If you have been following our firm, you have probably discovered by now that we embrace a unique philosophy when it comes to investing.
Partner Connor Keller recently shared a great investment analogy of a butterfly and patience in his recent blog. I want to tell you a story about an important piece of art and patience to use as another analogy.
If you have been around the investment business a long time, you meet many characters and hear lots of tales and stories. Many stories really resonate and can be remarkable teaching moments. I don’t remember exactly where or when I heard this story, but I want to share it with you. I believe if you embrace it, you will be a more successful investor.
The story relates to a piece of art, not a stock. An investor from Long Island, NY bought a contemporary painting by a fairly important artist for a lot of money (well over $100,000) in 1999. This investor’s partners and friends thought he was crazy to spend that much money, but he liked it.
As it was told to me, he hung the painting in his home and mostly forgot about it. He simply enjoyed owning the painting. Now it’s the year 2015 and he is thinking of selling some of his art he has collected to pay off some outstanding real estate debt. He knows the painting he bought has appreciated but has no frame of reference for how much. He gets Christie’s Auction House, I believe, to appraise it and they tell him it is worth over $1 million. He can’t believe it. Remember he paid about $100,000. He stands to make 10x on his money. So, he puts the painting in the next auction for similar works and puts an $800,000 reserve on it, meaning he won’t sell it for less than that. He has other art he can sell, and he is very fond of this piece. Bidding starts at $500,000.
Again, if I recall the story, the investor/collector goes to Christie’s the night of the auction with his family, all dressed up. He is excited, to say the least. His piece, after opening at $500,000, quickly trades to $850,000, above his reserve… he has sold the painting! But bidding continues...higher now over $1 million. Now higher. It hits $1.5 million, $1.7 million…when the auctioneer lets the gavel fall, he has sold the painting for $2.5 million!
This story is a wonderful example of the art of tuning out the noise and being a long-term investor.
We, at Live Oak Private Wealth, don’t invest in art nor advise that you should or shouldn’t. But art and collectibles are highly correlated to stocks. When stock markets are frothy, we tend to see similar patterns in art, collectibles, Bitcoin and everything else on the planet, it seems!
Conversely, during bearish periods such as 2000 and 2008, fancy prices for stocks, collectibles and other toys crater. The story here is not to market time art or stock markets. The message here is to buy a great asset and forget you own it. When this story was going around, other investors who were friends of his teased him that he could have never held on to a stock that long, especially one that went up that much. Can you imagine if the price of that painting was on his stock quote screen on his computer blinking up and down every day for this 16-year holding period?
In that period, it would have zoomed up at times and cratered at times, and long, long periods of time where its price went nowhere or drifted lower (oh, and no dividends either). He, like most, would have most likely sold the painting out of boredom to get something with more action. More likely, if it were a stock, he would have sold it after it doubled.
There are days at Live Oak Private Wealth that we don’t even watch stock prices. That may come as a surprise to you, but we counsel clients not to watch stock prices. It’s possible that you may scare yourself out of them if you watch them too closely in the short term.
Google or Alphabet has been a phenomenal stock since going public in 2004 but lost 30% of its value during several difficult stretches since then. Google’s stock is up over 500% since its IPO. Many great blue-chip stocks purchased during the 1997-1998 period ended up in 2002, five years later, with no positive return. It is hard for many to sit there patiently for five years with zero return. You’ll most likely sell and look for something better. But don’t.
Don’t do that because to enjoy and benefit from life-changing gains in the markets, you have to have the temperament to do nothing, sit on your hands or as Charlie Munger says, suck your thumb. You also have to understand and learn that stock prices diverge wildly from underlying business values at times.
And you have to tune out the noise!
One of Live Oak Private Wealth’s core beliefs is that your lifetime investment results will be mostly governed by two variables: your behavior and your asset allocation. The other keys that drive long-term success as an investor – in stocks, art, real estate, etc., are the quality of your assets and time.
Hold quality assets so they can compound for you. If you do this, you don't need to worry about volatile markets, interest rates, inflation or capital gains tax changes.
If you can do this or entrust an advisor to do this for you, you could be like the gentleman from Long Island, NY holding on to his painting all those years, potentially reaping the financial benefits of patience.
1. The information contained here is not complete, may change, and is subject to, and is qualified in its entirety by, the more complete disclosures, risk factors, and other important information contained in Part 2A or 2B of Form ADV. This commentary is for informational purposes only and does not constitute an offer to sell or as a solicitation.
2. Live Oak Private Wealth is a subsidiary of Live Oak Bank. Investment advisory services are offered through LOPW, LLC, an Independent Registered Investment Advisor. Registration does not imply a certain level of skill or training.
3. Opinions and thoughts expressed are those of Bill Coleman and not Greater Wilmington Business Journal.
As a Managing Director and Co-Chief Investment Officer at Live Oak Private Wealth, Bill Coleman co-chairs the Investment Committee and provides insight and direction to the asset management team. He is also involved in asset allocation, investment policy and portfolio management.
Bill joins Live Oak Private Wealth with 32 years of experience in investment advising and brings focused expertise in asset management. He previously served as an executive and financial advisor for a large regional brokerage and investment banking firm. He is a graduate of Elon College. Bill enjoys spending time on the water with his wife and son and has a passion for offshore fishing and hunting.
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