HOW TO TURN A MILLION INTO BILLIONS

you can't really fail at it unless you

buy the wrong stock

or just get excited at the wrong time

and i would like to just spend just a

couple of minutes

uh giving you a little perspective

uh on how you might think about

about uh investments as opposed to

the uh tendency to focus on what's

happening

today or even this minute as you go

through and

to help me in doing that i'd like to go

back through a little

personal history and uh

and we will start

i have here

up here in new York times of march 12

1942 and I'm a little behind on my

reading

and if you go back to that time

it

it was about what

just about three months um

since we got involved in a war which

uh we were losing at that point

uh the newspaper headlines

were filled with bad news

from the pacific and i've taken just a

couple of the headlines

from the days preceding march 11th which

I'll explain

it's kind of a momentous day for me and

so

you can see these headlines we've got

slide 2 up there i believe

and uh

we were in trouble big trouble

in the pacific uh it was only going to

be

a couple months later that the

Philippines fell

but here we were getting bad news we

might go to slide

three for march 9th uh

uh i hope you can read the headlines

anyway the price of the paper is three

cents incidentally

um the uh and uh

uh let's see we've got march 10th up

there a slide

i'm i want to get to where there's

advanced technology of slides

i want to make sure i'm showing you the

same thing that i'm seeing in front of

me

so anyway on march 10th

uh when again the news was

bad full clearing path to australia and

it was like

it the stock market

had been reflecting this and I'd been

watching

a stock called city service

preferred stock which had sold at 84

dollars

the previous year it had sold at 55

the year before early in the in january

two months earlier

and now it was down to forty dollars on

march 10th

so that night despite these headlines

i said to my dad i said i think i'd like

to pull the trigger

and i'd like you to uh

buy me three three shares of city

certified

the next day and that was all i had i

mean that was my capital accumulated

uh uh

over the previous five years or

thereabouts and so my dad the next

morning

um bought three shares well let's take a

look at what happened the next day let's

go to the next slide please

and it was not a good day

the stock market the Dow jones

industrial s broke

100 on the downside now they were down

2.28 as you see but that was

the equivalent of about a 500 point drop

now

so I'm in school wondering what is going

on of course

uh incidentally you'll see on the left

side of the chart

the new York times put the dow jones

industrial average

below all the averages they calculated

they had their own averages which have

since disappeared but the Dow jones has

continued

so the next day uh

we can go to the next slide and you will

see

what happened the stock that was in 39

my dad bought my stock

right away in the morning because I'd

asked him to my three shares

and uh so i paid the high for the day

that 38 and a quarter

uh was my tick which is the high for day

and by the end of the day

it was down to 37 uh

which was really kind of characteristic

of my

timing in stocks that was going to

appear in future years

uh um but

uh uh it was on the what was then called

the new York curb exchange then became

the American stock exchange

but things even though the war until the

battle of midway looked very bad and

if you'll turn to the next slide please

you'll see that

the stock did rather well you can see

where i bought at 38 and a quarter

and then the stock went on actually

to eventually be called by the city

service company

for over 200 dollars a share

but this is not a happy story because if

you go to the next

page you will see that i

well as they always say it seemed like a

good idea at the time you know

uh so i sold those i made five dollars

on it it was

it was again typical of behavior

but when you watch you go down to 27

uh you know it looked pretty good to get

that profit well what's the point of all

this well we can leave behind the city

service story

and i would like you to again

imagine yourself back on march

11th of 1942

and as i say things were looking bad in

the European theater as well as what was

going on in in the pacific but

everybody in this country knew

uh America was going to win the war i

mean it

it was you know we'd gotten blindsided

but but

we were we were going to win the war and

and we knew

that the American system had been

working well since 1776. so

if you'll turn to the next slide I'd

like you to imagine

that at that time uh you had invested

ten thousand dollars

and you put that money in an index fund

we didn't have index funds then but but

you

in effect bought the s p 500

now i would like you to think a while

and don't do not change the slide here

for a minute

i'd like you to think about how much

that 10 000

would now be worth if you just had one

basic premise just like in buying a farm

you buy it to hold

throughout your lifetime an independent

and you look to the

output of the farm to determine whether

you made a wise investment

you look to the output of the apartment

house to decide whether you made a wise

investment if you buy an apartment small

apartment house to hold for your life

and let's say instead you decided to put

the ten thousand dollars in

and hold a piece of American business

uh and never look at another

stock quote never listen to another

person give you advice or anything of

the sort

i want you to think how much money you

might have now

and now that you've got a number in your

head let's go to the next slide

and we'll get the answer you'd have 51

million dollars

and you wouldn't have had to do anything

you wouldn't have to understand

accounting

you wouldn't have to look at your

quotations every day like i did that

first day

I'd already lost 3.75 by the time i

came home from school uh all you had to

do

was figure that America was going to do

well over time that we would

overcome the current difficulties

and that if America did well american

business would do

well you didn't have to pick out winning

stocks

you didn't have to pick out a winning

time or anything of the sort

you basically just had to make one

investment decision

in your life and that wasn't the only

time to do it i mean i could go back and

pick other times that

uh would work out even greater gains but

as you listen to the

questions and answers we give today

just remember that the over the

overriding question

is how is American business going to do

over your investing lifetime uh

i would like to make one other comment

because it's

it's a little bit interesting let's

let's say you're taking that ten

thousand dollars

and you listen to the profits of doom

and gloom around you and

and you'll get that constantly

throughout your life

and instead you use the ten thousand

dollars

to buy gold now for your ten thousand

dollars

you would have been able to buy about

300 ounces of gold

and while the businesses were

reinvesting

uh in more plants and new inventions

came along

you would go down every year into your

look in your safe deposit box

and you'd have your three ounce 100

ounces of gold and you could look at it

and you could fondle it and you could i

mean whatever you wanted to do with it

but it didn't produce anything it was

never going to produce anything

and what would you have today you would

have

300 ounces of gold just like you had in

march of 1942

and it would be worth approximately

four hundred thousand dollars

so if you decided to go with a

non-productive asset goal

instead of a productive asset which

actually was

earning more money and reinvesting and

paying dividends and maybe purchasing

stock whatever it might be

you would now have over 100 times

uh the value of what you would have had

with a non-productive asset in other

words for every

dollar you have made in American

business you'd have less than a penny

by of gain by buying in the store value

which people tell you to run to every

time you get scared by the headlines or

something disorder it's

it's just remarkable uh to me that

we have operated in this country with

the greatest tailwind at our back

that you can imagine it's an investor's

i mean you can't really

fail at it unless you buy the wrong

stock

or just get excited at the wrong time

but if you if you owned a cross-section

of America and you put your money in

consistently over the years

there's just there's no comparison

against owning something that's going to

produce nothing and there frankly

there's no comparison

with trying to jump in and out of stocks

and

and pay investment advisors if you'd

followed my advice incidentally

or this retrospective advice which is

always so easy to give

uh if you'd follow that of course you're

there's one problem buddy

your your friendly stock broker would

have starved to death

i mean you know and you could have gone

to the funeral

to atone for their fate but the truth is

you would have been better off doing

this than

than a very very very high percentage

of investment professionals have done or

people have done that are active that

it's it's very hard to move around

successfully

and beat really what can be done uh

with a very relaxed philosophy and you

do not have to be

you do not have to be you do not have to

know as much about

accounting or stock market terminology

or whatever else it may be

or what the fed is going to do next time

and whether it's going to raise rates

three times or four times or two times

none of that counts at all really in a

lifetime of investing what what counts

is

is having a a philosophy that you've

that you stick with that you understand

why you're in it and then you forget

about doing things that you don't know

how to do

Probably Won't Fail