Many people dream of becoming wealthy. For most this might mean having a net worth in the millions or perhaps even in the tens of millions someday.
In the history of humanity, however, very few have successfully achieved wealth so vast that they are billionaires.
In modern times, the first US dollar billionaire was probably John D. Rockefeller who in 1916 was thought to have a net worth of $1.4 billion (this is back when the average American earned only $3,300 per year) so his wealth in equivalent terms today would be closer to $33 billion adjusted for inflation. Rockefeller was so wealthy that even today, six generations later, some of his descendants retain billionaire status based largely on his success.
Going even further back, to ancient Roman times, there is speculation that Marcus Crassus, a member of the first triumvirate (along with Julius Caesar and Pompey) was “the richest man in Rome” who would have been a billionaire in dollar equivalent terms based on his vast real estate and other holdings – though of course this was far before the industrial revolution and the creation of the US dollar.
We all know it is not easy to go from a regular person to becoming a billionaire. However, not only is it possible, but today we are going to share with you the incredible but true story of someone who went from being an almost-unknown Midwesterner to a billionaire himself.
His name is Mr. Stewart Horejsi (pronounced hor-ish). Read on below for his story and how he created such wealth in a single lifetime.
We share his story because it is interesting and also because his experience provides many powerful and valuable lessons that the rest of us can apply to building personal wealth for ourselves and our families at any scale.
While our own goals may not be to become billionaires, in our own way, we can learn from and apply these lessons to enjoy much more investment and financial success if we understand the investment ideas and principles that made Stuart a billionaire from this one great investment.
Who Is Stewart Horejsi?
Stewart Horejsi is an unassuming man with an estimated net worth of approximately $2,000,000,000. That ranked him at number 1277 on the Forbes 2019 list of billionaires.
Stewart graduated from the University of Kansas in 1962, after which he returned to his hometown of Salina, Kansas to work in the family welding-supply company. By 1980, Stuart was running the family business which was running into challenges on multiple fronts. Competitors were eating away at his profits and even the survival of the family business itself was in question.
With finances on his mind, he read a book entitled The Money Masters, by author John Train. This book summarized the habits and tactics of some of the world’s most successful investors, people such as John Templeton, Benjamin Graham and Warren Buffet. Inspired by this book, he decided to take action.
Stuart bought 40 shares of Berkshire Hathaway stock, a holding company managed by Warren Buffet, for $265 per share. Within a few months time he added a bit more to his holdings and had by then purchased a total of 300 shares. Little did he know that from this modest beginning his life and his net worth would, in time, be transformed completely.
As the years went by, he continued to invest some of his income from the family business in Warren Buffet’s company. At his peak, he owned 5,800 Berkshire shares.
Today, each of these share of Berkshire Hathaway Class A stock (BRK.A) is worth $353,000. By investing in just this one stock (and crucially holding on with a long-term view) he became a billionaire.
Characteristics Of Berkshire Hathaway
Berkshire Hathaway is a holding company that invests in wholly owned business and stocks that the CEO, Warren Buffet, and his partner Charlie Munger believes are great businesses that he can acquire at fair prices.
While they prefer to buy entire business because of the ability to control their management and cash flows, Berkshire also purchases many public securities when whole businesses meeting their criteria are not available.
As a result of their philosophy on capital allocation, ownership in Berkshire represents ownership in a variety of private wholly owned businesses such as insurance, electricity generation, and railroads and minority interests in a variety of well known companies like Coca-Cola, Apple, Bank of America, GEICO, Southwest Airlines and American Express.
Crucially, Berkshire used the “float” generated by well run insurance companies he acquired to leverage his investment returns using low or no-cost money from the premiums paid by policyholders of his sprawling insurance operations.
As a result, Berkshire provided stellar returns for its long-term shareholders like Stewart Horejsi. Its average annual growth of 19.0% since 1965 is vastly superior to the 9.7% annual return from the S&P500 basket of stocks over a similar time period. Remember that even a small increase in the compounding rate leads to a large difference in the end result over time.
Other billionaires who derived their wealth mainly from Berkshire Hathaway include Charles Munger, David Gottesman, Albert Ueltschi and Harold Alfond. The last two are also little known names, just like Stuart.
Today Berkshire Hathaway is a very large company with a market capitalization of around $550 Billion. Given its size it may be unlikely to grow at the rates that earlier investors like Stuart enjoyed.
However, the ability to invest in Berkshire when Stuart did was available to everyone since Berkshire has been a publicly traded company for many decades.
Back then, Buffett and Berkshire were not as visible as they are today.
Though the same opportunity was available to just about every American, how many people actually took advantage of this incredible opportunity?
As Stewart’s example, illustrates, the right investments can create tremendous leverage in our lives and our results.
Today, Berkshire is not going to repeat its past success and rates of growth.
What other companies and investments are you missing out on right now by failing to know what to look for and acting when you find it?
Or seeking help from someone competent who could do it for you?
Lessons From Stewart Horejsi’s Path to Investment Success and Billionaire Status
Embedded in Stewart’s example are a number of powerful lessons that all of us can learn from and use to increase our investment returns and enjoy far more success. Let’s look at some of the most important investment lessons from Stewart Horejsi’s example summarized below:
1. The Importance of Patience
One of the keys to building wealth is patience. Stuart got into Berkshire Hathaway early and held on. He attended Berkshire’s annual meetings in person, continued to like what he heard and maintained and added to his investment over decades.
If you think about your own experience or that of others who you may know, you’ll realize that this is quite uncommon.
How many hold on to their investments long enough to enjoy this kind of life changing impact to their net worth?
Most people are in too much of a hurry or get scared into selling too early at the first sign of bad news or investor pessimism.
This is short sighted because most businesses are by their nature volatile and there will always be some ups and downs along the way. An intelligent investor knows this and even plans to take advantage of it.
This applies not only to Berkshire but to most investments. How many people owned Apple, or Amazon or Nvidia or some other great company that went on to produce amazing returns, only to make a 20 to 30% return themselves and then sell out for their “tidy” profit, thereby missing out on hundreds or thousand percent returns that they could have enjoyed if only they had the patience?
For this reason, one of the silliest but often repeated “pearls” of investment “wisdom” is that “no one goes broke taking a profit.” They forget to mention its corollary which is that “no one gets very rich either.”
Of course, it is not enough to just have a long-term horizon. There are many examples of people owning companies and riding them down to zero as well.
This brings us to the critical importance of having a good understanding of the quality and prospects and worth of what you own because without this understanding, it is very difficult to have the confidence to stick with the “right” investments, even if you had the smarts or the luck to make that investment in the first place.
2. Know What You Own
Stewart’s knowledge of and attention to his investment enabled him to realize that he was invested in a profitable, high-powered growth company that was run by an exceptional individual and capital allocator in Warren E. Buffett.
Note that Stuart was not some Wall Street whiz or investment genius. He was a regular small-business owner in the Midwest with a business facing challenging headwinds.
Smartly, however, rather than reinvesting all his spare funds into the one challenged business that he already owned, he was smart enough to seek out greener pastures (in this case in the form of Berkshire Hathaway).
He didn’t even know about Berkshire back then, but since he was interested in improving his results and growing his wealth outside of his business, he started reading books and other sources to educate himself and find another opportunity that made sense.
His idea came from a book. However, it could just as easily have been from personal experience, or a magazine article or even a program on television (or perhaps advice from a capable investment manager like Ridgewood Investments) that would have led him to this life changing opportunity.
Crucially, his understanding of Berkshire Hathaway as a “compounding machine” that was run in a manner to reinvest all its excess cash flow and was likely to continue to generate high rates of return on that incremental investment capital was a key insight that allowed Stuart to ignore the temporary ups and downs of Berkshire stock ever since he started buying it.
Indeed, during Stuart’s holding period, there were many times when Berkshire stock dropped in value. There were also many times when certain other companies or industries were doing much better than Berkshire and when the press was writing articles saying things like “Has Buffett Lost His Touch?”
Because Stuart had done his homework and knew better based on his own independent thinking and analysis, he could ignore these temporary factors that made others sell.
3. Focus on Quality, Minimize Trading, and Harness Concentration
As Stewart’s example vividly illustrates, identifying and buying quality firms and holding them for a long time is another key to amassing wealth.
This is just the opposite of day trading and other get-rich-quick approaches that constantly try to buy and sell and time the market.
Stewart was able to assess and understand the business and management quality embedded in Warren Buffett’s management of Berkshire. Given the quality of the company and the management team he was investing with, as well as Bufffett’s status as an owner-operator who had a large ownership and stake in Berkshire’s ongoing success, Stuart was comfortable buying, holding on, and allowing the position to represent a large portion of his portfolio.
Most conventional financial advisors (unlike Ridgewood Investments) beat the drum of maximum diversification and generally recommend that their clients sell out of any and all positions that are at all concentrated, even if the position represents a very high quality company like Berkshire.
At Ridgewood Investments, we know that intelligent concentration can be useful in compounding and building wealth whereas diversification is also a great tool that must be used correctly and wisely such as for preservation and wider economic exposure.
4. Understand and Harness the Power of Investment Compounding
Stewart ’s story demonstrates in a fabulous way that the power of compounding one’s investment returns can produce life changing results and gets really interesting over time.
His one investment in Berkshire became, quite literally, a compounding machine. As mentioned, BRK.A produced an annual rate of return of approximately 19% per year for its shareholders like Stewart who invested early. These gains were continuously reinvested, so that, as the years went by, Stuart’s total return increased with an upward accelerating trajectory. It continues to do so.
Another beautiful aspect of this approach was its tax efficiency. Since Berkshire reinvests its earnings internally, Stewart would not have personally paid any taxes for all this wealth creation.
In fact, if Mr. Horejsi held on to all his shares, he might have even become a billionaire without personally having paid a single dollar of tax on the vast gain in wealth that he created through this one investment thanks to the power of deferred taxes.
In contrast, if Stewart had invested just in an index fund (which is a popular approach, especially right now), he would have gotten good results, but would today have had only a fraction of the wealth that he has accumulated with the principled approach that we just reviewed.
Even Greater Opportunities Are Available Today If You Know Where To Look and How to Follow these Same Principles of Investment Success
Was Stewart just incredibly lucky to get in at the right time? Was his example fine if you were around in the 1980s or 1990s but really are we out of luck today?
Growing up, I always heard people kvetch (Yiddish for complain) about all the opportunities they had missed. If only … they had bought the McDonald’s franchise or Microsoft stock in the 1990s. Recently they may be complaining about missing out on Tesla.
So it is reasonable to wonder whether Stewart’s example is an isolated case of dumb luck or something that we can all learn from, start to apply, and even use to get greater financial wealth and freedom for ourselves starting today in 2020?
Are investments like these still available? If so, can you take part in such investments?
As a long established and very experienced investment advisor based in the greater New York area and also Southern California, Ridgewood Investments believes that the answer to both questions is a resounding yes.
In fact, if you are a long-term investor, we believe that there are more potential opportunities for investment success and wealth building than at any prior time and it seems that the number of these opportunities is continuing to increase.
The pace of innovation, change, technology, entrepreneurship and globalization makes this a golden age for investors …. If you know what to look for, how to look, when to act and how to stick with it for long enough to compound your investment just like Stewart Horejsi did so successfully.
Companies such as Google, Facebook, Netflix, Wal-Mart and Amazon are just a few of the more recent examples of companies that created incredible wealth for investors in an even shorter time than it took for Stewart.
Today, Ridgewood Investments is continuing to identify other investment opportunities in lesser known names that we believe are or could become fabulous investments too.
