I wanted to start by asking you about your individual retirement account, which I gather you set up when you were something like 14 years old. And we've never actually talked about it in the past. Can you tell me what possessed you to do that? And also, what the story of your IRA illustrates about the power of long-term investing? Because I guess this is what this is 44 years ago now that you set it up.
Some probably 47 or so by now. But I haven't that worked so...
Did I underestimate your youth?
That's okay. It has indeed gotten to the hockey stick stage of things if you were to chart it out. But to the backstory, you and I have talked about this before. When I was 14 years old, the law was passed that created individual retirement accounts. And at that point, I was working part-time from time to time in my father's liquor store. And I remember I made about $750 that year. And I put all of it in the IRA. I don't think the tax burden would have been very much on $750. But I did read the Wall Street Journal, and I was sort of aware of things. And without a second's hesitation, it just seemed to me that well, that's a spectacular thing to do is to put that away. And literally every year since then, for many many years the limit was $2,000 a year. And I don't know if I made $2,000 in the subsequent year when I was 15 or whether it took me to be 16 before I was fully able to fund the $2,000. But I did. And that account has been a marvelous sort of tool and teaching device to sort of let some winners run. And it's I mean, at this moment that IRA which just had $2,000 a year put into it is 10% of my net worth. So it's a meaningful thing.
Wow. And what was in it? What did you do originally? And then how did it change over the years once you actually really knew what you were doing?
Well, I really don't remember what the first stock I bought would have been, but it would have been a stock, and I have no memory of any of the specific investments I made all the way along until such time as we got to the maybe late '80s, and it was the time when interest rates were meaningfully higher than what they are right now. I mean, 16, 17, 18%. And I believe it was Merrill Lynch who started the process of stripping the coupons off of government bonds, and they would create these securities called LYONs, if I remember the acronym, which was I think an acronym for liquid yield auction notes or something along those lines. And so, you could buy literally a million dollars worth of these bonds at 0% interest rates, you know, zero coupon bond, that would lock in a 16, 17, 18% return for 30 years. So, the first memory I have of actually buying something that's in size that worked out very well, were those LYONs bonds, and then about the RJR zero coupon pick bonds the day that Drexel Burnham went bankrupt. There was a company here in and I'm just sort of picking and choosing the favorable memories. I made some mistakes as well. These ones worked out. There was a company here in Richmond, Virginia called Richfood, which was a grocery co-op that converted and went public, and it was one of those stocks that started out at 20 and went down to less than a dollar, but I knew the business and visited the company, and they had new management come in, so I bought some of that, and that ended up being a hundred bagger. And then, meaningfully as I look at it today, and I sort of had a hint that you might ask me this question because we've talked about it before, Home Depot is probably 35% of the value of the account. And when you look at Home Depot and Cisco and WW Grainger, those three stocks account for more than 50% of the value in that account and it's just businesses that I had a reasonable amount of confidence in that I thought were reasonably well priced and had the ability to compound and grow for a long period of time and it's worked out.
So in some ways it encapsulates so much of what would happen later in your career, right? It's two of the great themes of your investing career: patient compounding and tax deferral.
And it's also striking well, I mean I was looking at a compound interest calculator last night to see you know, I didn't have the exact numbers, but I was looking and thinking okay. So if $700 grows at say, you know, 12% for 44 years. I think it comes out to about 102,000 bucks and then I was thinking well so another 20 years at that and it's basically going to be about a million bucks just at 12% a year for that time. That's an extraordinary thing to and remarkable that you appreciated it so early on in your life that there was that you could defer gratification. What a strange habit you were Tom.
I was a very strange kid and I joke with people the moment when I became very very tax sensitive. I think I was in second grade and at that particular point in time I used to get an allowance of a dollar a week and I used to love collecting Matchbox cars which were the little teeny cast cars. I just loved them and it would be seconds between the instant when that dollar hit my hand and I would trudge down to the local Woolworth store which was in our small town and those cars sold for 50 cents a piece and I would lovingly and dutifully inspect the rack of Matchbox cars and I would select two of them and I would go up to the register and hand my dollar bill over for the two Matchbox cars that I selected and one day literally this was I think in second grade I handed the clerk the two Matchbox cars and she rang it up and said that'll be a dollar four. And I said a dollar four and I patiently explained to her, 'No, these are only 50 cents a piece and there are two of them, so two times 50 is a dollar.' I'd done this several times before in my life. I was a veteran at buying two Matchbox cars for a dollar. And she informed me that the state had just instituted a sales tax and it was 4%, so now instead of a dollar it was a dollar four. And my immediate just emotional reaction was, 'Dollar four? What sales tax? What do I get for that?' And I was not very happy with the answer of what the sales clerk at Woolworth explained that the social purpose and utility of the sales tax was. And I remember a fearful, painful walk back to the rack where I had to put one of those cars back. And I was only able to buy one car that week and walked away with my I think 48 cents of change because it would have been 50 cents plus 2 cents for the tax. So I had 48 cents to apply towards the purchases next week. But that seared a memory in my mind about the tax sensitivity that relates to life in general.
Yeah, and it probably helped that you were the son of an accountant and later would become an accountant. I think your daughter one of your kids became an accountant eventually or studied accounting full-time finance, right?
She was a beautiful daughter and did head off to the University of Virginia with the plan of studying accounting. And pretty quickly into that program she called me one day and she said, 'Daddy, would it really disappoint you if I switched from accounting to finance?' And I said, 'No, not at all. You have my complete, utter, total blessing.' So she did start down that path and has enough accounting knowledge to be thoughtful and aware. And it is important, despite the jibes I take in accounting including most recently in our annual report that you have an awareness of accounting but use that force for good.
Your mindset must very much have been shaped by the fact that you grew up in this fairly rural old-fashioned place in Salem, New Jersey, I think, on a 100-acre farm living, I think, in a 250-year-old farmhouse with spending a lot of time with your father and your grandmother. Can you talk about how that background shaped this kind of slow-moving patient mindset of yours which has really been at the heart of your success as an investor?
