The Darker Side of Personal Finance (Part 2) Tony Robbins and Theodore Johnson

There are a lot of personal finance gurus out there that give sensible advice, that if followed, leads to a better life. Every once in a while they say something that on its face is very motivating, but after you think about it, it is hard to believe. When you look into it, you see that it's disingenuous, and this detracts from the personal finance guru's credibility. Last time we looked at Dave Ramsey and his 12% returns. In part two, we look at Tony Robbins and the story of Theodore Johnson.

There's an oft repeated quote, supposedly uttered by Albert Einstein, that compound interest is the 8th wonder of the world. Whether Einstein said it or not, it is true that it's the compounding of gains over time that can produce large amounts of wealth. And conversely, borrowing from and paying compounding amounts of interest to someone else is a sure recipe for financial disaster.

In his books MONEY Master the Game: 7 Simple Steps to Financial Freedom and Unshakeable: Your Financial Freedom Playbook Tony Robbins and the experts he interviews offer a lot of great financial advice, including the benefits of compounded returns over time.

One of Robbins's examples of the power of compounding in the books is the story of Theodore Johnson. Robbins has recounted this story many times since the books' publication in interviews and other media.

The Magic of Compounding and Theodore Johnson

The story goes something like this. Theodore Johnson worked for UPS and never earned more than $14,000 per year. He was persuaded to save and invest 20% of his salary. With some effort he managed to do this. As a result, his investments grew to $70 million, $36 million of which he donated to education.

Talk about the power of compounding! Johnson never earned more than $14k per year, but thanks to compounding he was able to donate $36 million and still have $34 million left over as spending money.

The moral of the story is that you should invest as much as you can, as soon as you can, and as often as you can. If you do, you too can be rich. Even if the amounts are small. Just look at Ted Johnson, who never earned more than $14,000 per year.

But if you think about it, even just a little, it doesn't make much sense. The story leads one to believe that Theodore Johnson had a low income. $14k a year is pretty much nothing. Did he even graduate from high school? Forget about being able to invest, how was he able to eat? Something about the story smells fishy. Maybe this was a few decades ago and adjusted for inflation the salary wasn't that low. Maybe he was a UPS delivery man or worked in one of their warehouses.

Not Quite as Exciting

Actually, Johnson retired as Vice President of Industrial Relations. $14k a year for a vice president position at UPS? What year was this? 1952. $14,000 in 1952 dollars is roughly equivalent to $135,000 in 2019 dollars.

The story isn't as exciting now. "Theodore Johnson never made more than $135,000 a year, but he amassed a fortune of $70 million." This doesn't sound as good. It's not turning a measly $14k salary into a fortune.

The other wrinkle in the story is that Johnson invested heavily in a single stock, UPS.

Put that together and you get, "a corporate executive earning $135k a year puts all his money in the company stock and ends up with $70 million when he's 90." Johnson retired in 1952. His fortune grew to $70 million by 1991, when he was 90 years old.

That's hardly motivating and you might wonder what else Robbins says that leaves out salient facts.

(Still, even with a salary of $135k and getting lucky with a spectacular stock, it seems kind of hard to end up with $70 million.

By the time he retired, Johnson owned $700,000 worth of UPS. From 1952 to 1991, a 39 year period, this amount grew to $70,000,000. That's a compound growth rate of 12.53%. Johnson's return from when he started buying the stock to 1952 had to be a lot higher for him to end up with $700k when he retired.)

The moral from the Theodore Johnson story is a good one, but I wish it weren't as sensationalized and was more nuanced. Invest as much as you can as early as you can. However, buying a single stock, no matter how much you know about the company, is not investing. It is gambling. We never know what the future holds. This is why Ashvin Chhabra says one's own business, or significant amounts of your employer's stock, belongs in the "aspirational" risk bucket, the same place where speculative investments should be allocated. It's where the potential rewards are great but the risks may be greater. Imagine working for Radio Shack and putting all your savings into its stock. Your story would never make the personal finance press because you'd end up with nothing.

Tony Robbins does not deserve all the blame. Here is how the NY Times tells it: "Theodore R. Johnson never made more than $14,000 a year, but he invested wisely -- so wisely that he made $70 million. Now he is donating $36 million of his fortune for education." I get that newspaper articles are meant to sell papers and personal finance stories are meant to motivate, but when you leave out certain facts that, intentionally or otherwise, cause the audience to get the wrong impression, you risk your credibility when the audience discovers the facts you left out and their interpretation of the story changes from one of "anyone can do this" to one of "that guy was already making a lot of money and then he got lucky."