Read this tonight:
In the early 70s, my father was worried about his health and inflation and suspected my mother would outlive him by a considerable number of years. He was never much of a believer in bonds. Bonds are trading sardines, but good stocks are eating sardines, was an expression he favored. So he constructed for my mother a portfolio of growth stocks (and cyclical growth stocks) such as Philip Morris, Caterpillar, Exxon, Coca-Cola, AIG, IBM, Citicorp, HP, Berkshire Hathaway, GE, Merck, Pfizer, and so on. Nothing very imaginative, but solid, long-term companies you would want to sleep with. When she died two years ago at 95, her cost on many of those positions was actually less than the current dividend.
My mother's portfolio compounded over 32 years at 17 percent a year, and her dividend income grew at about the same rate. I figure the purchasing power of her income stream had compounded at roughly 12 percent per annum. The only taxes she ever paid were on those dividends. Talk about tax-free compounding!
Barton Biggs - Hedge Hogging
This was an incredibly well-done and lucky portfolio. I wouldn't doubt that the Berkshire Hathaway stock was probably 50% of the gains alone. It also didn't hurt that her son was a professional investor and was able to sell off a few holdings over the years that looked like they were headed for the cemetery. But the fact that she could just hold on and live off the dividends the rest of her life...I'm sure her income near the end was incredible.
