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The bad example of the secret millionaire

By any objective measure her allocation of assets was foolish. But time and luck were on her side.

By Karen Datko Mar 12, 2010 2:46PM

This guest post comes from Frank Curmudgeon at Bad Money Advice.

 

Heard about the secret millionaire of Lake Forest, Ill.? I’ll assume not and recap. Grace Groner was born in 1909 and graduated from Lake Forest College in 1931, just about the worst year of the 20th century to enter the job market. Luckily for her, she landed a position as a secretary at the then obscure firm Abbott Laboratories. She was a secretary there her entire career, retiring at age 65 in 1974. She never married and lived modestly.

 

So far, it’s a story that could be called poignantly mundane. But add in a few more facts and it transforms into a personal-finance parable that will be repeated, and probably distorted, for some time to come.

 

In 1935 Groner bought three shares of her employer’s stock. From that day on, she reinvested the dividends and never sold a share. She passed away this January, having reached 100. Her estate, including what is now a $7 million position in Abbott, was left to her alma mater, Lake Forest College.

 

Had she left the fortune to relatives (it’s not clear she had any) the secrecy of her millionairedom would likely have been preserved. But a bequest of that size to the college is news, and in Chicago this has become a well-known story. The Chicago Sun-Times discussed it. So did the Chicago Tribune, which actually went so far as to file it under “Happy News.” (Here’s hoping my obituary doesn’t wind up there.)

 

The Weekly World News picked up the story. As did, on the same day, The Huffington Post and WalletPop. Then The Wall Street Journal’s peculiar Wealth Report blog wrote about it.

 

My crystal ball tells me we will be hearing about Grace Groner for a long time. To the Automatic Millionaire Mind Next Door crowd, she is an irresistible example of how a pittance saved when young can, when invested on a strict buy-and-hold basis, turn into a great fortune when old.

 

In a fairly pointless effort to temper this, let me point out a few things about the story.

 

To begin with, the single investment in 1935 left perfectly untouched and growing to $7 million in 2010 is implausibly tidy. In the 40 years from when she bought the shares to when she left Abbott she never thought either to sell some of what she had nor to buy any more?

 

On the other hand, in the last decades of her life, how did she manage to reinvest all those dividends? I calculate that in 2009 she got $205K in quarterly checks, which would work out to a federal income tax bill of $31K. It is very hard to believe that a woman of otherwise modest means would, or could, scrimp enough to reinvest the entire $205K. Indeed, news reports say that in her later years she gave money to charity, including $180K to Lake Forest College.

 

But for the sake of argument, let’s accept the Immaculate Reinvestment Theory. Groner bought three shares in 1935 for $180. That may sound like next to nothing now, but in 1935 it was real money, probably about a month’s take-home pay for her. Saving that four years out of college and at the height of the Great Depression was not a matter of skipping lattes.

 

Then there is the observation, made in a few of the linked articles above, that Groner did a lousy job of portfolio management. The mythmakers will say that you can’t argue with success, but by any objective measure her allocation of assets was foolish.

Investing in the stock of your employer, as traditional as it may be, is generally a bad idea. Because you work there, you will be worse off if the company does poorly. There is no need to double down by buying the stock too. As the Sun-Times points out, many employees of Enron, GM, and Bear Stearns did this and wound up both unemployed and broke.

Yahoo Finance only has stock data for Abbott going back to 1983. Using that I can back out that Groner had about $193K in Abbott stock then. (This assuming perfect reinvestment from 1983 to 2010. Since I don’t think that happened, I think she actually had considerably more.) In 1983 Groner was 74 years old. Does anybody believe that it is a good idea for a 74-year-old to have substantially all her assets in stocks, never mind in a single stock?

It should be clear that Groner wound up with a small fortune in spite of some unwise decisions largely because of luck. Abbott turned out to be a good basket for all her eggs. Assuming $180 to $7M in 75 years is correct, that is 15.13% annualized return, nicely ahead of the 10.63% from the S&P over the same period. Then again, 10.63% ain’t too bad. As unlucky as it was to graduate from college in 1931, 1935 was a great year to make long-term stock investments.

 

But more than anything else, Groner was fortunate to have lived so long. Had she had the modesty to leave us in 1989 at age 80, roughly her life expectancy when she retired, the Abbott stock would have been worth a still impressive but not newsworthy $636K. Since she made it to triple digits, her wealth had the rare chance to further compound and she became the stuff of legend.

The advocates of becoming rich from frugality will point to Grace Groner as an example of an ordinary person who became rich from modest living. If she can do it, anybody can. That is true. All you have to do is take inappropriate risks, get lucky, and live a very very long time.

 

Related reading at Bad Money Advice:

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