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They laughed when he started investing on his own—but their laughter turned to amazement when he unveiled his fortune.
Ronald Read was known around town as a friendly man who often sported a flannel jacket and a baseball cap. The Dummerston, Vermont native, a former janitor and gas station attendant, gave no hint as to the size of his wealth. His hidden talent for picking stocks was only revealed after his death. When Ronald passed away last June, friends and family were stunned when he left $6 million to the town’s library and hospital.
How to make $8 million in the stock market
There is certainly wisdom to be learned from Ronald’s tale. How did a man of such modest means accumulate so much wealth? His story reveals a few clues.
Ronald was born in 1921 and grew up in a very modest house in Vermont. As his hometown newspaper wrote in a profile of the man earlier this year, he “was so determined to finish high school that he walked and hitchhiked into Brattleboro every day until he graduated in 1940.”
Ronald served in World War II, seeing action in Africa, Europe, and the Pacific. When the war ended, he returned to Vermont and worked at his brother’s gas station for the next 25 years. Rather than retire, Ronald instead chose to work as a janitor at a J.C. Penney store until 1997.
During that time, Ronald never played the part of a millionaire. He was frugal his whole life, saving money, avoiding waste, and eschewing most luxuries. He was so frugal, in fact, that Ronald sometimes held his coat together with safety pins. His estate included a 2007 Toyota Yaris valued at $5,000. Close friends and family members knew he had a few investments, but nobody really knew the true size of his fortune.
With his savings, Ronald typically bought shares of companies that paid out regular dividends—think railroads, utilities, banks, healthcare, telecoms, and consumer products. Those dividend cheques were then reinvested back into more shares of the same companies.
He held on to these stocks for decades. That patience allowed the power of compounding to work to his advantage. After years of frugal living and investment, Ronald had built up an $8 million fortune in the stock market.
Three dividend stocks to buy and hold forever
Of course, Ronald’s story is an exceptional case, but it’s a classic example of how ordinary folks build wealth. With enough time, lots of patience, and a few good ol’ fashioned dividend stocks, just about anyone can build a multi-million dollar fortune.
Of course, unlike Mr. Read, Canadian investors have fewer businesses to choose from. However, you can still find quality dividend stocks if you know where to look.
Take Fairfax Financial Holdings Ltd. (TSX:FFH), for example. Founder and CEO Prem Watsa is nicknamed the “Warren Buffett of Canada.” That’s because Fairfax’s insurance business exists to generate a low-cost source of funds for Watsa’s dealings in the same way Berkshire Hathaway provides a platform for Buffett’s investing activities.
Watsa invests this money using the same common sense principles as the Oracle of Omaha. Watsa buys wonderful businesses at reasonable prices, which, needless to say, has resulted in handsome returns for investors. Since 1993 Fairfax shares have crushed the broader market by more than 2,500%.
Canadian Apartment Properties REIT (TSX:CAR.UN) is another long-term favourite. After all, people always need to put a roof over their heads. This trust owns hundreds of apartment buildings across the country, which is generally considered to be a recession-proof niche within the real estate industry.
It is simple, stable, and profitable. No matter what the economy is doing, this firm can always expect to earn steady income. Today, the trust pays out a monthly distribution of 9.83 cents per unit, which comes out to an annual yield of 4%.
Finally, Enbridge Inc. (TSX:ENB)(NYSE:ENB) owns pipelines, terminals, and storage facilities across the continent. In return for moving energy products like oil and gas, the company earns a fee that it passes on to investors.
Since 1953 this company hasn’t skipped a single dividend payment to shareholders. And unless Canadians start heating their homes with magic dust, I expect that tradition to continue for many years to come.
Thousands of ordinary investors are building wealth in the stock market
In my 13-year investing career, I have bought and sold hundreds of stocks. But as the story of Ronald Read shows, I wish I had figured out one thing quicker—it’s the few investments you buy and hold forever that generate real long-term wealth.
Fool contributor Robert Baillieul has no position in any stocks mentioned. The Motley Fool owns shares of Berkshire Hathaway.