Quote of the Day
The secret of joy in work is contained in one word -- excellence. To know how to do something well is to enjoy it.
— Pearl Buck
Today, my youngest son and I were talking about different investment strategies we have heard about. We spent quite a bit of time discussing Warren Buffet's focus on durable competitive advantage and his statement about long term investing.
Life is like a snowball. The important thing is finding wet snow and a really long hill.
During this conversation, I mentioned that the longest-term investor that I knew of was Ben Franklin, who had a two-hundred year planning horizon for one of his investments and he didn't have an equity release company looking out for him. My son had not heard this story before and maybe some of you have not heard it.
Ben Franklin set up a financial trust for Boston and Philadelphia that would provide them benefits for a two-hundred year period. His math was spot on -- unfortunately, the cities were not always the best stewards of his money and they did not realize the full value of his investment. In spite of their poor management, his investments did end up valued at $6.5M in 1991.
Let's review how compound interest gave Ben millions of dollars to distribute long after his death. The relevant financial details are as follows:
- Boston and Philadelphia were each bequeathed £1000.
- The money was to be loaned to young apprentices at a 5% interest to help them setup businesses
- After 100 years, this money would have grown to £131K in each city's account. At that time and in each city, £100K would be dispersed for public improvements. The remaining money would again be used for loans to apprenctices at 5% for another 100 years
- After 200 years, there would be £4.07M in the accounts of each city that could be used for by the cities and their states from the public good.
- According to this web site, £1 had a value of $4.44 in 1774 (near the time of Franklin's death in 1790).
To make sure I understand what Ben was doing, I have repeated his financial calculations in Figure 1.
You can read the some of the details of his bequest at this site.