Best of: The Optometrist Investor Who Became a Billionaire

By TradeSmith Research Team

Editor’s note: While Hendrik Bessembinder’s “most stocks are duds” research was shocking and a bit of a bummer, the story of “Dr. Herbie” was the most inspiring thing we came across in 2019 — and worth a look back heading into the year’s end.

Forbes has a profile on the greatest billionaire investor you’ve probably never heard of. Dr. Herbert Wertheim, a 79-year-old semi-retired optometrist and small businessman, has a stock portfolio worth $2.3 billion (according to Forbes estimates).

“Dr. Herbie,” as his friends call him, built his portfolio through old-fashioned, long-term investing techniques. He rarely uses leverage, he doesn’t like high fees, and he mostly invests through plain vanilla Fidelity and Schwab accounts.

Of course, nobody becomes a billionaire without a share of incredibly good fortune. Dr. Herbie invested in Microsoft and Apple stock shortly after their IPOs, and still holds positions in both worth hundreds of millions.

In perhaps his greatest score, he took a $5 million position in a penny stock at 33 cents — the company was run by a Florida neighbor who shared a boat dock — and nearly three decades later, the position is worth $800 million.

The whole Herbert Wertheim story is amazing. You can read the Forbes profile here.

Putting good fortune aside, there are multiple lessons to be learned from Dr. Herbie. For example: It was clearly his attitude, his habits, and his ability to control emotions that contributed most to his ultimate success — not luck.

After all, many individuals come into large financial windfalls at some point in their lifetime. Few of them can hold onto the money, let alone parlay a small fortune into a far larger one,

“I never really had fear,” Dr. Herbie told Forbes. “When I was in the Navy flying planes, you know, yeah I had fear then. But day-by-day fear I usually don’t have. I don’t fear business, I don’t fear making decisions. And as the circumstances change, I change.”

How many investors can participate in markets calmly and without fear, even when the waters are turbulent?

Dr. Herbie certainly saw his share of volatility and setbacks. Like the time in the early 1980s, when he miscalculated his exposure to sharply rising interest rates (they would peak in the high teens) and a margin call cost him $50 million.

His childhood background may have helped. Dr. Herbie was born in 1939 and grew up poor, as the son of Jewish immigrants who had fled Nazi Germany. He also struggled with dyslexia. “My father was a baker. We lived above the bakery as a family,” he told Forbes. “It was a difficult existence. I tell the story about when we were in school and I only got one pair of shoes each year.  And the shoes couldn’t cost more than $5, that was the rule.”

In the 1940s, the educational community didn’t understand dyslexia. So, Dr. Herbie’s teachers simply thought he was unintelligent. “In those days, they just called you dumb,” he said. “I would sit in the corner sometimes with a dunce cap on.”

His childhood was so rough — in addition to dyslexia, his father was sometimes abusive — Dr. Herbie repeatedly ran away from home. As a young teen he spent time in the Everglades with a group of Seminole Indians, hunting and fishing and selling frogs legs. His refusal to stay in school became a problem, and eventually a truancy judge gave him a choice: He could go to the state reformatory or join the Navy.

Joining the Navy at age 17 changed Dr. Herbie’s life. A series of tests revealed that, far from being “dumb,” he was actually very smart.

He used his Navy stipend to invest in his first stock at age 18, and developed an unshakeable devotion to investing forever afterward. “You take what you earn with the sweat of your brow, and then you take a percentage of that and you invest it in other people’s labor,” he said.

Dr. Herbie spotted the potential of Apple and Microsoft right away because he was an early computer user and inventor and understood the power of technology and patents. After attending optometry school and setting up a South Florida practice, he developed a series of patents around the tinting process for plastic eyeglass lenses.

Dr. Herbie’s success as an inventor in the optometry space led to the creation of a successful small business with 49 employees, Brain Power Inc., that generates $10 million a year in net income to this day. For decades Dr. Herbie used the cash flow from this business to add to his stock investments year after year, similar to how Warren Buffett reinvested the “float” from Berkshire Hathaway’s insurance company holdings.

He never wanted to run a huge or complicated business. One of his main motivations was having time for what’s truly important. “My thing is,” Dr. Herbie told Forbes, “I wanted to be able to have free time. To me, having time is the most precious thing.”

And he had an attitude of giving back, right from the very beginning. Dr. Herbie has given away more than $100 million to public universities and various causes and plans to give away half his fortune. He started a foundation decades ago, in 1977, before he had amassed real wealth.

“Why did we start a foundation? I just thought at the time it was a good idea,” he said. “It’s not that I have a lot of money. I don’t believe it’s what you have, but what you do with what you have.”

Many aspects of Dr. Herbie’s success story can’t be replicated. But then again, they don’t have to be. If the average investor could achieve, say, one half of 1% of Dr. Herbie’s success, that would imply a retirement nest egg larger than $10 million — enough to retire for most any American.

And again, it seems to be Dr. Herbie’s attitude and approach to life that really stands out.

His hardscrabble childhood, his early struggles with dyslexia, and the early challenges he faced could all be seen as bad breaks. But those experiences no doubt contributed to his ability to think long-term, to control his emotions, and to stick with a plan and believe in himself.

Keeping a small fortune can be harder than making one. Growing a small fortune into a large one, over many decades, is harder still. If other investors could bottle Dr. Herbie’s magic, it wouldn’t be his stock-picking abilities or even his inventing prowess. It would be his winning mindset, his ability to control emotions and act without fear, and his ability to stick with a logical long-term plan that were truly worth bottling.

At TradeSmith, capturing this behavioral magic — though of course it isn’t actually magic — is one of our most important goals. All investors can learn to develop a winning mindset, to stick with a long-term plan, and to make rational investment decisions backed by math, logic, and science. Making that happen, and empowering individual investors as a result, is the mission and vision behind our company.

Dr. Herbie is an inspiring example of what’s possible when a lifetime of wise investing choices comes together.

TradeSmith Research Team