of your finite time here on earth. Perhaps learning to enjoy life while you can is part of that equation.
What do we know of Read? He served in World War II, seeing action in North Africa, Italy and the Pacific theater. The local paper reported that when the war ended, he returned to Brattleboro. For the next 25 years, he worked at Haviland’s service station, which the Wall Street Journal reported was owned by his brother. He apparently did not enjoy retirement much, choosing instead to “retire from retirement” to work as a janitor at a J.C. Penney store until 1997. He was extremely frugal, saving money, avoiding waste and eschewing even modest luxuries.
What follows are the lessons from the remarkable Read.
Not an active trader: Read had remarkable patience. When he died, he had a “five-inch-thick stack of stock certificates in a safe-deposit box.”
The key word is “certificates.” Keeping his holdings in cert form meant that any time he wanted to sell them, a laborious process was involved. He had to drive to the bank, remove the physical paper certificates from his safety deposit box, then drive over to the office where his brokerage account was. Only then was a sale possible.
Compare that with launching an app on your phone, then a quick finger swipe. Trading in the modern era is too cheap and too easy for our own good.
Time was on his side: Many of the stocks he owned he had held onto for decades, the Journal reported. To do so required a great degree of patience. It also helped to live to be 92 years old.
That patience allowed the power of compounding to work to his advantage. His gains grew on top of earlier gains, over decades.
Most investors don’t take advantage of time. They start saving seriously too late in life, they are not at all patient, and they don’t allow the years to work in their favor.
Dividend stocks do well; reinvesting the dividends does even better:
Read typically bought shares of companies that paid out regular dividends. He owned railroads, utility companies, banks, health care, telecom and consumer products. Those dividend checks were then reinvested back into more shares of the same companies.
The reinvested dividends allowed him to keep making regular purchases over time. Read was not an active trader — he was an active buyer. There is a very big difference.
Avoid speculating; own blue chips: What did he buy? He owned 95 stocks, with many blue chips among them: Procter & Gamble, JPMorgan Chase, General Electric, Johnson & Johnson, Dow Chemical. He also owned consumer names such as J.M. Smucker and CVS Health. Like an investor named Warren Buffett, he avoided technology stocks and the hot stocks of the moment.
He did not own a concentrated portfolio; instead, he had a diversified portfolio with lots of companies in many sectors. This diversification allowed him to spread the risk broadly. Even owning failures such as Lehman Brothers had only a modest impact on his returns.
Charity avoids the tax man: The estate-tax exemption in 2014 was $5.34 million, or $10.68 million for a married couple. Since Read was a widower, his $8 million estate was not subject to federal estate tax.
But any size estate can do what he did, regardless of whether it is $80 million or $8 billion. Simply giving the money away to a qualified charity beats the IRS.
There is an estate tax in Vermont, and it ranges from 0.8 percent to 16 percent. But there is no gift tax in the state, and that means Read’s bequest to the local library and hospital passed unmolested to their intended beneficiaries.
Consider a revocable trust: Depending upon the circumstances (and the portfolio), some investors might want to take advantage of a revocable trust. Also called living trusts, they are an easy way to avoid probate. Heirs avoid a lengthy court process; assets transfer after the original holder dies.
In the case of Read, the process appears to have been rather painless. It took less than a year after his passing to get to his intended beneficiaries. Vermont is better than many states; your heirs may not be quite so fortunate, especially if you live in larger states with more complex laws. By many accounts, California is among the worst for beneficiaries; a three-way tie for next-most difficult is between New York, Florida and Illinois.
A revocable trust will cost you some dollars in legal fees to set up, but your heirs will thank you.
Certificates are a pain in the neck: As the Total Return blog pointed out, Read was lucky in that the certificates were all current and up to date. “That doesn’t always happen.” It can be a challenge to determine “all of the income-tax return info via dividends over the year.” Stocks that are not in physical form or in an account can be difficult or time consuming to trace. Certificates that are in electronic form and consolidated with an adviser or broker can save heirs lots of headaches later on.
Money is a means to an end, not an end in and of itself: Read might have benefited from reading one of the very first columns I wrote for The Post back in 2011: “7 life lessons from the very wealthy.” That column discussed the insights about investments and experiences with wealth.
Among them were some specifics that Read might have enjoyed. Perhaps he could have given away his money while he was still alive. That might have provided some joy to him, seeing the effect of his legacy.