Milton Hershey School Trust

The Milton Hershey School Trust (often called the 'Hershey Trust') is the perpetual charitable endowment created to fund and support the Milton Hershey School, a private boarding school for underprivileged children in Hershey, Pennsylvania. Established in 1909 by chocolate magnate Milton S. Hershey and his wife, Catherine, the Trust was gifted their entire fortune, including a controlling stake in The Hershey Company. Today, it stands as one of the wealthiest educational endowments in the world. Its primary mission is to provide a cost-free, high-quality education for its students, a goal it achieves by managing its vast investment portfolio. For investors, the Hershey Trust is a fascinating, real-world case study in long-term investing, the power of a concentrated position, and the unique governance challenges that arise when philanthropy and high-finance intersect. Its story offers timeless lessons on patience, conviction, and the profound impact of compounding returns when applied over a century.

The foundation of the Trust is the Deed of Trust, a legal document signed by the Hersheys that outlined their vision with remarkable foresight. They didn't just donate money; they created a self-perpetuating financial engine to care for children “in perpetuity.” The Deed stipulated that the Trust must always maintain control over The Hershey Company, creating an inseparable link between the success of the chocolate business and the welfare of the school's students. This mandate has shaped the Trust's investment philosophy for over a hundred years, forcing it to think not in quarters or years, but in generations. This long-term perspective is the bedrock of its strategy and a core principle celebrated in value investing. The Trust’s primary objective isn't to beat the market every year, but to ensure the school's mission endures forever.

The Hershey Trust is more than a heartwarming story; it's a masterclass in several key investment concepts. Its structure and history provide powerful, if unconventional, lessons for the modern investor.

Unlike most large institutional investors who preach the gospel of diversification, the Hershey Trust’s portfolio is famously concentrated. Its largest single holding remains its stake in The Hershey Company. This massive, concentrated position offers several key insights:

• Investing in Your Circle of Competence: The Trust's deep, historical understanding of the chocolate business gives it an informational edge. This aligns with the value investing principle of investing heavily in what you know and understand best—your circle of competence.
• Risk and Reward: While concentration amplifies risk, it also amplifies returns. The long-term success of The Hershey Company has fueled the Trust's massive growth. This serves as a powerful reminder that while diversification protects against ignorance, deep knowledge can justify a concentrated bet.
• Active Ownership: Holding a controlling stake allows the Trust to influence the company's direction, ensuring its long-term health and dividend-paying capacity, which is crucial for funding the school.

The Trust's perpetual nature grants it the ultimate competitive advantage: an almost infinite time horizon. This frees it from the short-term performance pressures that plague many fund managers and individual investors.

• Patience is a Virtue: The Trust can patiently hold its core assets through market panics and recessions, knowing that the underlying value of a great business will eventually be recognized. It doesn't have to sell good assets at bad prices to meet quarterly redemption requests.
• Focus on Business Fundamentals: With time on its side, the Trust can focus on the company's underlying business performance—its earnings power, competitive advantages, and capital allocation—rather than its fluctuating stock price. This is the essence of investing like a business owner, not a stock trader.

The Trust's unique structure is not without its challenges. It has faced scrutiny and controversy over its governance, investment decisions, and the management of its immense wealth. The core conflict lies in balancing its fiduciary duty to two parties:

1. The School: Ensuring a steady stream of income to fund the school's operations and expansion.
2. The Portfolio: Maximizing the long-term growth of its assets.

These dual mandates have led to public battles with other Hershey shareholders and regulators. For instance, a failed attempt by the Trust to sell The Hershey Company in 2002 triggered a massive public outcry and accusations that it was abandoning its founder's legacy. This and other episodes of shareholder activism highlight the critical importance of strong, independent governance in managing such a unique entity.

While you can't replicate the Hershey Trust, you can apply its core principles to your own investment journey.

• Patience Pays: The single greatest lesson is the power of time. Compounding works wonders, but only if you let it. Avoid the temptation to constantly tinker with your portfolio and let your good investments grow.
• Know What You Own: Whether it's one stock or a handful, understand the underlying businesses. Why are they great? What are their competitive advantages? Investing with knowledge builds the conviction needed to hold on during tough times.
• Concentration Requires Conviction: A concentrated portfolio can build incredible wealth, but it's not for the faint of heart. It requires deep research, a humble awareness of what you don't know, and an unwavering belief in your investment thesis. For most, a more diversified approach remains the wiser path.