The Best Investor You've Never Heard Of

FROM A NONDESCRIPT APARTMENT IN DES MOINES, JOSEPH

This spring, in a modest apartment in Des Moines, Joseph Frankel Rosenfield quietly
marks his 96th birthday. Rosenfield has far more to celebrate than living all the way from
Theodore Roosevelt's first presidential term to Bill Clinton's second. If he were not a
profoundly modest man, his mailbox would burst with birthday cards inscribed, "To one
of the greatest investors in the world."

You've probably never heard of Joe Rosenfield, but trust me: You can learn a lot from
him. Rosenfield is renowned among a small circle of elite money managers--including
Warren Buffett, who has been one of his closest friends since the 1960s. How does
Buffett sum up this master investor? "Joe," says Buffett, "is a triumph of rationality over
convention." By ignoring the conventional wisdom about investing, Rosenfield has made
money grow faster and longer than almost anyone else alive. Since 1968, he's turned $11
million into more than $1 billion. He has heaped up those gains not with hundreds of
rapid-fire trades but by buying and holding--often for decades. In 30 years, he's made
fewer than a half-dozen major investments and has sold even more rarely. "If you like a
stock," says Rosenfield, "you've got to be prepared to hold it and do nothing."

From the mid-'60s through the mid-'90s, Rosenfield was the key member of the
investment committee at his alma mater, Grinnell College in Grinnell, Iowa. It is for
Grinnell, not for himself, that Rosenfield has worked most of his investing magic. By
1999, little Grinnell--with its 1,300 students and its 108-acre campus--had the largest
endowment per student of any private liberal arts college in the country. Its total
endowment, at $1.02 billion, dwarfed those not only of top liberal arts schools like
Amherst and Vassar but also of giants like Carnegie-Mellon and Georgetown.

Allow me to introduce you to the man who turned one of the finest small colleges in the
country into the richest. Lanky, with long hands and keen green eyes, Rosenfield spends
most of his time in a wheelchair since undergoing knee surgery last year. Full of
charisma, wisdom and wisecracks, he retains a mind as sharp as a razor. He decks himself
out in dress slacks and a Chicago Cubs shirt. For decades, Rosenfield personally owned
3% of the team, and in his seventies he vowed to stay alive until the Cubs win a World
Series--which may explain the air of immortality that surrounds him.

Rosenfield graduated from Grinnell with a B.A. in political science in 1925, one year
ahead of Frank "Cowboy" Cooper, who later became famous as actor Gary Cooper. In
1948, after practicing law for more than 20 years, Rosenfield became chairman of
Younkers, a growing retailing chain that had bought out his family's department store in
Des Moines. In the 1960s, however, as he neared Younkers' retirement age of 65,
Rosenfield began to devote more time to Grinnell, whose board he'd joined in 1941. Says
trustee Gardiner Dutton, "The day I joined the board in 1970, Joe said to me, 'Our job is
to make this institution financially impregnable.' Those were his exact words."
JOLTIN' JOE

Rosenfield can still recall the first stocks he bought for his own account--right after the
crash of 1929. "In the early days I was doing too much short-term investing," he says. "I'd
buy and sell stocks in 30, 60, 90 days: Studebaker, Dodge, Nash Motors. I thought I
could make real money doing that, but I was wrong. I didn't go broke, but I got badly
bent. Buying for a short period is always going to hurt you in the end."

That's a lesson he's never wavered from--and one that has defined his strategy for
Grinnell from the very start. "I figured government bonds wouldn't get the college
anyplace," says Rosenfield. So he started looking for "good common stocks we could
own for the long term."

Before long he had help. In 1967, some friends introduced him to Warren Buffett. In
those days, Buffett's private partnerships, which had beaten the market by a vast margin
for 10 years, totaled less than $75 million. Virtually no one outside of Omaha had ever
heard of him--but, recalls Rosenfield, "I could see what a fine mind he had, and I was
immediately attracted to him." The two men bonded at a speech the Rev. Martin Luther
King Jr. gave at Grinnell. "We hit it off immediately," confirms Buffett. "Joe is an
extraordinarily generous and smart man. I'd never have wanted to replace my real father--
but if after my dad's death I could have adopted Joe as my father, I would have."
Rosenfield promptly invested in his new buddy's company, buying 300 shares of
Berkshire Hathaway for Grinnell for $5,252. In 1968, Buffett joined Grinnell's board.

That was the same year that another Grinnell trustee, Robert Noyce, called Rosenfield to
tell him about a new company he was starting. Noyce had been kicked out of Grinnell in
his junior year for stealing a 25-pound pig from a nearby farm and roasting it at a campus
luau; his physics professor, who felt Noyce was his best student ever, got the expulsion
reduced to a one-semester suspension. Noyce had never forgotten the favor, which was
why he was offering the college a stake in his start-up, NM Electronics. Was Rosenfield
interested? "The college wants to buy all the stock that you're willing to let us have," he
told Noyce instantly.

Grinnell's endowment put up $100,000, while Rosenfield and another trustee each kicked
in $100,000 more, enabling the school to supply 10% of the $3 million in venture capital
that Noyce and his sidekicks, Gordon Moore and Andrew Grove, raised for the company
that they soon renamed Intel. By 1974, three years after Intel went public, Grinnell's
endowment had more than doubled to $27 million--even as the stock market lost 40% of
its value.

Meanwhile, Rosenfield was keeping his eyes, and his mind, wide open. In 1976,
Rosenfield heard from Buffett that a TV station, wdtn of Dayton, was for sale.
Endowments rarely control private companies, but Rosenfield thinks like a businessman,
not a bureaucrat. He grabbed wdtn for Grinnell at just $12.9 million, or a mere 2 1/2
times revenues at a time when TV stations were selling for three to four times revenues.

SELL IS A FOUR-LETTER WORD

Rosenfield has broken rules right and left. First of all, he's never had any use for a
committee to make investment decisions. For most endowment funds, a stake in an
untested technology company and the private purchase of a TV station 600 miles off-
campus would have had to go before a committee, which, after tedious debate, would
probably have nixed such risky propositions. "I just bulled things through," says
Rosenfield, squaring his shoulders.

And instead of spreading his bets, Rosenfield doubled down. Grinnell's endowment holds
a total of fewer than 20 different stocks. Many colleges have more investment managers
than Grinnell has investments. Outside consultants typically slice and dice assets--
putting, say, 3.5% in midcap growth stocks, 1% in small Japanese stocks, 2% in
emerging markets bonds and so on. Each sliver has at least one manager, who in turn
owns dozens, even hundreds, of investments. The result of spreading so many bets so
thinly, and paying high fees on every layer, is sheer mediocrity: Over the 10 years
through 1999, the average endowment earned 13% annually, while Grinnell's grew at
15.6%.

Finally, Rosenfield did as little as possible, seldom buying and almost never selling. In
fact, he considers selling to be indistinguishable from error. Who can blame him? After
Intel went public in 1971, Grinnell found itself sitting on a gold mine--but Bob Noyce
treated it like a powder keg. Tormented by the fear that his fledgling company might
financially cripple the college that had given him a second chance, Noyce began
pestering Rosenfield to sell. "Bob was trembling about it," recalls Rosenfield. "He'd say,
'I don't want the college to lose any money on account of me.' But I'd say, 'We'll worry
about that, Bob. We'll take that risk.'" Finally, however, Noyce wore Rosenfield down,
and between 1974 and 1980 the college sold its Intel stake for $14 million, a 4,583%
profit. "I wish we'd kept it," Rosenfield says. "That was the biggest mistake we ever
made. Selling must have cost us $50 million, maybe more."

Then Rosenfield locks eyes with me and asks, "What do you think?" Hmm, I mutter, it
might have cost a little more than $50 million; I don't have the heart to tell a 96-year-old
man that the shares he sold would today be worth several billion dollars.

Grinnell sold its TV station, WDTN, only because its value rose so fast that Rosenfield
could no longer justify keeping so much of the endowment in a private, illiquid
investment. The Hearst Corp. bought it from Grinnell in 1981 for $49 million, a 281%
profit over a period when the stock market went up about 90%.

Rosenfield sold Grinnell's stake in Berkshire Hathaway for $3.7 million between 1989
and 1993--for reasons that must have been compelling at the time but that neither
Rosenfield, nor Buffett, nor anyone at Grinnell can now recall.

What about Freddie Mac? This investment leaves Grinnell heavily exposed to the
financial stocks that have been the skunks of the market for the past couple of years. In
1999, Freddie Mac dropped in value by 27%. Many investors would long since have
bailed out, so I ask Rosenfield if he's worried about these bad short-term returns. His
entire face turns into a befuddled question mark. "Why should I worry?" he asks. "There
are too many people who are nervous Nellies and panic when a stock goes down a few
percent. That's what stocks do! I think that [Freddie Mac] is eventually going to make the
college a lot of money.

"There's all kinds of propaganda making people believe that impatience will pay off," he
continues, "but impatience is a sure way to lose money. I've always taken the long view."
He adds with a grin: "I've got nothing but time."
IN THE LONG, LONG RUN

What has Rosenfield meant to Grinnell? The massive endowment, says school president
Russell Osgood, has enabled Grinnell to survive even as other small schools have shut
down. Nor has Grinnell spent its war chest on extravagances. (The campus' tallest
building is still shorter than the Golden Sun feed silo on the outskirts of town.) Instead,
the money has gone into keeping tuition about 14% lower than at similar schools,
providing aid to 91% of students and sustaining an incredibly intimate educational
experience. The average class size is 16. Says Ellen Wolter, an English major from
Bismarck, N.D.: "It's almost not like school; it's like an intense book club."

In my two days at Grinnell, it seemed to me that something was amiss, but I couldn't
quite put my finger on it. Then it hit me: Of the 57 buildings on Grinnell's campus, not
one is named after Rosenfield, and many of the students don't even recognize the name of
their college's biggest benefactor. That's true modesty, the kind that accompanies true
investing genius. You'll never find Rosenfield hyping his philosophy on CNBC--but
that's precisely why it should command your full attention. Consider these lessons.

--Do a few things well. Rosenfield built a billion-dollar portfolio not by putting a little bit
of money into everything that looked good but by putting lots of money into a few things
that looked great. Likewise, if you find a few investments you understand truly well, buy
them by the bucketful. However, I think Rosenfield is a rare exception. Without his kind
of superior knowledge, skill and connections, most of us mere mortals need to diversify
broadly across cash, bonds, and U.S. and foreign stocks.

--Sit still. If you find investments that you clearly understand, hold on. Since it was their
long-term potential that made you buy them in the first place, you should never let a
short-term disappointment spook you into selling. Patience--measured not just in years
but in decades--is an investor's single most powerful weapon. Witness Rosenfield's
fortitude: In 1990, right after he bought Freddie Mac, the stock dropped 27%-. Rosenfield
never panicked. Instead, he just waited. "Joe invests without emotion," says Buffett, "and
with analysis."

--Invest for a reason. Rosenfield is a living reminder that wealth is a means to an end, not
an end in itself. His only child died in 1962, and his wife died in 1977. He has given
much of his life and all of his fortune to Grinnell College. "I just wanted to do some good
with the money," he says. That's a lesson for all of us. Instead of blindly striving to make
our money grow--or measuring our worth by our possessions--each of us should pause
and ask: What good is my money if I never do some good with it? Is there a way to make
my wealth live on and do honor to my name?

Rosenfield is still intent on increasing his own stake for those very reasons. "I just bought
some Berkshire Hathaway B," he says, "but I know I have to keep it a while for it to
perform." He leans forward, eyes twinkling, and asks, "So what if I'm getting old?"