Think about your holdings in ACTV when you read this.
A Microsoft Investor Proves
Buying and Holding Still Pays
By E.S. BROWNING
Staff Reporter of THE WALL STREET JOURNAL
SEATTLE -- It is a classic investor lament: If only I had bought 100 shares
of Microsoft Corp. stock in its infancy, I'd be worth more than $1 million
today.
Dream on.
Fred Housel doesn't have to. A commercial photographer who didn't
finish college and typically works in a T-shirt and blue jeans, Mr. Housel
bought a few hundred Microsoft shares more than a decade ago and held
on to enough of them to make himself a millionaire today.
In an era of online trading, when some consider holding a stock more than
one day to be long-term investing, Mr. Housel's story is unusual. His
experience provides a case study in the benefits of a buy-and-hold market
philosophy.
Though the investing strategy sounds like the
essence of simplicity, it is maddeningly difficult to
accomplish, as Mr. Housel freely attests. Two
years after he made his first purchase, his $22,000
Microsoft stake was trading at the level he paid for
it. So in 1989, when the stock surged more than
10% in a month, he cashed out, selling half his
holdings. Fortunately for him, he soon mustered the
courage to buy more stock and hold on for the
ride.
The word Mr. Housel uses most often to describe
his feelings about investing in Microsoft is "panic."
There have been some "dark nights of the soul," he says: waking up in fear
for his savings as he has watched the stock repeatedly split, soar and, by
classic measures, become vastly overpriced. Over and over, he has battled
the urge to purge his shares.
He has succeeded, mostly. "If there is one thing I have learned in investing
in the last 15 or 18 years, it is to try not to sell your winners," says Mr.
Housel, now 47 years old, who was impressed with his father's longtime
investment in International Business Machines Corp. during the 1950s.
"Sell the losers. It is hard to sell the losers, because you feel, 'I am going to
be justified in this stupid decision I made, and I will sell the winners and
take the profits.' But every time I have sold Microsoft, I have regretted it,
because every time it has been worth more afterward."
Outperforming the S&P 500
What an understatement. Today, his 14,000 remaining Microsoft shares
are worth about $1.2 million, or about 115 times what he paid for them.
About half that gain came in the past year or so alone. Had he put his cash
into a Standard & Poor's 500 index fund, he would have more than
quadrupled his money over the dozen years. That is a pretty good return --
until you realize it would have amounted to roughly $50,000, assuming he
had made the same number of purchases and sales over the years.
1-March 1986: Microsoft issues
first shares, Mr. Housel decides
not to buy.
2-October 1986: Buys 100
shares.
3-December 1986: Sells them all.
4-June 1987: Buys 150 shares.
5-September 1987: Stock splits
2-for-1; he now has 300 shares.
6-February 1988: Buys another
100 shares.
7-February 1989: Sells 200.
8-March 1989: Buys 200.
9-April 1990-May 1994: Stock
splits on four occasions leaving him
with about 3,100 shares.
10-January 1995: Sells 100.
11-March 1996: Sells 500.
12-December 1996: Stock splits.
2-for-1. He has 5,000.
13-March 1997: Sells 700.
14-February 1998: Splits 2-for-1.
15-December 1998: Sells 500.
16-March 1999: Splits 2-for-1. He
now has 14,000 shares, after giving
some shares to family members.
17-June 1999: His stock now is
worth $1.2 million.
At the same time, had Mr. Housel held on to all his Microsoft shares --
instead of giving some to relatives, using others to finance a vacation cabin,
and selling still more when he feared they had risen too far -- the value now
would be about $3.8 million.
"People are risk-averse," says Prof. Robert Bontempo, a social
psychologist who teaches at Columbia University's business school in New
York. "I challenge you to find me more than a small handful of people who
can watch the stock appreciate that much and not take the profit."
Starry Dreams
Growing up outside Philadelphia, James Frederick Housel never aspired
to be a risk-taking investor. He originally intended to be an astronomer.
But instead of finishing college after attending California Institute of
Technology, Reed College in Oregon and Evergreen State College in
Washington, Mr. Housel spent three years in Italy studying film and
photography and went on to become a commercial photographer. Like
many baby boomers, he didn't think much about investing until he hit his
30s, in the 1980s.
His run with Microsoft looks almost as much like a series of near-disasters
as it does a series of investment coups. He missed his first chance to buy
when the company went public in March 1986 at $21 a share. It was a
highly publicized local stock, and he was following it. But Microsoft rose
33% on the first day of trading, and he believed it had gotten too
expensive. "I said, 'Oh, damn, I've missed it.' "
But then the stock leveled off, and he became tantalized again. "It was a
hot new issue," he says. Every stock picker was talking about it. "They had
a commanding presence in a growing industry. And they had a track
record. It wasn't like eToys or something."
In October 1986, he bought 100 Microsoft shares for about $30 each and
watched the price promptly shoot to $40. "I said, 'Hey!' and I sold it for
the $1,000 profit." He had held the stock for just six weeks. "I thought I
was one hot stock picker. Do you realize what that stock would be worth
today?"
About $1.3 million. And each of those shares would be equal to 144
shares today, after repeated splits.
As Microsoft continued to climb, Mr. Housel got back on the train, even if
it already had left the station. In June 1987, he bought 150 shares for about
$108 each. He was just in time for the October stock-market crash.
In the months that followed, Mr. Housel dumped a number of other
stocks that had taken hits, including SmithKline Beckman Corp. (now
SmithKline Beecham PLC), Upjohn (now Pharmacia & Upjohn Inc.) and
Apple Computer Inc. But he held on to Microsoft, even as it lost a third of
its value.
Why? Partly it was just good luck.
"It wasn't that significant to me yet," he says; his attentions were focused on
his other holdings then. "It didn't represent half my net worth," as it does
now. "And since the dire predictions of economic depression didn't
materialize that year, I hung on to it."
When Microsoft quickly bounced back in 1988, he bought 100 more
shares. Combined with his prior shares, which had split by then, he held
400.
Then, Microsoft went into the worst doldrums it had ever faced. With the
economy peaking and worries emerging about the future of the software
business, the company's stock went nowhere for 18 months.
"It probably was the only period in Microsoft history that it was
underperforming the market" for such an extended period of time, Mr.
Housel says. In January, 1989, the stock popped up 12%, and at the
beginning of February, he sold 200 shares for $60.88 apiece. A month
later, he bought the same number of shares for $50.25 each.
A Stockbroker's Advice
For the next several years, Mr. Housel managed to sit tight, thanks to the
advice of his stockbroker. The two men became friends, and whenever
Mr. Housel felt panicky, he would have lunch or dinner with the Seattle
broker, Bill Donnelly of Smith Barney, now the Salomon Smith Barney
Holdings Inc. unit of Citigroup Inc.
"I'm going to sell all that stuff tomorrow. Why be greedy?" Mr. Housel
recalls thinking repeatedly. "What do you think, Bill?" he would ask. Mr.
Donnelly would shoot back, "Hang in there."
Meanwhile, Mr. Housel did his own informal research throughout the early
'90s. Across Lake Washington from his three-story hillside home, he could
see yellow cranes dot the horizon as Microsoft steadily expanded its
campus. On the lakeshore, Microsoft's founder was building his dream
house. Mr. Housel would sail over for a look, see tour boats and hear the
commentaries: "On your right, construction continues on the home of
billionaire Bill Gates, the world's richest man," recalls Mr. Housel, who
has never met the executive.
Mr. Housel had other firsthand knowledge of the company: The
companies that were building the Microsoft campus sometimes hired him to
take photos of their work. "At other companies where I have been, people
are simply waiting for 5:00 to run out the door," he says. "You don't see
that at Microsoft." Going to the campus one Easter Sunday in hopes of
shooting the parking lot empty, he found too many cars to permit the
picture -- frustrating for the commercial photographer, but impressive to
the investor.
All the Trappings
Meanwhile, all around Mr. Housel, Microsoft's influence on the Seattle
economy was readily apparent. Stock-option-millionaire employees built
multilevel hillside homes, bought Ferraris and Porsches, wore the most
expensive Gore-Tex outdoor gear, indulged in dinners of Copper River
salmon from Alaska and donated to local charities.
"Seattle is suddenly the hip, hot place to be, even if it has the reputation of
being the home of the 'Evil Empire,' " Mr. Housel says. "We like the Evil
Empire."
Other Seattle investors were also benefiting from the local company's
success. Ron Benson, 93, who once ran his own chemical company, says
he bought Microsoft stock at the suggestion of Bill Gates Sr., a prominent
Seattle lawyer and the father of Microsoft's chairman. Mr. Benson says the
elder Mr. Gates was corporate secretary to another local company in
which Mr. Benson held stock.
"He told me one day, 'You know, Ron, I've got a bright young guy, my
son, and he's got a bright young associate, and they've come up with an
idea that I think will probably change the world.' So I bought some. My
broker said, 'You're wasting your money.' I said, 'It's my money.'" Mr.
Gates Sr. couldn't be reached for comment.
Mr. Benson says he made more on Microsoft than he made selling his
chemical company. He endowed several college scholarships in memory of
his wife and his father.
Easy Financing
Mr. Housel, for his part, continued to hold tight until the mid-1990s, when
he decided to build his "dream cabin," a 1,200-square-foot cedar-shingle
retreat in the San Juan Islands, between Washington and Canada. Between
1995 and 1997, he sold 1,300 shares to finance the $335,000 project --
though he now says he would have been smarter to come up with the
money another way. He also gave 700 shares to his wife, his stepchildren,
his siblings and one daughter's school.
At the end of last year, with Microsoft at an all-time high, Mr. Housel's
fears about the stock price got the better of him once again. He sold
one-sixteenth of his position, or 500 shares at the time, cashing out
$70,000 just in case the stock took a hit. "I worry that this is tulip mania,
and that when the market goes down, it won't be just the Internet stocks
that go down," he says. So far, Microsoft is up around 25% since then.
Still Self-Deprecating
Throughout the journey, Mr. Housel has remained self-deprecating. He
still refers to his 27-foot-long sailboat as "my yacht." He continues to work
long hours -- 12-hour photo shoots aren't unusual for him -- and instead of
focusing on his stock gains, he reminds himself of his mistakes in selling
when he should have hung on. And there is part of him that doesn't quite
believe the whole thing has happened.
"It's scary," says Mr. Housel, who finds himself worrying whether he
should lighten up even further on the stock. "You can't feel that you
deserve this money. It started out as a small percentage of my portfolio,
and now it is the monster that ate the whole thing."
His experience has made him something of a stock guru for friends and
acquaintances. Earlier this year, his wife's first husband called to ask for
advice on investing for their two teenage daughters' college fund. Mr.
Housel told him it could be too late to buy stocks for such a short-term
need, warning: "That door already has closed."
But maybe not all the way. The other day, one of Mr. Housel's
stepdaughters wanted to cash in some of the Microsoft stock he had given
her so she could be sure to have enough to found a business later.
Mr. Housel's wife, Susan, forbade it. |
