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Hey Scoopers,
Happy Tuesday!!
Today's edition reveals two extraordinary stories perfectly illustrating our core investment philosophy.
It's about two unlikely winners in the stock market: Warren Buffett's index fund bet and a janitor who amassed $8 million through disciplined investing.
🔑 The Big Story: David vs. Goliath on Wall Street
Wall Street has a dirty little secret that most financial advisors don't want you to know. Today, I'm breaking down Warren Buffett's famous $1 million bet that exposed how simple investing can beat even the most sophisticated hedge funds.
The Billion-Dollar Bet
In 2008, Buffett made an outrageous wager: he bet $1 million that a simple S&P 500 index fund would outperform a carefully selected portfolio of hedge funds over ten years.
His opponent? Protégé Partners, a respected firm that hand-picked five "elite" hedge funds for the challenge.
The returns over 10 years weren't even close:
S&P 500 index fund: +125.8%
Hedge funds: +36%
But here's what makes this story truly eye-opening...
While the performance gap is striking, the difference in costs is staggering. Let's break down the math on a $100,000 investment:
Index fund fees (0.04% yearly): ~$400
Total Hedge fund fees (2% + 20% of profits): $34,000+
That's not a typo. Hedge fund investors paid 85 times more in fees for significantly worse performance.
Why Index Funds Win
The secret to index fund success goes beyond lower fees. They win because they:
Never make emotional decisions to panic-sell
Automatically rebalance to maintain optimal diversification
Organically capture innovation and market growth
Consider Tesla's addition to the S&P 500. Index fund investors automatically captured this growth without needing to:
Time their entry
Conduct extensive research
Make emotional decisions
The Time vs. Timing Revelation
Here's the most powerful insight from decades of market data. A $10,000 investment in the S&P 500 from 1980-2023 would have grown to:
$1.3M with perfect timing
$1.1M with regular monthly investing
$930K with the worst possible timing
Even investing in the S&P 500 index at the worst times beats 80% of professional managers.
Your Action Plan
Ready to start building wealth through index investing? Here's your simple three-step plan:
Choose a broad market ETF (such as the SPY, QQQ or VOO)
Set up automatic monthly investments
Ignore the market noise and stay invested
Remember: Investing isn't about getting rich quickly – it's about building sustainable wealth through time-tested strategies that actually work.
Here’s another story that will challenge everything you think you know about building wealth in the stock market.
It's about Ronald Read, a janitor who never earned more than $12 per hour but died with an $8 million fortune.
No inheritance. No lottery win. Just three powerful investing principles that most Wall Street professionals overlook.
Meet the Millionaire Next Door
Ronald Read's life was the definition of modest:
Started as a gas station attendant in Vermont
Later worked as a janitor
Drove a used Toyota
Cut his own firewood well into his 90s
When he passed away at 92, his local community was stunned to learn he had accumulated $8 million. How did someone with such a modest income build such extraordinary wealth?
The Three Pillars of Read's Wealth-Building Strategy
The Power of Extreme Savings 💰
While others upgraded their lifestyles with each raise, Read took a different approach and:
Saved $40 out of every $50 earned
Kept his worn-out coat together with safety pins
Consistently lived well below his means
But here's the crucial insight: saving alone didn't create his millions. It was what he did with those savings that made all the difference.
Blue-Chip Stock Selection
Read's portfolio looked remarkably similar to Warren Buffett's playbook:
Wells Fargo
Procter & Gamble
Colgate-Palmolive
No crypto. No meme stocks. No day trading. Just quality, dividend-paying companies held for decades.
The Hidden Power of Time
The real magic wasn't just WHAT Read bought, but HOW LONG he held his investments:
Never sold during market crashes ❌
Religiously reinvested all dividends 🕵️♀️
Let his winners compound for 40+ years 👀
Consider this eye-opening math: A $100 weekly investment at a 9% return:
30 years = $892,000 🚀
40 years = $2,300,000 💰
The WSJ studied Read's strategy and found four consistent patterns:
A focus on quality companies 🏦
Holding through market volatility 📉
Ignoring daily market noise 📰
Reinvesting all dividends 💸
Boring? Absolutely. Effective? The $8 million speaks for itself.
The Most Important Lesson
Read's story proves you don't need:
A finance degree 👩🎓
A high-paying job 💵
Complex trading strategies 💹
What you need is patience, discipline, and time.
Your Action Plan
Start saving aggressively (even small amounts compound dramatically)
Focus on quality, dividend-paying stocks
Commit to holding your investments for decades
Reinvest all dividends automatically
Ignore market noise and stay the course
To begin with, you should consider allocating at least 75% to 80% of your equity investments towards index funds such as the S&P 500. Those with a higher risk appetite can also allocate around 20-25% in quality individual stocks.
You can take a look at our quality stock picks and how they have performed w.rt. the S&P 500 index. The data in the sheet will be updated every quarter.
DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell assets or make financial decisions. Please be careful and do your own research.