I have recently been rereading the biography of Charlie Munger, Damn Right. While reading it, a passage talks about how Charlie has stated that if chosen wisely, one stock can be a sufficient investment. Since this is so contrary to public opinion, I think it is important to expand on this. When many people talk about gambling in the stock market, the most common conception is bankruptcy. If all your eggs are in one basket, well if that basket is of inferior quality… ouch. On the flip side, while that concern is valid, one good investment, if given enough, time can overcome a heck of a lot of pain. Some of the best companies are so good, they can still leave you rich even if you fail at everything else.
Some Case Studies of one Good Investment
On December 2, 1972, 45 years ago, you decided to invest almost $10,000 in Johnson and Johnson. One of the largest medical corporations at the time, everyone knew about the company. Expanding overseas, discovering new drugs, showing some of the most remarkable corporate actions a business student can study during the Tylenol scare, this was a company that anyone and their mother should have owned. Today, if you had managed to hold onto that investment, you would have a JNJ position worth more than $870,000. (The calculator is on Johnson and Johnson’s website.)
The day is May 25, 1987. A company you may have heard of, Tiffany and Co. had just had an IPO. Women have spent millions of dollars on jewelry and other luxury goods. It was a company that everyone knew about. Wedding rings, perfume, fine china, Tiffany has had a hand in it all. Having saved $25,000 over the course of working, you decided to invest. Congrats Mr. or Ms. Millionaire, your total amount today is more than $1.7 million dollars. I dunno ’bout y’all, but that would make me want to sing that Breakfast at Tiffany’s song every time I woke up in the morning.
I have already written about investing in the Walt Disney Company, so I think we are probably approaching the point of diminishing returns. If you are interested in further examples, you can study Warren Buffett’s original investors who followed him from his partnerships to Berkshire Hathaway. You can study Quincy, Florida, and the Coca Cola millionaires. The USA is full of these stories of investors who knew a great company when they saw it, hitched their wagon, and flew into the stratosphere.
This is normally where someone tries to point out, “hey, what if you also invested in a WorldCom.” I’ll do you two better, what happens if you invested in three other companies that went bust. Remember that $10,000 invested in JNJ stock. Well, let’s say you started with $40,000 and now $30,000 is blowing in the wind, gone to terrible management. That $10,000 still became more than $800,000 dollars, and you still achieved a compounding rate north of 7% annually. Nobody would ever want you to manage their money with your record, and yet, because of one stock, you actually still did fairly ok. That is why it is important, when investing, to keep perspective on what the great winners can do for your portfolio. One stock can be your saving grace that ensures financial independence.