Thinking small spells big payoff
Not all great investors are household names. But some, like Oseola McCarty, should be. She was born in Mississippi in 1908 and lived for three-quarters of a century in a small, simple house, washing clothes for a living. Over the years, she continued to put aside whatever money she could, plunking her savings into local banks.
Ten years ago, she decided to give most of her life’s savings to the University of Southern Mississippi. (“I just figured the money would do (scholarship recipients) a lot more good than it would me.”) The impressive sum of $150,000 bowled over school officials, and it was established as the Oseola McCarty Scholarship Fund. It has now given 17 deserving young people a college education.
Miss McCarty’s life imparts valuable lessons. For starters, a lot can be accomplished by investing small amounts. And, in trying to become our family’s most beloved ancestor or a charitable cause’s most beloved stranger, we should invest effectively. Miss McCarty’s nest egg grew very large, but it would have grown even larger had she been investing in stocks, and not CDs. If she’d bought just a few shares of Wal-Mart or General Electric many years ago, they would have boosted her bottom line considerably.
Her own words are also inspiring: “A smart person plans for the future. You never know what kind of emergency will come up. … You have to take responsibility for yourself. … It wasn’t hard. I didn’t buy things I didn’t need. … The Lord helped me, and he’ll help you, too. … It’s an honor to be blessed like that.”
After Miss McCarty died in 1999, one of her bankers wrote us, saying: “I have often tried to explain to folks that Miss McCarty’s most remarkable feat was living as long as she did. She also found a way to save a little bit of money every week. Time was able to turn even the modest returns of her early investments into hundreds of thousands of dollars. If we had been able to introduce her to (stocks) earlier, she would have left millions instead of thousands.”
Ask the fool
Q: I read that Google’s “market cap” is $120 billion. What does that mean? — P.G., Lake City, Fla.
A: A company’s market capitalization reflects the value the stock market is placing on it right now. It can help you get a sense of whether the firm is overvalued or undervalued — if you compare it to peers and others. To get it, you multiply the total number of shares outstanding by the stock price. Google’s market cap tells you that the market has placed a price tag of about $120 billion on the company.
My dumbest investment
In February 2004, I bought 1,100 shares of fiber-optic communications company RCN Corp. The firm had some loans at high interest rates that it could not refinance, so it ended up filing for Chapter 11 bankruptcy protection. My stock was deemed worthless, as the firm simply issued new stock. Is it right to assume that if a company wants to raise money, all it has to do is void its stock and issue new shares? — Silas Booker, Spring City, Tenn.
The Fool Responds: When the vast majority of companies emerge from Chapter 11 bankruptcy protection (which is designed to give them a chance to reorganize themselves and turn themselves around), their common stock ends up worthless. That’s because in a bankruptcy, many creditors, such as banks and suppliers and bondholders, take priority over common-stock holders (who often end up with nothing). Firms don’t just file Chapter 11 lightly, though. If they simply wanted more money and didn’t care about diluting the value of existing shares, they could just issue more shares of their existing stock. Learn more about corporate bankruptcy at www.sec.gov/investor/ pubs/bankrupt.htm.