And who are the successors to investing’s great personalities?
The views expressed here are those of the author and do not necessarily reflect the views of Morningstar.
For the magazine’s 10th anniversary issue, the editor-in-chief asked me to name my all-time favorite investors. (He forgot to specify that they be living American stock investors.) Or, he suggested, I could write about the future of mutual funds. I did both.
Best Investors of All Time
Most of the really decisive investments in the world have been in real estate. Some were by really good guys making a living at it, such as George Washington, who was very active in frontier real estate as an explorer, surveyor, and speculator. The westward expansion of the United States at the end of the 18th century was really a real estate boom with lasting consequences. The champion success in this area was Washington’s Virginia buddy, Tom Jefferson, who casually bought the whole center of the continent from France, the Louisiana Purchase, doubling the size of the United States for the cost of a few cents an acre.
Three centuries before then, the Spanish rulers Ferdinand and Isabella financed the exploration of the New World for very little money, receiving the unparalleled gold and silver wealth of Mexico and Peru, in what was one of the highest ROI trades imaginable. Spain spent the next 200 years as the richest country in the world.
Leaping forward to the 20th century, Samuel Insull built on the new electric technology of Edison, Westinghouse, and Tesla. Insull invented the corporate structure of the electric utility industry, and he even helped form its government regulatory agencies. This industry structure allowed the easy financing of the utilities, and so electricity output grew at 7% per year from 1910 to 1970. This predictable growth allowed Insull’s companies to expand on high-rated bonds. Insull and his imitators realized that they could create holding companies to own these stable-growth utilities by adding on another layer of bonds and preferred stock, making Insull one of the richest men in the world by the mid-1920s. The Great Depression crushed the utility holding companies. Insull went bankrupt and is regarded as a failure by some historians, but the utility corporate structure was a sound idea, and his legacy continues to this day.
Mark Twain was the greatest American writer, but not America’s greatest investor. He had some adventures with gold stocks in the late 19th century, causing him to define a gold mine as “a hole in the ground owned by a liar.” However, his big loss was in a venture capital project. He lost all his money on an auto-typesetting machine that didn’t work out, leaving him bankrupt at age 59. The public benefited because Twain had to write many more books than he would have otherwise to support his family.
The investor who did the most for me and my Acorn Fund was an analyst named Perry Swenson, who in 1973 told me that Houston Oil & Minerals had discovered a large gas field in Galveston Bay in Texas. I loaded up on the stock, and it was the only stock in the portfolio that went up in the 1973–74 bear market. Without that one stock, it is likely that we would have closed the fund in disgust, and you would never have had the chance to read this charming essay.
The Future of Mutual Funds
The Acorn Fund made its reputation as a small-cap fund. Small-cap investing is hazardous because every year small-cap companies become zero-cap companies. It takes a lot of discipline and good luck to make it work, and SEC rules have made it hard for analysts to talk to company managers. We did not use inside information in our investing, but we did have the ability to understand the long-term prospects for a company, which led to an outstanding record.