The Othmers – Almost Billionaires – Week in Review

Last Updated on February 27, 2023 by Prakash Kolli

The Othmers – Almost $1 Billion

The Othmers were almost billionaires. They amassed a fortune of $800 million before both passing away in the mid-to-late 1990s. The story of Donald and Mildred Othmer is interesting since they amassed their wealth by investing with Warren Buffett. It is similar to the story of Stewart Horejsi, who also invested with Buffett and today is worth about $2.8 billion, according to Forbes. The Othmers invested in one of Warren Buffett’s early investment partnerships and eventually became early shareholders of Berkshire Hathaway stock. The rest is history.

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Who were Donald and Mildred Othmer?

The Othmers were Omaha natives who eventually settled in NYC. Donald Othmer was a renowned professor of chemical engineering at Brooklyn Polytechnic Institute, now part of NYU. Before becoming a professor, he was an engineer at Kodak, producing 40 patents. His second wife, Mildred Othmer, was a former teacher and a buyer for her mother’s dress store. He died in 1995 at the age of 91, and she died in 1998, also in her 90s.

How Did the Othmers Almost Become Billionaires?

The Othmers initially invested $25,000 each with Warren Buffett for a $50,000 total investment. Buffett generated a 29.5% annualized return before fees between 1956 and 1968. Assuming the Othmers invested during this time means their initial $50k turned into $1.062 million before fees were subtracted.

However, Buffett eventually stopped buying stocks. Reportedly, he felt it was becoming more difficult to find undervalued companies in the stock market. Buffett has a certain philosophy and the market was not behaving in that way. In the 1960s, the stock market was performing relatively well, and Buffett closed his partnership to new investors in 1966. Instead, he started buying private businesses outright.

Buffett had his best year in 1968 when he beat the Dow 30 by over 50%. In 1969, he announced that he was liquidating his partnership. Buffett suggested investing with Bill Ruane and the Sequoia Fund. In addition, he offered partners a choice of cash or converting their investment to Berkshire Hathaway stock.

Many investors chose cash, but the Othmers chose wisely. They received about 14,500 shares at $42 per share of Berkshire Hathaway stock in 1970. The Othmers were buy-and-hold investors and never sold a single share. Berkshire Hathaway dropped (-48.7%) in January 1974, but they did not sell. The stock dropped (-23.1%) in 1990, but they did not sell. 

Their reluctance to sell resulted in enormous gains. Donald’s ~7,000 shares were sold in 1995 at just under $30,000 per share, ~$210 million. Mildred’s shares were sold in 1998 at just under $77,250 per share, approximately $578 million. The combined value of their shares when sold was almost $800 million. Hence, the Othmers almost became billionaires.

What Happened to the Othmers Fortune?

Donald and Mildred Othmer had no children. As a result, most of their wealth was donated to charities and non-profit organizations. Reportedly, Brooklyn Polytechnic received almost $200 million, where Donald worked for nearly 60 years. Long Island College Hospital received about $160 million. The University of Nebraska and the Chemical Heritage Foundation each received about $100 million. Other institutions got small amounts.

Final Thoughts on The Othmers – Almost Billionaires

The Othmers story is like Stewart Horejsi, a buy-and-hold Berkshire Hathaway billionaire. The Othmers were not investing geniuses. However, they made an intelligent decision to invest and stick with Warren Buffett. The returns in an up year were great. There were down years but not often, and usually, losses were less than the broader market. 

Most retail investors won’t achieve this kind of success, but some will perform decently. Many secret dividend millionaires earned six-figure and seven-figure fortunes through saving, frugality, and investing in stocks and holding for decades. For instance, Russ Gremel bought Walgreens Boots Alliance (WBA), owning only one stock, and became a divided millionaire. In another example, Sylvia Bloom became a dividend millionaire by owning Exxon Mobil (XOM), Colgate-Palmolive (CL), and other well-known stocks.

There are other examples as well. However, all these investors had one thing in common; they followed the three principles of dividend millionaires.

• They spent less than they earned
• Invested their savings
• Reinvested the dividends

Today, two approaches to build wealth over time are to build a lazy portfolio of index funds or dividend growth investing and then live off dividends.

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The Stock of the Week

Today I highlight California Water Service (CWT). It is the worst-performing stock of the 35 Dividend Kings year-to-date (YTD) with about a (-17%) return. Only six Dividend Kings have positive returns so far. CWT is a water utility holding company operating in California, New Mexico, Washington, and Hawaii. Most of its operations are regulated, and thus competition is minimal. The utility is being impacted by drought restrictions, reducing revenue. However, the dividend was just increased for the 55^th straight year. The stock has been overvalued for years, and the valuation is coming down. However, the stock is not yet a deal, but investors should watch it. The screenshot below is from Stock Rover*.

Dividend Increases and Reinstatements

I have created a searchable list of dividend increases and reinstatements. I update this list weekly. In addition, you can search for your stocks by company name, ticker, and date.

Dividend Cuts and Suspensions List

I updated my dividend cuts and suspensions list at the end of December 2021. As a result, the number of companies on the list has risen to 543. Thus, well over 10% of companies that pay dividends have cut or suspended them since the start of the COVID-19 pandemic.

In January, one new addition indicated that companies are experiencing solid profits and cash flow.

The new addition was Compass Diversified (CODI).

Market Indices

02/05/22

Dow Jones Industrial Averages (DJIA): 35,090 (+1.05%)

NASDAQ: 14,098 (+2.38%)

S&P 500: 4,5091 (+1.55%)

Market Valuation

The S&P 500 is trading at a price-to-earnings ratio of 25.7X, and the Schiller P/E Ratio is about 37.2X. These two metrics were up in the past week. Note that the long-term means of these two ratios are 16.0X and 16.9X, respectively. 

The market is still overvalued despite the recent market correction. Earnings multiples more than 30X are overvalued based on historical data.

S&P 500 PE Ratio History

Shiller PE Ratio History

Stock Market Volatility – CBOE VIX

This past week, the CBOE VIX measuring volatility was down ~4.4 points to 23.22. The long-term average is approximately 19 to 20. The CBOE VIX measures the stock market’s expectation of volatility based on S&P 500 index options. It is commonly referred to as the fear index.

Yield Curve

The two yield curves shown here are the 10-year US Treasury Bond minus the 3-month US Treasury Bill from the NY York Fed and the 10-year US Treasury Bond minus the 2-year US Treasury Bond from the St. Louis Fed.

Inversion of the yield curve has been increasingly viewed as a leading indicator of recessions about two to six quarters ahead, according to the NYNY Fed. The higher the spread between the two interest rates, the higher the probability of a recession.

Economic News

The US Bureau of Labor Statistics Job Openings and Labor Turnover Survey, or JOLTS reported 10.9 million job openings as of December 31^st; this is ~150,000 higher than November’s value. Job openings have been reported above the 10 million level for seven months. Industries contributing to the increase include accommodation and food services (+133,000), information (+44,000), nondurable goods manufacturing (+31,000), and educational services (+31,000). Job openings decreased in finance and insurance (-89,000) and wholesale trade (-48,000). 

The US Energy Information Administration reported USUS commercial crude oil stockpiles decreased by 1.0M barrels to 415.1M barrels (~9% below the five-year average) for the week ending January 28th. Crude oil refinery inputs averaged 15.2M barrels per day, a decrease of 248K barrels per day compared to the previous week’s average. Gasoline inventories increased by 2.1M barrels (2% below the five-year average). Refineries operated at 86.7% of capacity, as gasoline production decreased to an average of 8.7M barrels per day. Crude oil imports came in at 7.1M barrels per day, an increase of 800K barrels per day compared to the previous week. Crude oil imports averaged about 6.5M barrels per day over the last four weeks, 9.6% more than the previous year’s same period.

The US Bureau of Labor Statistics reported a stronger than expected 467,000 jobs were added in January. The jobs gains for November and December were significantly revised, with November increasing to 647,000 from 249,000 and December increasing to 510,000 from 199,000. The unemployment rate rose to 4.0% from 3.9% in December, the lowest reading since February 2020. Impacting the headline number was leisure and hospitality (+151K), down slightly from the (+163K) in December. Gains were also reported in professional and business services (+86K), retailers (+61K), and transportation and warehousing (+54K). The number of unemployed was ~6.5M, down from 23.1M in April 2020, but still above February 2020’s 5.8M. The labor force participation rate or the proportion of working-age Americans who have a job or are looking for one edged up to 62.2%, the highest level since March 2020, but still less than the pre-pandemic level of 63.3%.

Thanks for reading The Othmers – Almost Billionaires – Week in Review!

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If you want a leading investment research and portfolio management platform with all the fundamental metrics, screens, and analysis tools you need. Read my Review of Stock Rover. Note that I am an affiliate of Stock Rover.

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