Grace Groner and the Power of Dividend Reinvestment Plans - Cabot Wealth Network

Grace Groner and the Power of Dividend Reinvestment Plans

The Great Grace Groner Saga

Some stories are so good that they demand to be retold. And the story of Grace Groner is one that speaks to the power of dividend reinvestment plans. I wrote about her in 2014, but there’s something about her story that won’t quite let go of me. I hope you enjoy it.

Grace Groner lived a simple life. She and her sister had been orphaned when Grace was 12, and they were taken in and adopted by a prominent member of their small Illinois farm town.

Eventually their benefactor sent them both to college at Lake Forest. After graduating in 1931, she became a secretary at Abbott Laboratories (ABT), which was, apparently, the only job she ever had.

She remained single throughout her life, never owned a car and lived in a small house she had inherited near the Lake Forest campus. While she did a lot of traveling and gave money to charities, she bought clothes at rummage sales and generally lived the kind of frugal life that made sense to many survivors of the Great Depression.

But back in 1935, she also did a little investing. Since she was working at Abbott, she bought three shares of the company’s stock for $60 a share. Then she held them for 75 years!

And when she died in 2010, at age 100, she left her estate to a foundation she had established to benefit students of Lake Forest College. Her estate was valued at $7 million. I am fascinated by this story, and checked out a Purchasing Power Calculator to figure out how much $180 in 1935 dollars would amount to today. The answer is that the inflation in the Consumer Price Index (CPI) since then makes her $180 equivalent to $3,114 in 2015 funds. It’s still a pretty modest amount. (From what I’ve read, Ms. Groner just rolled the periodic dividends that her stock earned right back into the stock through a dividend reinvestment plan.)

Ms. Groner was fortunate in many ways. First, unlike many companies, Abbott Labs didn’t bite the dust during the Great Depression. Second, she bought her one investment at a time when the market was lower than a snake’s belly in a wagon rut.

But if you tell this story to someone in the financial planning business, they’ll just wince and shake their heads in wonder.

They know that buying just one stock is a bad idea. In fact, it’s one of the highest-risk strategies around, off-the-chart high. For them, it’s the equivalent of going to a roulette table and betting on 17 black over and over again. (I’m thinking about all those loyal employees who bought Enron stock and nothing else.)

I know this because, as a growth investor, I’m sometimes taken to task by a friend of mine who’s a financial advisor. He sees my aggressive 10-stock personal portfolio as crazy risky. He advises his clients to have dozens of issues in their retirement portfolios, including value stocks, dividend stocks, sector funds, index funds, Treasuries, munis and cash, all in carefully calculated proportions and rebalanced twice a year to make sure the risk is spread around.

That’s probably a good idea, of course, but I suspect that there are more investors on Grace Groner’s end of the diversification spectrum than on my friend’s.

I have three observations about this story.

First, it’s a great illustration of the power of time. Most investment portfolios, even if you start them in your mid-20s, will have only 40 years for the power of compounding, stock price appreciation and dividend reinvestment to do their work.

Then you retire. Ms. Groner’s Abbott stock had 75 years.

Second, very few people are self-sufficient enough (or disciplined enough) to just let the money sit and accumulate. By the time Ms. Groner’s three shares were cashed in by her foundation, its eight stock splits alone would have increased the number of shares she owned to 1,152. Then you add to that the additional shares bought through her dividend reinvestment plan, the amount of capital involved would be really substantial.

Third, Abbott Laboratories’ stock was a steady grower over its lifetime. Here’s a chart of ABT from April 1983 through the end of 2010, showing the stock’s rise from a split-adjusted 1.30 to 19.91. (ABT is now trading at about 38.)

 

For those of you who may wish to emulate Grace Groner’s astonishing luck, patience and good judgment, I have a suggestion.

I think Cabot Global Stocks Explorer (formerly Cabot Emerging Markets Investor), which features stocks from the fast-growing emerging economies around the world, is a prime source for stocks that have incredibly bright futures. Investors aren’t comfortable with emerging market stocks; they don’t know the names and they don’t understand how those markets work. But as a source for stocks that are the equivalents of Abbott Laboratories in 1935, you can’t do better. Chinese stocks are especially well positioned to roll higher for years to come, even if very few of them have dividend reinvestment plans yet.

If the only Chinese stock you’ve heard of is Alibaba (BABA), you have a world of strong stocks that are beautifully out-of-favor right now. If you subscribe to Cabot Global Stocks Explorer now, you will be at the head of the line when Chinese (and other emerging countries’) stocks explode higher.

Click here for more details.

 

Fortune Cookie 

Here’s this week’s Fortune Cookie. Remember, you can always view all previous Fortune Cookies here and Contrary Opinion buttons here.

“The most corrosive piece of technology that I’ve ever seen is called television—but then, again, television, at its best, is magnificent.” 

Tim’s comment: In my opinion, television is the new opium of the masses, from the ads that brainwash a nation of consumers to the utter dreck that they accept as programming.

Paul’s comment: Tim suggested this double-header Fortune Cookie to make a simple point. And it seems to me that “the masses” (meaning the people who don’t know much or think much and don’t care to start) have always had some kind of opiate. (I’m thinking about Marx’s observation that “Drink is the curse of the working classes”, even dating back to ancient Rome’s bread and circuses strategy for keeping citizens under control.)

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