A few years ago, as my wife and I flew from Spokane to Seattle, I found myself seated next to a dentist. He told me his story. He had started as a dental student buying — along with his father — small rental apartments and using his youth and skill and strength to renovate them.
Then he rented them out. He soon had a number of them. Yes, they took a lot of time, and for a period of time he was awakened by irate tenants whose toilets were blocked.
But, eventually, he had enough apartments so that he did not need to attend to these matters personally. He had managers and repairmen who dealt with all but the biggest problems.
The net of it was that now, in his fifties, he had a large number of apartments. He had given some to each of his children, and they now had rental empires of their own.
I was extremely struck by his story. It was a perfect story, or so it seemed, of how to establish oneself as a rich person.
But lately, many competing thoughts have entered my mind.
First, it’s a lot of work maintaining rentals. You can have all kinds of horrible tenants who torment you and disturb your peace of mind.
Second, human beings exaggerate a lot about their business success, and I have no idea of whether the magnitudes he told me were even close to correct or true. Unlike the prices of stocks, his results are not published.
Third, is it really interesting work? Is getting calls about rental units all day long interesting work?
Maybe for some and not for others.
But the main competing thought I had came from my idol, Warren E. Buffett. For many years now, I have been an extremely small stockholder of Mr. Buffett’s Berkshire-Hathaway. As everyone now knows, it’s a hugely successful diversified holding company with immense interests in railroads, energy, insurance, newspapers, trucking, food, and more food. Plus batteries.
In every annual report, Mr. Buffett explains that he wants us small stockholders (even very small ones like me, I assume) to feel as if we are his partners, not his shareholders.
Finally, just in recent years, after getting to know Buffett fairly well, I have come to believe that, (1) He is an unimaginable genius, and (2) He really does see us as his partners, and we are to be helped, not looted.
So that means that for the few shekels worth of BRK that my wife and I own, we get to have the unimaginable genius, Warren Buffett, working with us, managing our little shards of money as if they were his own. He is not a faraway capitalist demon. He is our partner and a partner who is basically unpaid. (He gets a smaller allowance from us stockholders/partners than I give my son.)
The results have been extremely good. They would have been incomparably better if I had gotten in earlier and invested more, but they are still fine.
Meanwhile, I have not had to get up at 2 AM to plunge out a toilet or struggle to get an honest roofer while monsoons are falling on my rental properties or go with sheriff’s deputies to evict non-paying tenants. I have been free to be what I like to be: a writer, economist, actor, speaker, pitchman.
I give full marks to that dentist who bought the rentals and used his own elbow grease to build his fortune. I give high praise to all similarly situated through their own struggles.
But I have been able to have some tiny bit of capital by allowing Mr Buffett — and other smart people — to be my partners. Mr. Buffett is the smartest of the smart and the most honest of the world. But just about every man or woman who gets to be head or a top dog at an S&P 500 company or its foreign equivalent is likely going to be a smart cookie. He will not be as good as Mr. Buffett in squiring around my piggy bank, but he’ll be pretty good. And although he will certainly not work for free, as Mr. Buffett does, and may often be paid what I consider too much, he will almost always be paid a tiny fraction of the assets under his management. And, his (or her) company will have some staying power and probably some price-fixing power as well. In general, if the federal government does not screw things up, I will get good long-term results from them. I will, as with Mr. Buffett but less so, have extremely capable people as my “partners.” (Again, not in the same league as Mr. Buffett.)
And, no fuss, no muss. If I reinvest the dividends and add to it from my own struggles, I will in time have a sizable nest egg that I can use in my declining years — without ever having to get my hands dirty.
Just a thought: Sometimes it might be better to let someone else do the driving. The long-term results of investing in a diversified pool of stocks have been spectacular. There is a reason those companies are so big.
Then there is another immense plus: total, instant liquidity. You can sell any stock in an instant. Literally in the snap of your fingers. It can take years to sell real estate — unless it’s in a public real estate investment trust listed on an exchange. That, like fixing the plumbing, can be a major headache.
Just think about it. In decent times, stocks are a miracle of investing power.
Thank you, partner Warren, for helping me to understand.
On another subject… tonight, after Mother’s Day Brunch at Morningside, fabulous as always, after a long nap, after a 12-step meeting, I was driving home along a beautiful, leafy residential street near our home here in Rancho Mirage. Out of nowhere, in the bike lane next to my lane, I saw an elderly man walking slowly by. I thought to myself, “I’ll bet this man is a recent widower. He is all alone and restless and wanted to get out of the house or else he would be simply devastated by loneliness. He is like my father was after my mother died.” And then I thought, “I will soon be home and with my glorious wifey and my dogs and I will not be alone.”
I felt so overwhelmed I could barely control myself. To not be alone and have someone at home who cares about you: That’s real wealth and that deserves real care in the investment of time and affection. That’s what really sticks to your bones.
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