The remarkable life and lessons of the $8 million janitor

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
the Brattleboro ­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.
The good
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.”
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
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.
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:
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.
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.
The bad
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.
Understanding the value of your time was another. Of course, money has
value, but so too does your time. One can wonder if we are using our
limited time on Earth in a way that brings us additional life
satisfaction. It’s a trade-off we all make.

Source: WashingtonPost