You’ve never heard of Grace Groner? Geez, what’s wrong with you? I SAID GRONER, NOT GROANER. No, that joke’s not a groaner. It’s a moaner.

Anyhoo, here’s the story on Grace Groner. She was born in 1907, and was orphaned when she was 12, probably because her old man caught syphilis. Some nice guy in town took her and her sister in, and paid for them to go to college. Both ladies graduated in 1931, right when I’m sure job prospects were swell.

In 1935, Grace bought 3 shares of stock from her employer, Abbott Laboratories, for $60 each. She set up the dividends to reinvest and promptly forgot about the whole transaction. She continued working for Abbott for another 46 years, eventually making it to 101 years old. Grace hung around for a while, anyway.

She also died a very rich woman. Remember those 3 shares of Abbott Laboratories? When she finally took a big dirt nap, they had grown and split so many times that they were worth $7 million. And that’s how easy it is to get rich, kids!!!!!!

That last exclamation mark is an ironic exclamation mark, in case you couldn’t tell.

The lessons from Gracey are supposed to be simple. If you start early and pick a winning stock, you’ll do so unbelievably well that one day you’ll donate $7 million back to your alma mater. All it takes is one simple investment and enough time to compound.

But when put up to a little critical thought, Grace’s story isn’t quite as good as first advertised. I don’t doubt for a minute that she ended up with that much money, but there’s no way that it all stemmed from just one investment in Abbott Laboratories.

Presented as a straight investment, it seems plausible. I crunched the numbers — if you start out with $180 and compound it over 73 years at 18%, you’ll get to approximately $8 million. She donated $7 million to the school, so I guess the story checks out, right?

Uh, no.

Tax-advantaged retirement accounts weren’t around in 1935. The 401(k) wasn’t introduced in the U.S. until 1978, which was right around when Grace was calling it a career. She would have been forced to pay tax on those dividends for more than 40 years before she even had the option to invest in a tax deferred investment vehicle. And remember, she was paying some pretty hefty taxes on those dividends.

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She averaged probably a 50% tax on her dividends. There’s no way she could have just sat on an investment like that for years and paid the taxes without a hitch. By 1975, she would have been paying $2,000 per year just in taxes from the dividends (approximately $2,700 per year, 75% tax rate). The average U.S. household salary at the time was $11,000 per year. That’s a tough bill for anyone.

In 1995, if Grace was continuing to plow her dividends back into getting more Abbott shares, she was not collecting about $74,000 per year on an investment worth $3.7 million. Dividend taxes were 40%. Thus, Grace was coming up with $30,000 per year out of her own pocket to pay the dividends.

I doubt a retired woman in 1995 would have been able to come up with the cash annually to pay the taxes if she didn’t have additional savings. If she had saved 20% of her income throughout her adult life, the story becomes much more plausible. But according to the folklore, she didn’t. All she did was spend $180 and reinvested the dividends.

There are two plausible explanations on how Grace Groner got rich. She either:

  • Constantly bought Abbott Laboratories shares throughout her working career (or shares of other companies)
  • She got some cash from the rich guy who took her in at 12 and invested it

When Grace graduated from college in 1931, the average wage was $1,850 per year. The average house cost $6,700. A gallon of leaded gasoline cost a dime. Investing $180 in 1935 wasn’t chump change. It was probably a year or two worth of savings for her. And yet it’s portrayed as investing “just” $180.

Further details leak out on her Wikipedia page. She lived for years with a elderly relative in an apartment above the movie theater the previously mentioned rich guy owned. Would you live with someone elderly without getting AT LEAST a cut in the rent? Exactly. She also never had children (or got married either), so that helped. She shopped for clothes at thrift stores. Suffice to say, she wasn’t spending every last dime. She probably saved 40-50% of her income.

With that in mind, let’s crunch the numbers again, using some very conservative assumptions. Say Grace started investing in 1935 by putting in $180 per year, and continued doing so for the rest of her life. By the time 1995 rolled around, that was probably a pretty easy feat. Here’s the results.

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It’s still a pretty impressive feat; a 12.5% annual return is nothing to sneeze at. But do you see how it’s really just an example of living for a long time and not touching the principal? Saving $180 per year was probably a challenge in 1936. By the time 2000 rolled around, she would have been spending just about every dime from her dividends. It wasn’t a challenge.

There aren’t many stocks that have the kind of record Abbott Laboratories has. The company has been a consistent performer for decades now, and is currently sporting a 42-year streak of consecutive dividend increases. It was a great buy.

But how much of that was skill, and how much of it was just dumb luck? I think we can all agree that an investment in just about every other U.S. company wouldn’t have done as well.

The fact is, the story of this woman ending up a multi-millionaire on one stock buy in 1935 is far-fetched at best, and a bold-faced lie at worst. Chances are she probably lived below her means for her entire life and funneled a bunch of her savings into stocks. If all she did was buy the stock of her employer, then she lucked out working for one of the most successful medical companies of all time and not at Bill’s Nuts and Bolts.

Congratulations to Grace Groner for beating the odds, but there’s very little you or I can learn about her story. She either fell ass-backwards into wealth, had help along the way, or was just a product of living for a long time. While the story is inspirational, it’s really not useful without knowing all of the details. It’s obvious from a cursory look at the numbers that something just doesn’t add up.

Tell everyone, yo!