In 1981, Pension & Investment Age magazine published their regular report ranking investment performance for pension plans. Alone at the top was a tiny bank based out of Chillicothe, Missouri.
Citizens Bank & Trust led the list of every bank- and insurance-managed pension fund for the 3-year performance mark. More importantly, it led the same list for the 10-year mark. How does a tiny bank in farm country Missouri beat out the biggest banks and insurance companies in the country for a decade?
The answer is Edgerton Welch. Welch was the 72-year-old chief investment officer for the bank who had never heard of Ben Graham or modern portfolio theory. He admitted to not being smart enough to play the stock market. He even said he had no idea if it would go up or down. Instead, he had a copy of Value Line and a simple set of rules to guide him.
Welch bought all the stocks that had Value Line’s highest ranking relative to other stocks, in industries ranked highly by Value Line, and also highly rated by Merrill Lynch and E.F. Hutton, the two brokerage firms he used. He held onto each stock until its Value Line ranking dropped. At which point he sold. Three rules tied to buying, one for selling. That’s it.
Some may point to the simplicity of Welch’s strategy as the reason for its success. They’re partially right. Continue Reading…