How the Worst Market Timer in History Built a Fortune

By Charlie Bilello

10 Sep 2022

In late August 1930, identical twins Warren and Wally were born in Omaha, Nebraska. They came from a long line of great investors and much was expected of them. While Warren seemed to inherit these genes, Wally wasn’t so lucky and had no investing acumen whatsoever.

As teenagers, Warren and Wally were each given a small sum of money to invest in the stock market. While Warren only chose stocks that were trading at a deep discount to their intrinsic value with the intention of holding them forever, Wally was always a thrill seeker and considered this to be a boring and tedious strategy. So instead, he pursued the hottest fads of the day, jumping in and out of securities based entirely on emotion.

While Warren’s portfolio grew considerably over the subsequent years, Wally had no such luck. He seemed to have the uncanny ability of buying a stock at its absolute top only to later sell in panic after a substantial decline. Repeating this process again and again, he was soon left with nothing.

The experience scarred Wally and he swore off the family business of investing. After graduating from high school, Warren went off to Wharton to study business while Wally took a job at the local Dairy Queen, a new fast food restaurant that was gaining in popularity.

Wally didn’t think about investing again until he turned 25, when he inherited a sizable trust worth $130,000. However, the trust came with some strict rules:1

  1. He could only invest in a diversified equity portfolio (S&P 500, no individual stocks) and was not allowed to withdraw any of the funds until his 91st birthday.
  2. He could determine when and how much of the $130,000 to invest over time but once he bought into the market, he could not sell a single share until his 91st birthday. All dividends were to be reinvested immediately back into the market.
  3. He was not allowed to see the account balance of his stock portfolio until he turned 91.
  4. The non-invested portion of the $130,000 would be held in a local bank account earning no interest.

Initially, Wally was hesitant to do anything, but just before his 26th birthday he couldn’t wait any longer. The stock market had been booming for years and Wally feared missed out on the riches that everyone seemed to be talking about.

So on August 2, 1956, Wally invested $10,000 into the market. This was, of course, the day the stock market topped. It would proceed to decline 21% before bottoming in October 1957, and while Wally wished he could sell everything at that point, the rules of the trust prevented him from doing anything.

And so he forgot about investing for a while, until another raging bull market took hold, and he couldn’t resist any longer. On December 12, 1961 Wally invested another $10,000 at, you guessed it, another market top.

Over the next 60 years, he would repeat this pattern over and over again, only adding new investments at bull market tops: $10,000 in February 1966, December 1968, January 1973, November 1980, August 1987, July 1990, July 1998, March 2000, October 2007, September 2018, and lastly in February 2020. His $130,000 was now fully invested in the S&P 500.

Outside of investing, Wally had done well over the years, working hard and moving up the Dairy Queen ladder. He eventually became their largest franchisee. In 1998, Warren’s company purchased Dairy Queen and the brothers were united in business for the first time.

In August 2021, Wally turned 91, and he was finally able to view his investment account balance and sell his shares if he so chose. While curious to see what was now in the account, he decided to hold off until New Year’s Eve, hosting a small gathering of friends and family that would include his now-famous twin brother.

At the New Year’s Eve party, all eyes were on Wally as he opened the envelope containing the latest statement for his investments. When he saw the number, his jaw dropped. He thought there must have been a mistake. Wally, the worst market timer in history, had amassed a fortune of $18.6 million. This was a 143x increase from the initial $130,000 and a 10.5% dollar-weighted annualized return.

But there was no mistake, the numbers were real. Wally was just the living embodiment of the old adage that time in the market is vastly more important than timing the market. By diversifying, reinvesting dividends, and never selling, Wally had reaped the enormous rewards of long-term compounding.

As midnight drew near, Warren approached Wally with a smile on his face. He was proud of his brother and all that he had accomplished, but couldn’t resist asking the question that had been on his mind since he first got to the party.

“Wally, what do you think of the market here?”

“I haven’t been this bullish in a long time,” Wally responded with exuberance in his voice. “When the market first opens in 2022, I’m a big buyer. Hopefully, that’s not a sign of a top.”

At that, the brothers shared a hearty laugh. Some things never change.

1. Note: this is a hypothetical example. For the sake of simplicity, I’m assuming no taxes/fees/commissions/slippage, which if included would have reduced portfolio returns. I’m also assuming that an Index Fund existed in 1956 but this type of fund was not available until 1976. Lastly, I’m assuming no interest on the bank account balance over time, which if included would have been additive to returns).

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