hjteo - Personal Finance and Learnings in life: March 2010

Came across another article that is inspiring. Lessons from this person are mine in italics.

Blessed day !

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http://www.suntimes.com/business/roeder/2087394,CST-NWS-curious07.article

Grace Groner was an uncommonly wise and generous person. She died in January and is still teaching us lessons.

Groner was 100 when she died, and she willed her estate to Lake Forest College. She lived in Lake Forest, one of the wealthiest communities around, so you're probably thinking she was a dowager, maybe the last in some line of old money. Groner was much bigger than that.

She had never married and lived penuriously in a tiny house in a part of town once reserved for servants' quarters. Groner graduated from Lake Forest College in 1931 with a degree in English and went to work at Abbott Laboratories (ABT), where she stayed 43 years and became the president's secretary.

In the 1930s, the young woman bought three shares in Abbott costing $60 each. She was thinking ahead. She never sold the shares, which split many times over the years and paid dividends that she reinvested. At her death, that $180 was worth $7 million, and it became the largest gift in her alma mater's history.

'Start investing young and it doesn't need a lot of money '

Groner had set up a foundation for the college, declared its mission and specified how it would be run. The college said her gift will generate about $300,000 annually that it will use for scholarships, especially for students interested in studying abroad.

Pastor Kent Kinney of First Presbyterian Church in Lake Forest said travel was one indulgence Groner allowed herself. This was a woman who didn't have a car, wore second-hand clothes and didn't even buy the home she lived in; she rented an apartment for years and got the house in a friend's will. In turn, she has donated the house to the college for use as a residence by Groner Scholars.

Kinney said she took many trips after her retirement from Abbott and believed in the broader outlook that travel bestows. She also believed costs should not bar someone from pursuing knowledge or a dream. Kinney said Groner volunteered for years at his church and would send gifts anonymously to local residents through her attorney.

Investing in Abbott probably was an act of faith, like much of what she did. Her success invites two observations, one of which unfortunately mars this uplifting tale: Don't try what she did.

It is a grave error to put your nest egg behind a single company, and it is worse when the company is your employer. Groner had a winner, but others have done this with Enron, General Motors or Bear Stearns. Joseph Scanlon, senior managing director for investor advisory services at Mesirow Financial and not involved in Groner's account, said clients shouldn't place more than 10 percent of their money into a single source, especially if the cash is for a future need such as retirement or college expenses.

But Groner's endowment shows the value of dividends and reinvesting them, part of the magic of compounding interest. Her $7 million would represent ownership of more than 129,000 Abbott shares, based on the current price. Groner got there simply by reinvesting the dividends and reaping the splits from her holdings.

'Compounding interest'

Abbott is one of the all-time great dividend performers, part of the aptly named S&P 500 Dividend Aristocrats index. The company said it has paid a dividend since 1924 and increased it annually for the last 38 years.

This is where Groner the stock picker shines. Abbott said that since her first purchase in the mid-1930s, it has split its shares 13 times, most often by two-to-one ratios. The last split was in 1998, meaning the company's overdue. But purely on those splits, Groner's three initial shares would become 19,353 shares.

The value of those is about $1 million. The additional $6 million comes from the reinvested dividends that built her holdings to the level that stunned her college. People just don't appreciate the power in those quarterly payouts.

Scanlon said long-term studies of the S&P 500 say it produces annual returns of 8 percent to 11 percent with reinvested dividends. Without them, the average annual return is 4 percent to 5 percent, he said.

'Reinvesting the dividends'

Despite the risk of her eggs-in-one-basket approach, Scanlon said Groner obviously knew what she was doing by not tapping her Abbott wealth and living modestly off other sources of income. And he said her devotion to Abbott contrasts with the flightiness of most investors. "It's more likely that people buy a stock and if nothing happens in a year, they sell," he said.

'Several lessons here : Diversification for other sources of income. Aiming for the long run. Living within the means and being a good steward.'

Sound but unspectacular companies often escape Wall Street's alert system, he said. "If the business is good, eventually you'll get your reward," he said.

Groner passed her reward to others, the final testament in a wonderful life.