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As Americans get together for backyard barbecues and to set off fireworks this Independence Day, it’s fitting to look to one of the country’s founders for some sound investment advice.
The founder worth learning from is not Benjamin Franklin, Alexander Hamilton, or even George Washington. It’s Abigail Adams.
The investment advice she imparts on modern investors nearly two and a half centuries later is: buy low and sell high.
Being the wife of John Adams and the second First Lady of the United States, Mrs. Adams played a pivotal role in shaping the nation into what it is today. She also happened to use her financial aptitude to amass a great fortune for her family.
Abigail Adams was one of the nation’s shrewdest investors during and after the Revolutionary War. She was able to multiply her and her husband’s wealth many times over by simply making investments where others were too afraid to venture.
During a time when most wealthy Americans bought and sold commodities or traded currencies, Abigail had the insight to invest large sums in out-of-favor government bonds. She did so despite the fact that her husband was weary of her approach.
John Adams is said to have had a “long-standing suspicion of people who invested in government securities.” His “steadfast abhorrence of all forms of financial shenanigans” molded his strong belief that acquiring land was the only way to build wealth.
On more than one occasion, Abigail Adams had the foresight and logic to buy government bonds when they were deeply undervalued by the market.
Loan Office Certificates
In 1777, Abigail continually bought war bonds which were offering 6% interest. Because almost no one was confident Congress would be able to make the interest payments, the federal bonds steadily depreciated.
Although the bonds were falling in value, they were not losing value as quickly as the currency was. Mrs. Adams realized this and quickly converted cash into bonds.
Less than five years later, this decision paid off handsomely. In this excerpt from Abigail Adams, biographer Woody Holton shows how Adams more than doubled her investment.
“The Loan Office certificate that Abigail had purchased the previous summer had a face value of one hundred pounds (Massachusetts currency), but she had purchased it using paper money that had depreciated to about one-fourth of its face value, meaning that is would have bought only twenty-five pounds worth of gold or silver. Under the new congressional decree, she would receive her 6 percent annual in a French bill of exchange that she could trade for gold or silver at its face value. The result was that she would earn an astronomical 24 percent return on her initial investment every year. By March 1782, when Congress finally stopped paying out French bills of exchange to the owners of Loan Office certificates, four and one half years had elapsed since Abigail’s purchase, and she had collected about twenty-seven pounds in interest, earning back more than she had invested without touching the principal.”
Later, in the winter of 1783-84, Massachusetts State Notes were selling on the open market for a third of their face value. The notes were yielding a rate of 6%, which meant investors who bought at the discounted value earned a lofty 18%.
As John Adams was buying up real estate, Abigail felt these State Notes were a much better use of capital. In a letter to her husband, she wrote:
“There is a method of laying out money to more advantage than by the purchase of lands, namely State Notes.”
This was not the last time Abigail Adams would have the opportunity to speculate with depreciated government bonds.
In a Washington Post article, Woody Holton explains how in the winter of 1786-87, Shays’ Rebellion caused prices of government bonds to plummet. Instead of joining the panic, Adams decided to once again invest.
While Abigail was in Europe, she sent a letter to her Uncle and Financial Trustee Cotton Tufts. In the letter, Mrs. Adams is clear about her confidence in the contrarian decision.
After instructing Tufts to buy “two hundred Guineys worth of Congress Paper” she insists “Do not be afraid…if one sinks all must sink, which God forbid.”
Later down the letter, Abigail says “it will never be at a lower ebb than at present unless actual war takes place.”
Buy Low, Sell High
Investors today are wise to learn from Abigail Adams’ sound investment decisions. By using logic and rational judgement, individuals always have to opportunity to buy low and sell high.
Even at a time when some of the most prominent founders who now adorn the nation’s currencies didn’t have the foresight to make wise investment decisions, Abigail Adams did.
She didn’t join in on the panic and throw her life savings into “safe havens” where her wealth would be destroyed by inflation. Rather, she saw past the fear and reasonably bought when prices were depressed.
Mitchell Mauer is the Founder of TheStockMarketBlueprint.com. The Stock Market Blueprint is a free site that finds value stocks for investors building long-term wealth. The site’s investment philosophy is anchored in principles established by Benjamin Graham and his most reputable followers over the last 100 years.