Ordinary Investors, Extraordinary Results
Seven people just like you share the secrets of their success.
Brett Platt, 34
Started investing: 1997.Focus: Undervalued small-company stocks.What stands out: Sheer performance -- annualized gains of 30%-plus since 1999.His advice: To avoid overload, limit your portfolio to nine to 11 stocks.
When Brett Platt first began dabbling in stocks, it was clear, he recalls, that "I didn't know what I was doing." The Dallas-based computer engineer realized he lacked a rigorous investment discipline and stopped investing to avoid hemorrhaging money. Instead of switching to mutual funds or seeking an adviser's help, he bought a small library of value-investing books. He devoured Benjamin Graham's classic The Intelligent Investor and read everything he could find on Warren Buffett.
Since the new-and-improved Platt returned to the stock market on August 20, 1999, his portfolio has returned a remarkable 31.63% annualized (yes, he's that precise). In his worst year he made 28%, and in his best, 2005, 41%. With two kids (and a third on the way), a stay-at-home wife and a salary that's never reached six digits, Platt has amassed a portfolio in the low seven digits, 95% of it invested in stocks.
Platt sees value investing -- the art of identifying stocks that are cheap in relation to such fundamental measures as earnings or assets -- as perfectly suited to his engineering mentality. That's because bargain hunters, like engineers, analyze "verifiable data" and try to keep emotion out of the process. Platt spends 40 to 50 hours researching each stock before he buys, poring over corporate filings, listening to quarterly conference calls and calling company managers for answers. For example, before investing in two small breweries in Ontario, he researched Canada's beer industry. Among other things, he learned about rules that support beer prices and therefore improve the profitability of small breweries.
Platt believes he's more likely to find undervalued shares among small companies, which tend to be followed less closely by professionals. And he limits his portfolio to nine to 11 investments, because an otherwise-employed person "can't understand more than a dozen stocks at a time." He avoids tech stocks, hewing to "simple and easy" industries, such as shoe retailing. He made a bundle on FreightCar America, the dominant maker of aluminum-bodied coal railcars, by observing the rising demand for coal.
And the farm-bred Kansas native has a special fondness for firms set up as business trusts, especially those in Canada. The trusts must pay out most profits each year to shareholders. "I'm a trust junkie," he says.
Platt has some advice for young investors. First, cut back on luxuries so you'll have more to invest. Next, bounce stock ideas off tough critics (Platt seeks opinions from his wife and from other amateur investors at www.valueforum.com). Finally, make time at home to research stocks by throwing out your TV.
Deirdre Brazil, 24
Started investing: 2003.Focus: Index funds.What stands out: Built a mighty nest egg by investing early and often.Her advice: Don't reject an investment just because it's boring.
Deirdre Brazil's whimsical spirit is infectious. Her latest passion is belly dancing, and she's been known to drop everything for a trip to Scandinavia -- or even Estonia. Just a few years out of college, she's already considering a career change: leaving the insurance business for medical school.
But when it comes to investing, Brazil is plain vanilla. She already has a six-figure portfolio that is invested mainly in index funds. She also co-owns a rental home. Nope, she didn't luck into a financial windfall. In fact, Brazil -- whose family moved from Ireland to Far Rockaway, N.Y., when she was a toddler -- grew up in a household with six siblings and few luxuries.
When she graduated from the State University of New York at Binghamton in 2002, Brazil had just $1,000 in savings and 15 times that in student loans. But within almost four years' time, she's accumulated $90,000 worth of mutual funds and $20,000 in cash.
Brazil isn't pulling down huge paychecks, and she claims she's not even a savvy investor. Her secret? "I'm a saver," she says. It helps that she lives rent-free with her parents. That allows her to invest 65% of her salary. She funnels 6% of each paycheck into a 401(k) plan; then she invests $800 to $1,000 in a handful of Vanguard index funds. Says Brazil: "I pay attention to the market for new ideas, but at the end of the day I put my money into dear old indexes."
Soon after landing her first job as an actuarial trainee at Prudential Financial in Newark, N.J., Brazil decided to test her investing legs. "I didn't really understand the differences among most funds," she says. "I just wanted my money to grow safely and without too much work."
The investment had to be simple, low-risk and low-cost. She chose Vanguard 500 Index fund, which tracks Standard & Poor's 500-stock index. The fund's annual expenses add up to just $1.80 a year per $1,000 invested. Once her money began to grow, Brazil was hooked. That first year, she invested $24,000. Today, she owns six Vanguard index funds outside of her retirement accounts, including funds that track an index of small-company stocks and one that tracks a foreign-stock index.
Brazil may not have her future figured out just yet, but she knows that the advantages of investing early can't be overstated. Consider this: If she continues investing $1,000 a month and earns 10% a year, she'll be sitting on nearly $9 million when she turns 65.
Jeff Blades, 45
Started investing: 1989.Focus: Mutual funds.What stands out: A portfolio that grows steadily, without big fits and starts.His advice: Invest in top-flight funds, keep tabs on the manager and performance, then let it be.
The Iron Distance triathlon is the ultimate test of endurance. This grueling race includes a 2.4-mile swim, a 112-mile bicycle race and a 26.2-mile marathon -- back to back to back. "It's all about pacing," says Jeff Blades, a St. Louis resident who has signed up for seven triathlons this year. "Simply put, short-term thinkers do not survive."
Blades, who works at IBM, applies the same rigid discipline to investing. Although he admits to dabbling in stocks, the self-described "mutual fund zealot" says he prefers to leave stock picking to the experts. "When I own a company's stock, I feel compelled to follow the company every day," he says. "But if I buy a solid fund with a good track record, I can scrutinize it once a quarter and go about my life."
Blades's fund-picking criteria start with low annual expenses and no sales charge. Beyond that, he looks for reputable fund companies and managers with long tenures. Blades avoids overly large small-company funds because of concerns that asset bloat can hamper a manager's ability to buy and sell thinly traded stocks.
The funds that help Blades sleep at night include Vanguard 500 Index and Vanguard Health Care, which happens to be the top-performing fund of any kind over the past 20 years. He is zealous about diversification, and he rebalances his portfolio annually to ensure that it does not become top-heavy with the best-performing categories. His top performers include Harbor International, which has a solid long-term record. A proprietary real estate fund within his IBM 401(k) plan and his own property holdings make up a little more than one-fourth of his investments. Blades figures that his investments have returned an annualized 15%.
His devotion to diversification helped him survive the dot-com crash earlier this decade relatively unscathed. At the height of the bubble, his portfolio was a modest 10% in tech stocks. "Tech was way overvalued," he says. "It was scaring me even when I was making money."
One remnant of tech mania, however, remains on Blades's fund roster: Jacob Internet fund, which is down an annualized 20% since the bubble burst in March 2000. "It's my single emotional buy and a reminder that emotion and money make very poor bedfellows," he says, and he means it. He's careful not to get carried away with company stock options and has only 4% of his portfolio in IBM stock. "I believe putting a significant percentage of assets in one stock is dangerous," he says.
His tenacity is paying off. This fall, Blades will compete in his 70th triathlon, and if the market performs reasonably well, his portfolio should hit seven digits.
Vince Tranchita, 75
Started investing: 1963.Focus: Blue-chip stocks.What stands out: Unusual patience and discipline.His advice: Buy and hold the market leaders.
Vince Tranchita bought his first stock, Pittsburgh Plate Glass, in 1963. Although its name has changed (it's now called PPG Industries), he remains a fan because of its consistent profitability and loyal customers. Says Tranchita: "When I buy a stock, I plan to hold on to it for the long term."
Tranchita has taken that statement to the bank. His other hard-and-fast rules: Stick primarily to industry leaders, and buy growing, dividend-paying blue chips when they're selling at reasonable prices. And insist on companies with ethical managers who align their interests with those of shareholders. The approach has paid off handsomely for Tranchita, who has built a substantial nest egg from his investments in the stock market. "Stocks have been very good to me," he says.
Tranchita, who lives in the small town of Cassville, Wis., avoids highfliers. "The price-earnings ratio is probably the most important number to me," he says. "I don't like to buy something selling at more than a P/E of 25. That's why I didn't get into tech and telecom in the late 1990s."
Central to Tranchita's success is that he enjoys investing and devotes a lot of time to it. "It's been a hobby for me over the years," says Tranchita, who retired in 1998 as president of a towboat-service company. "I've been a subscriber to Kiplinger's, and Value Line Investment Survey is almost like my bible. You need to do your homework before you buy a stock." He also reads Standard & Poor's reports at the library and consults Morningstar for help with mutual-fund analysis.
When he latches on to a good company, he will often buy more shares when the price dips. He's owned Intel for seven or eight years and has regularly added to his position. "I'm still underwater on it, but I believe in the company," he says. He's also sticking with General Electric and Microsoft, two stocks that have made him money in the past but haven't moved in years. "GE is a leader in practically everything it does, and while I'm waiting I collect a 3% dividend. Microsoft is still the leader, and it has a ton of cash. When those stocks drop, I buy more."
What has probably helped Tranchita as much as his knowledge is his equanimity. "There will be ups and downs," he says. "If you diversify enough, you're going to be all right. You need to be able to sleep at night. If you can't, you should give your investments to someone else to manage." The hardest thing, Tranchita says, is knowing when to sell: "If a stock doesn't perform after a long time, you should get out of it unless you're still convinced it's a great company." He also sells if he learns of ethical lapses by managers.
Tranchita doesn't ignore mutual funds. He owns such long-term winners as Fidelity New Millennium and Columbia Acorn (which he bought before it imposed a sales fee on new investors). All told, he has a third of his money in stock funds, a third in stocks and a third in municipal bonds.
--Steven T. Goldberg
Jim Geister, 49
Started investing: 1982, in his second year of college.Focus: Hot stocks in hot sectors.What stands out: Huge gains with tech stocks in the late 1990s, then the good sense to bail out before the collapse.His advice: Always talk over your investments with a trusted friend.
Jim Geister trades too much, isn't well diversified and loves hot sectors. And he accomplished what few investors did: rode the Internet wave to its crest, and then, through a combination of skill and instinct, sold most of his winners just before the crash.
Critical to his success was having someone with whom he could kick around ideas. Geister and Jay Payne, 49, a friend since junior high, talked stocks day and night for years. Each brought different attributes to the table. Geister had a finance degree. Payne is a tech wizard who used to be an aerospace executive and now invests full time. "It's always good to have someone to bounce your ideas off," Geister says. "He's more optimistic, I'm more skeptical, and so we balance each other out. We worked together to keep our egos in check."
For many years, Geister's investing performance was uninspiring. "I had a lot of dogs, but I learned a lot by losing money," he says. In 1996, Payne visited Geister's Austin, Tex., office, where Geister buys distressed commercial real estate and tries to fix the problems. Payne noticed Geister's stock portfolio on the computer screen and told him, "I'd like to do some investing." It was an unremarkable start to a profitable relationship.
Payne pushed Geister into unfamiliar territory. Until then, Geister had valued stocks by traditional measures -- P/Es and the like. Payne prodded Geister to embrace the market's measure du jour for Internet stocks: the number of users, or eyeballs, that Web sites attract. "The metrics the markets focus on are constantly changing, and you have to roll with the punches," Geister says.
His big winners: AOL, E*Trade, Excite, RealNetworks and Yahoo, all of which he owned by the boatload. Diversification, he argues, dilutes performance. "I read everything I could lay my hands on about them," says Geister. "We had the DNA of these stocks in our genes."
But even as he and Payne were racking up ridiculous gains on dot-com stocks, Geister was trying to keep a grip on reality. "Trading during the Internet bubble, you had to believe in it, but you couldn't divorce yourself from reality," he says. The signal that the party was ending, says Geister, came when button-down gurus such as Louis Rukeyser turned bullish on Internet stocks. Geister persuaded Payne to lighten up.
They sold in late 1999 and early 2000. Geister earned $9.7 million in 1999 alone from trading stocks, by far his best year. The next two years, he lost some money but remained miles ahead of the game. Today, his stock-investing fortune is comfortably in eight figures. He has big holdings in about ten stocks, many of them in energy.
--Steven T. Goldberg
Ricardo Ulivi, 57
Started investing: 1988.Focus: Leveraged real estate deals.What stands out: Built wealth on a modest income and with virtually none of his own equity.His advice: Save, save, save. Take prudent risks.
Here's a riddle: Ricardo Ulivi has never earned a salary of more than $90,000 a year, calls himself lazy, spends only 1% to 2% of his time on investing and has used virtually none of his own capital. Yet his net worth tops $2.8 million -- excluding the value of his house. How did he do it?
Answer: Shrewd investing in southern California real estate using other people's money. Today, he's a landlord in Orange County, and his portfolio of houses, apartments and small-business offices generates $184,000 a year. Says Ulivi: "Real estate is the lazy man's way to make money."
But give Ulivi his due. A professor of finance at Cal State Dominguez Hills, he has a head for numbers. He's also a keen observer. Ulivi runs a small financial-planning practice that doesn't generate much income but teaches him valuable lessons. "Everybody talks about stocks and bonds," he says. "But when I looked at my clients who had made money, they were all in real estate."
But how do you buy investment properties when you have five mouths at home (those of wife Lily and four kids) to feed on a professor's salary, which isn't enough to inspire a bank lending officer? Well, it helps if your residence keeps appreciating. "My house has always been my savior," says Ulivi, who has borrowed five times on the surging equity in his Orange County abode. He bought the house for $250,000 in 1985, and it's now worth $1.4 million.
In 1988, for example, he borrowed $90,000 through a home-equity loan and received $245,000 in financing from the seller of two small houses he bought in the old town of Orange. He knew the president of a local bank, which extended him a construction loan of $250,000 to convert the houses into professional offices.
The trick, of course, is to generate enough rental income to cover the loans. By the late 1990s, Ulivi was making money on all his properties. Then, when interest rates collapsed after 9/11, he refinanced his loans for about 5%, and the cash flow grew even stronger.
Ulivi is also a patient, prudent man. He crunched the numbers in 2003 and calculated that price appreciation had changed the fundamentals of buying 100% leveraged property in his corner of California. "It's too expensive here," he says. "You cannot buy anything in California that will pay for itself."
So he borrowed $80,000 from his home piggy bank, got a bank loan and returned to his native Argentina to buy a luxury apartment in Buenos Aires for $235,000. The Argentine economy has since mounted a powerful turnaround, driving up Ulivi's monthly rental income by 15% and the value of his property by 50%.
Ed Farrell, 60
Started investing: 1985.Focus: Small-company stocks.What stands out: Sticks to his discipline even when it's out of fashion.His advice: Find easy-to-understand small businesses with predictable earnings and don't overpay.
Ed Farrell started investing by reading "every book I could get my hands on about the stock market." He even read about investing methods he found bizarre, such as the Elliott Wave Theory, to understand different approaches. Why? "The brightest people in the world are on Wall Street. You have to be knowledgeable to compete with them."
He finished his do-it-yourself prep course more than two decades ago. His conclusion: Specialize in bargain-priced stocks of small companies. Studies show that such stocks, over the long term, beat the market by a comfortable margin. Next he located a firm that specialized in value stocks, Clover Capital Management in Rochester, N.Y., not too far from his home in Binghamton. Since starting with Clover in 1985, he's worked mostly with Mike Jones, who also co-manages Constellation Clover Small Cap Value. Farrell, a real estate agent, used profits from his firm (which he's since sold) to start his small-company portfolio.
His record? Clover confirms that Farrell has earned 14.4% annualized over 21 years -- putting his net worth comfortably into seven figures.
Most of Farrell's best ideas have come not from Clover but from his own research. Listening to his wife, Jan, hasn't hurt, either. She clued him in to Talbots, the women's clothing chain, in the late 1990s. "She and a lot of her friends were shopping there," Farrell says. He looked at the numbers and scooped up the stock at about $29. He kept studying the numbers, and just before same-store sales dipped he was savvy enough to sell half his holdings at about $50 a share in 2001.Chico's FAS was an almost identical story. He bought the stock for less than $5, sold half his shares in the low $40s and still has the rest. The share price has fallen to less than $30. Knowing when to sell is tricky. "The hardest thing in investing is selling," says Farrell. "I look for signs that the party can't continue." By that he means that a stock has become too expensive based on its P/E or other measures.
Most important to Farrell: How much cash does a company have, and will earnings continue to grow? He tries not to chase fads, although staying out of that chase can be difficult. In the late '90s, he was earning 9% annually while tech stocks were zooming. "I was constantly tempted by AOL and JDS Uniphase and the like. But I stuck to the discipline." Doing so proved doubly helpful. Farrell sidestepped the tech wreck, then saw his previously neglected small-company stocks take off when investors changed focus. His best lesson: "Develop a good strategy and stick with it."
--Steven T. Goldberg