Tiffany Gray, 22, is a senior majoring in finance and wealth management at Delaware State, a historically black university in Dover. Jonathan Rivers, 20, is a junior double-majoring in environmental science and religious studies at the University of Michigan. Virginia.
Ms. Gray and Mr. Rivers, along with their peers, will probably assemble a portfolio of 15-20 stocks and lock it in for the next 25 years.
It sounds crazy, and maybe it is, but investors of all ages can learn from these youngsters.
They’re part of an extremely long-term experiment created by Thomas Gainer, chief executive officer of Markel Corp., a Glen Allen, Va.-based insurance company. Mr. Gainer has grown Merkel’s investment portfolio since 1990 to $22 billion with a patient, conservative approach.
He has established a student investment fund at each of the two universities. Through the year 2047, Mr. Gainer’s family will contribute a total of $750,000 to the two clubs in 25 annual installments.
The students — 29 of them this year in Virginia, nine in Delaware State — will use that money to pick up investments that will be frozen for the next 25 years. Each year, members would purchase another round of picks for the next quarter-century. No one, no matter what, will never be able to sell anything.
Beginning at age 26, members who raised stock 25 years prior would distribute half of the accumulated funds for scholarships; The other half will be reinvested for the future by the members of that year.
Interviewing these students this week, I was struck by how often they call each other “analysts” and how they refer to their potential holdings as “businesses” and “companies,” not ” as stock”.
Ms Gray at Delaware State says: “We have to look ahead to what might happen in the next year or two, three years, five years, 10, 25, even 50 years. We are not afraid of the long term. It’s an inspiration.”
Mr. Rivers in Virginia says, “If we can think of investing in a way that most young people don’t think of and even most professional investors think of as a great challenge, then it’s just a Incredible opportunity.”
One lesson from these new clubs is an old one: the surprising power of letting your winners last as long as possible. You can’t lose more than 100% even on your biggest losers (unless you bought them with borrowed money), but the potential gains on your biggest winners are unlimited.
From the beginning of 1993 to this February 28, for example, 58 stocks gained more than 10,000%, according to the Center for Research in Security Prices. Ten gave over 25,000% returns.
These “superstocks” include now-familiar giants Apple Inc., Qualcomm Inc. and Monster Beverage Corp. That includes — but also smaller companies like air-conditioning firm AAON Inc., tobacco-and-real-estate holding company Vector Group Ltd. and KitchenAid. Appliance manufacturer Middleby Corp.
Going back even further, the mutual fund known today as Voya Corporate Leaders Trust was established in 1935 with a portfolio of 30 stocks. Thanks to a handful of big winners, its long-term performance has been excellent, though its annual expense of 0.49% is high for a fund that does virtually nothing.
The key is not being sold. In a 1984 article titled “The Coffee Can Portfolio”, veteran investor Robert Kirby described a client’s husband who exactly copied all the buy recommendations made by Mr. Kirby’s firm to his wife, about $5,000 each. had put
However, unlike her, the husband had ignored all recommendations to sell. He never sold a single share. Many of his holdings grew to exceed $100,000. One, which became Xerox Corporation, exceeded $800,000, which was more than the value of his wife’s entire portfolio.
It’s easy to underestimate the long-term tailwinds from letting your winners run; The human brain is not designed to extrapolate huge growth rates over multi-decade periods.
To capture every potential big winner, you can buy a total stock-market index fund — although it will take a few trades. Or you can buy every share in the entire market outright and then freeze—and never make another trade.
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If you want to spread a total of $10,000 across the more than 4,000 companies in the Dow Jones US Total Stock Market Index, online brokerage Interactive Brokers can let you trade “baskets” commission-free. You can hold the entire basket permanently, never selling any of its component stocks, and see what happens.
The students of Mr. Gainer’s investment club already understand the awesome power of compounding.
“If we and our successors can only pick a few winners, they’ll drive returns, and our losers won’t matter,” says Joe Beck, 22, who helps run the University of Virginia student fund. .
All of this echoes an idea that Warren Buffett often espouses: Imagine you can only make 20 investments over the course of your lifetime. You’ll be forced to consider everything you buy, focusing only on a few opportunities and keeping them as long as possible.
Another Virginia club leader, Jacob Slagle, 21, says, “It really makes you think about businesses in a different way: Can this survive for 25 years?”
Omar Parker, Jr., a 20-year member of the Delaware State Club, is already thinking beyond the year 2048: “When we are long gone,” he says, “our fund will be a legacy for future generations.” “