What If You Only Make One Good Investment Your Entire Life?

Tonight, I’d like to introduce to you a figment of my imagination for the purposes of this article only, Luckless Larry. Larry is a no-talented investor who spent the 1980s investing $5,000 on January 1st of each year.

On January 1st, 1980, he bought $5,000 worth of Lehman Brothers stock.

On January 1st, 1981, he bought $5,000 worth of Washington Mutual stock.

On January 1st, 1982, he bought $5,000 worth of Worldcom stock.

On January 1st, 1983, he bought $5,000 worth of Johnson & Johnson stock.

On January 1st, 1984, he bought $5,000 worth of General Motors stock.

On January 1st, 1985, he bought $5,000 worth of Enron stock.

On January 1st, 1986, he bought $5,000 worth of Conseco stock.

On January 1st, 1987, he bought $5,000 worth of Chrysler stock.

On January 1st, 1988, he bought $5,000 worth of Thornberg Mortgage stock.

On January 1st, 1989, he bought $5,000 worth of Pacific Gas & Electric stock.

Over the course of those ten years, his annual investments totaled $50,000 in money earned from his labor. Nine of those investments, totaling $45,000 in value, went completely bankrupt. That is an astonishingly high failure rate of 90%. Seemingly, Luckless Larry would be someone destined for the poorhouse.

After all, the only decent investment he made in his life amounted to a measly $5,000 set aside into Johnson & Johnson in 1983. How the hell could that compensate for an investment lifetime of mediocrity?

Well, it turns out that people across the world really like using Tylenol, Benadryl, Baby Lotion, Listerine, Aveeno, Neosporin, and so on. Three decades of profit growth, and reinvested dividends, can really do a portfolio wonders. That measly $5,000 investment in Johnson & Johnson grew into $304,000 today.

Think about that. Nine out of the ten investments went completely bankrupt, and he still saw his total wealth increase from $50,000 in out-of-pocket money into over $300,000 in total net wealth. A tidy, six-fold increase.

With investing, you don’t have to be perfect to get richer. You truly can fail your way to success by holding onto just a couple high-quality assets over the course of your lifetime. Personally, if nine out of ten things I touched went bankrupt, I would feel no right or justification to be wealthy. Yet, our friend Luckless Larry would be collecting $8,760 in annual Johnson & Johnson dividends from his singular investments. He’d be collecting 175% in dividends on his initial investment. When you  aggregate it  across a $50,000 portfolio that featured extreme failure, he’d still be collecting 17.52% in annual dividends on a portfolio that featured a 90% complete failure rate.

The fear of buying a Bank of America, Wachovia, or General Electric right before the eve of a financial crisis should be a terribly worrying concern if you practice widespread diversification. If you have a dozen investments of $10,000 each and given them each 25+ years to grow, it only takes one or two successes to make the investment endeavor worthwhile and provide you nice pension-like income during your retirement years.

The passage of time is your enemy in almost every respect except for investing. Take advantage of it. Hitch your wagon to it. Strategize your life around ways to get assets that churn out cash compounding in your favor. Even if you make extreme financial missteps along the way, the passage of time in regards to just one or two stock investments ought to make the process worthwhile.

And plus, imagine what happens if you are actually good at this investing stuff. Imagine if you included a $5,000 Coca-Cola investment compounding into $396,000 or a $5,000 Procter & Gamble investment compounding into $262,000 included in there as well. If your failure rate dipped to 70%, and you only made three $5,000 investments into Johnson & Johnson, Coca-Cola, and Procter & Gamble, you’d be sitting on nearly a million-dollar fortune today ($960,000).

Diversified consumer brands rarely get you into trouble. Utilities only occasionally get you into trouble. Large conglomerates without financial harms rarely cause mischief. Large-healthcare companies rarely go bankrupt. It’s retail, tech, and financial sectors where you can usually run into trouble. Imagine the lifelong results you can achieve if you keep those guiding principles firmly in mind. The person with the 90% failure rate saw his nominal wealth increase six-fold. Imagine what the person with the 10% failure rate could do over thirty years.


Originally posted 2013-12-07 23:44:39.

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16 thoughts on “What If You Only Make One Good Investment Your Entire Life?

  1. stephen J Melnykevic says:

    Just a FYI for people reading that $5,000 in 1983 for JNJ would have been equivalent to $11,724.20 in today's money.

    Great article and interesting as I am looking to start a core position in JNJ next week. I have cores in KO, PM, AFL, AAPL and partial cores in BP and CVX. I wanted V, PG, and JNJ but valuations seemed best with JNJ despite not being perfect (fairly to just slightly overvalued imo). Your recent article on Shell has man wanting to add that to my list for 2014 as well. I feel like the place to be overweight is oil right now.

  2. stephen J Melnykevic says:


    In all seriousness, when can we expect a book?!?! Your articles on this blog and SA have me addicted like it's a drug. I'm weak, very weak.

    1. Tim McAleenan says:


      There's about a 20% or so chance I'll spend my summer in South Africa. If that happens, then I'd get a lot of writing done and publish whatever I write as an eBook. Otherwise, it'll probably be awhile.

      However, I just bumped December 9th's blog post to right now to tide you over. 😉

      1. stephen J Melnykevic says:

        “You’re a real prince. You’re a gentleman and a scholar, kid.” ― J.D. Salinger, The Catcher in the Rye

  3. stephen J Melnykevic says:

    “You're a real prince. You're a gentleman and a scholar, kid.” ― J.D. Salinger, The Catcher in the Rye

  4. Wow, 90% failure rate and still a fivefold increase, it is really important to make sure you pick the highest quality investments.

    Just imagine if you had a 90% success rate on the same baristas Johnson & Johnson, $50k becomes $2.7m!

    Hopefully my UK based shares can come close to achieving the same performance.

  5. If Larry had invested $5,000 in the S&P 500 index fund each January 1 from 1980 to 1989, then today he would have over $750,000. He would be receiving over $13k in dividends each year. The numbers above pale in comparison. Our man would never be known as "Luckless Larry." Instead Larry would be known as "the man who invests in stocks and sleeps well at night."

    Approximately 70% of those 26 and older in this country lack a bachelors' degree. I would not trust the math skills of the 29% that do have a bachelors' degree. Sending a message to the laypeople of the world that it is fine to gamble on stocks as suggested in this example is imprudent. Send them instead to a low expense ratio, S&P 500 index fund.

      1. Joe, you might also study the concept of "survivor bias." It's used liberally and dangerously in the latter part of this article. Still, chattering like this generates hits = more income for financial bloggers, at least during this euphoric bull market where everyone short-sighted is a genius.

        The S&P 500 index fund I used is VFINX. It was around through the 1980s, so performing comparisons is easy using internet tools.

        To clarify, I estimate only 1% of the age 26 and over population is sufficiently competent at math to understand discussions of this nature.

        1. Jack Voss says:

          If you have a problem with the content, or Tim making money, then why read? I don't have a problem with someone receiving compensation in exchange for their labor.

  6. Jeannette Lucas says:

    Who else thinks that the information reported in the article is a bit out of date? Don’t we have absolutely different figures now? I googled several comparing sites and all of them provided different details. Best of all was COMPACOM review. Only verified information, references to trusted sources, examples, and case studies really attracted my attention.

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