The man who knew too much
An investment parable
Connor Crossley stared at the calendar. March 13, 2024. Tomorrow, he would turn 90. What did he have to show for those decades? True, he had hitchhiked Route 66, watched the sun rise over Niagara Falls, and caught the Rolling Stones at the Onondaga County War Memorial on their first US tour. But he had no money, never did. As he had so many times before, Connor wished he had spent more of his life as an ant and less as a grasshopper.
Glumly, he shut off the light.
He woke to a bewildering sight. He was no longer in his room. Well, that was not strictly true. It was his room, but from decades ago. He instantly recognized the popcorn ceiling with its owl-shaped stain, that hideous lime-green lamp that he jettisoned when he moved, and—of course!—the Bowie poster. (He would take that with him.)
He pulled himself out of bed, wearing burnt-orange pajamas that he vaguely recalled, and opened his apartment door. He never had subscribed to a newspaper, but he had when necessary “borrowed” his neighbor’s Post-Standard. This would be another such occasion. He grabbed the paper and sought the date. March 14, 1974. His 40th birthday.
Stumbling back into the apartment, he noticed a sheet of oversized paper on his kitchen table. He walked over to look. Incongruously, it displayed a modern computer-generated graph, showing what appeared to be the flight of a rocket ship. Its dates, however, read from March 1974 through March 2024. Perhaps it was a stock chart? Connor peered at the label. “Berkshire Hathaway BRK. A.”
Hmmm, that name sounded vaguely familiar. He flipped to the Post-Standard’s business section. There the company was! What’s more, the listed closing price for its stock was $40.15—the precise starting value of the graph. He slumped into a chair, stunned. Did he possess the investment equivalent of Marty McFly’s Grays Sports Almanac? (Idly, he realized that analogy itself was anachronistic.)
He barely slept the next two nights, constantly expecting that upon awakening he would return to the future. But he did not. Monday morning, he called in sick to his former employer—that is, his current boss—and blearily took the bus to his former bank. That is, his current bank. So confusing! Of course, he was poor, as always, his checking account held but $512.17.
He invested almost all that amount in Berkshire Hathaway stock, buying 10 shares at $40.30 and paying a $27 commission: $430 in all. That did not leave much, but what did he have to lose? If that printout was a mirage, he was barely worse off than he had previously been. And if it was correct, he would be astonishingly rich.
Correct the chart was … the stock behaved exactly as predicted. Over the next few years, Connor scrimped and saved to buy additional shares, acting like the ant that he had never been. By 1980, he owned 100 shares of Berkshire Hathaway. At that point, the stock cost $320 and he stopped investing. The company’s shares were exceeding his budget. Besides, he owned enough.
In March 1984, on the second version of Connor’s 50th birthday, he was happier than on the first occasion. Admittedly, his current lifestyle was meager, but his Berkshire Hathaway stake was worth $130,000 and rising fast. In a few years, Connor could retire—and this time those years would be golden.
Flash forward to spring 1994. Ronald Reagan served the second term of his presidency, George H.W. Bush his sole stint, and Bill Clinton was beginning his reign. Connor Crossley was turning 60. He thought about cashing in his chips, which were now worth $16,600 each (making for a $1.66 million portfolio), but how could he? In 10 years, reported the chart, each Berkshire Hathaway share would be worth $94,000. Nobody could leave that much money on the table.
So, Connor continued to work. As he had done before, he held his job through the next decade, until he turned 70. He then retired with a $908 monthly Social Security check. He considered supplementing that payment by selling Berkshire Hathaway shares, but the stock price was scheduled to double in value over the next decade, to $186,000. Making that trade would forfeit 50 cents on each future dollar. Plus, doing so would generate capital gains taxes, which would force Connor to sell additional shares. No thanks.
In 2014, on his 80th birthday, Crossley thought hard about rewarding himself. He would not live forever. Then again, he would surely make it to 90, because his health during his second tenure had exactly matched his first. And on that date, one Berkshire Hathaway share would be worth $610,000. Who would accept an aftertax profit of $137,000 when more than $600,000 awaited?
Once again, he postponed the trade. Yesterday, however, was different. For once, he could not predict how Berkshire Hathaway would perform. For all he knew, the economy would immediately crash and Berkshire Hathaway’s shares would crater. They might never again reach $610,000 during his lifetime. This was an easy call. Finally, he could convert his assets. He sold half his investment, raising just over $30 million.
At long last, Connor would do all the things he had so often envisioned! Delightedly, he lunched at his favorite restaurant, had a slice of that coconut cream pie that he regularly coveted but rarely bought, and went home for a well-deserved nap.
Connor Crossley died in his sleep at 1:47 p.m. on March 14, 2024. Rest in peace, sir.
Big positions, small world
Tuesday’s column about the “Magnificent Seven” stocks showed that over the past 40 years, the S&P 500 has never held such a high percentage of its assets in so few stocks. That led me to write that the index has entered “uncharted territory.”
Uncharted by me (and in that, I have much company), but not truly uncharted. In the 1950s and 1960s, points out Acadian Asset Management’s Owen Lamont, the S&P 500 was even more concentrated. Claiming that today’s US stock market is uniquely unbalanced, writes Lamont, amounts to using “weasel words.”
Guilty as charged. But as I did not use that information to condemn the Magnificent Seven on the spot, as do most who mention the index’s current level of concentration, I think I deserve to be upgraded. Call me a stoat, please.
At any rate, the US is a small investment world after all, as my path has previously crossed with Lamont’s. He was my corporate finance professor way back when I was studying for my MBA. And a fine teacher he was; to the extent that I am a mustelid, Lamont is assuredly not to blame.
The opinions expressed here are the author’s. Morningstar values diversity of thought and publishes a broad range of viewpoints.