The tale of a quiet janitor from Vermont

It didn’t take long for marketers to start promising to show us how to ‘trade like Navinder Sarao’, the unassuming prop trader from Hounslow charged with causing the 2010 flash crash …

I say, forget about high-risk spoof trading, and trying to trick markets …

Market ‘tricks’ may work for a while, but usually leave traders in hot water (although not usually with a 380-year prison sentence hanging over them!)

Instead, we should all be trying to trade like Ronald Read …

Ronald Read was the petrol pump attendant from Vermont who quietly accumulated $8 million in stock holdings and property.

His story might lack the drama of midnight raids from the FBI, but there’s plenty to learn from Read’s success …

After returning from WWII, Read worked at his brother’s service station for 25 years, and after his retirement, he continued to work as a janitor at a local store. He saved money, hated waste, and chose a very modest lifestyle. He sometimes held his coat together with safety pins and would forage for firewood.

Family and friends had no idea of the wealth he had built up.

But Read wasn’t a stock-market genius; he didn’t have some cunning scam to get one over on other traders, nor was he privy to any insider knowledge.

The keys to his success are simple, and easily copied by anyone.

They can be summed up in 4 words: bluechips … dividends … reinvesting … patience …

There’s no ‘cunning secret trick’ here … just sensible rules, stuck to long-term. I’ll run through each of these in turn, showing how to apply them in your own trading …

1. Bluechips:

We all love the idea of buying up super-cheap penny stocks, only to have discovered the next Apple or Facebook … but that’s speculating, rather than investing. It’s risky – fine for a dabble, but not for planning your retirement.

Ronald Read owned 95 stocks, diversified over many sectors, with many blue chips among them. He avoided tech stocks and anything that was regarded as ‘hot’.

Bluechip stocks may seem boring and slow-moving, but these are the companies that make up the backbone of the world’s indices, and have established a record of stable earning power over decades. What’s not to love about that?

2. Dividends:

Bluechips and regular dividend payments often go hand in hand, and Ronald Read certainly took advantage of good, solid shares, which had a history of regular increases in dividend payments. But he didn’t pocket that dividend income – he reinvested it in more investments. Which brings me neatly to the next key point …

3. Reinvesting:

By reinvesting his dividend income, Read kept on buying and growing his portfolio. I’m not suggesting that you have the match the frugality of his lifestyle, or work through your retirement, but if we spend our investment income as we make it … we’re never going to build a really sizable fund.

Reinvestment is the backbone of compound investing, and the only way to achieve genuine wealth.

4. Patience:

There’s another important component in compound investing to build your wealth … time. By living to the age of 92, Read had a great advantage here. He stuck with his methods for decades.

This is where so many investors fall down – I don’t mean that we all die too early! But that we just don’t give our money a chance to grow. We get impatient … we chop and change … we rush to sell, always looking for the next ‘hot ticket’ …

And the best thing about ‘patient’ investing (apart from the money!) is how little effort it requires – it’s about sitting back and waiting, rather than actively buying and selling.

As I read about Ronald Read’s portfolio earlier this week, I felt some satisfaction in the knowledge that right now, a brand-new edition of James Hudson’s Income Raider is rolling off the presses.

An investment method about all the things I’ve mentioned here – bluechips, dividends, reinvesting and patience …

… and building long-term wealth.

All these techniques have been updated by fund manager James Hudson to suit modern spread-betting techniques – which means that you can access this without the kind of money that is usually needed for buying shares.

Income Raider has been closed to new members for some time, but James has agreed to take on a limited number of new members this month – full details will be available next week.

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