Demise of Classic Investing

If investment reports were written like beer commercials, perhaps we’d all be better off.

That’s my theory, anyway. What’s the last piece of really useful financial advice you can recall hearing? Listen to a clever beer commercial just once, however, and you can’t get it out of your head. So, for instance…

“Head for the mountains” equals: Buy gold.

“Tastes great, less filling” equals: Avoid high-priced tech stocks.

Or, if you want to know how to make big investing profits in the future, just remember something really important about the past and present day: “It doesn’t get any better than this.”

In my mind, that former Old Milwaukee slogan was the ultimate point of a recent McKinsey Global Institute study.

The report itself is pretty dry (it was titled “Diminishing Returns: Why Investors May Need to Lower Their Sights”), but McKinsey – as mainstream as the investing establishment can be – meant it as a wake-up call to institutional pension-fund managers.

ETF Index Idiocy

The past three decades (1985 to 2014), according to McKinsey analysts, “have been a golden age for companies, and for large North American and Western European companies in particular.”

For stock investors, the message has been to buy the S&P 500 – and hang on at all costs. The reward? Watching one’s wealth double every nine years, with real total returns of nearly 8%. And, as the report points out, that’s three full percentage points above the 100-year long-term average.

That’s not news to us, of course. We know the reasons already: cheap borrowing rates and a Federal Reserve that is more than happy to keep spiking the punch bowl whenever the party seems to be winding down.

On a more ominous note, the McKinsey analysts say “that era is now ending,” with “total returns from both stocks and bonds in the United States and Western Europe likely to be substantially lower over the next 20 years.”

Again, we’ve been warning about that for some time. But if the folks at McKinsey are willing to acknowledge it, then that’s a broad hint that Wall Street’s plain vanilla advice, not to mention the whole cult of passive ETF index-based investing, won’t work nearly as well in the future as it did in the past.

So, where does that leave you?

It means we all need to be a lot more selective – special situations, small companies and under-the-radar ideas – when it comes to the stocks we buy as a path to wealth.

To explain the power of those opportunities, I’ll use the investing environment of the 1970s as an historical example.

As that decade started, “conglomerates” were all the rage on Wall Street. Investors couldn’t buy enough of the “Nifty Fifty” large-cap stocks that dominated the headlines and the economy. But high valuations, rising inflation and rising interest rates put an end to the mania. The post-World War II “golden era” of investing was over.

But for the really smart investors, a new “golden era” was just beginning.

For instance, in 1972, three of today’s biggest, most successful companies went public as tiny pip-squeaks. All three, I might add, fell sharply in the severe recession and bear market of 1974-1975. And yet…

Intel rose more than eightfold by 1980.
Wal-Mart more than doubled.
Southwest Airlines rose more than 2,000%.

By 1977-1978, the Dow Jones Industrial Average was in yet another grinding bear market. Few on Wall Street had even heard of the term “overnight package delivery.” But that didn’t stop FedEx – known then as Federal Express – from going public and watching its stock triple in value in 18 months’ time.

What an Investment Advisor Will Do for You

The key to financial success is letting your money work for you; not the other way around. By reinvesting the money that you earn, you can watch as the amount grows exponentially. This extra income is critical to a comfortable (and potentially early) retirement down the road. That being said, it is not as easy as simply sending your money to the stock market or an investment group. With the help of a trained professional, an investment advisor can guide you every step of the way to make sure that you are making smart financial decisions to maximize the power of your money.

An investment advisor can help you understand

– What stocks and mutual funds to invest in (as well as explaining the strengths of each)
– When to buy and when to sell stocks
– Any risks that accompanies investing in general
– What types of investments are available, such as general savings or retirement funds
– What to anticipate as returns for the investments you are making

What is especially nice about investment advisors is that they are just as motivated to make you money as you are for yourself. For the most part, they earn their money from the profits that they are making for you. They are not going to gamble your money by suggesting unreliable stocks, but rather use their extended resources and knowledge to make the best decisions. They monitor stocks 24/7 to make sure that no opportunities are missed. If you elect for a more aggressive option, you can expect advice concerning which stocks to buy and sell on a regular basis to ensure maximum return.

Aside from general savings, an investment advisor will outline a full retirement plan with you to budget and account for your future. This alleviates a lot of stress and uncertainty that the future generally brings. They will tailor a plan to your specific needs and desires to help you retire when and how you want. A good retirement plan offers stability and enjoyment down the road. Vacations, as well as financial support to your children, can all be made possible thanks to proper planning years in advance.

While long-term plans are always important, shorter goals can also be accomplished with the help of investment advisors. If you have any large purchases lying ahead, such as a car, a house, or a college tuition, a professional can help you acquire these. Aggressive, short-term investing is a great way to supplement a regular income. This all goes back to the idea of letting your money work for you. By getting educated advice on buying and selling stocks, it is not unreasonable to make upwards of a 10% annual return on your investment. When this return is reinvested, a nice sum can quickly be made. That being said, about 80 percent of individuals who buy and sell stocks on their own end up losing money. This is why it is especially important to seek the help of a trained professional. With their help, financial success is only a call away!

A Rare Opportunity in Collectibles

Collectibles have been hot this year, with new records being hit almost daily. Just this fall, an acoustic guitar owned by John Lennon of the Beatles sold for $2.41 million, crushing original estimates of $600,000 to $800,000.

From The Wizard of Oz, Dorothy’s dress sold at auction for $1.5 million.

Amedeo Modigliani’s “Reclining Nude” sold for $170 million, making it the second-highest art auction price, while Roy Lichtenstein’s “Nurse” sold for $95 million, nearly doubling the last record for the artist.

Owning a unique piece of art is more than having your hands on something rare, something that represents a piece of history. It’s also a way to diversify your wealth so that it’s not only protected but also has ample room to grow.

And you don’t have to have millions to take advantage of the collectibles market…

To help you dip a toe into the world of collectibles, I reached out to Max Hasler with Dreweatts and Bloomsbury Auctions. Max specializes in modern first-editions and 20th-century literature and manuscripts. He joined Bloomsbury Auctions in 2010 after studying for a B.A. in Literature at Royal Holloway University of London, focusing on modernism and American literature.

Dreweatts and Bloomsbury is one of the top four auctioneers in the U.K., with over 150 sales per year across a broad range of disciplines. Bloomsbury has historically specialized in book auctions, and recently joined with Stanley Gibbons in the last few years.

Jocelynn: Thanks so much for chatting with me, Max. Readers have heard me talking about collecting stamps and coins in the past as well as rare music poster art, but we’ve never touched on books before. Why are collectors willing to pay so much for books, particularly modern books?

Max Hasler: The reason people are willing to pay so much for a book is because, like other areas of the luxury collectibles market, modern first-edition books are driven by personal passions. It is this passion that usually draws people into becoming book collectors.

Part of the draw has always been aesthetic: The charm of a beautifully illustrated book, fine printing upon the page, an elaborate binding or a well-designed dust-jacket, which have been known to become as iconic as the book itself at times. Another part can be personal: For instance, you may have loved Catcher in the Rye, To Kill a Mockingbird or the works of J.R.R. Tolkien as a kid.

Jocelynn: How would you say that the market has shifted for book collectors?

Max: The reasons for possessing a book collection have altered over time; these days fewer people would own a valuable library for reference. Instead, it is about owning items of especial historical or cultural relevance or beauty.

One of the more dramatic changes to the market has happened relatively recently with the rise of the Internet. With so much information digitized, the market for reference and academic works has declined dramatically. However, in many ways it has had the opposite effect on the more collectible items. The Internet enables collectors to find the books they are searching for with relative ease, either through auctions or the numerous online bookseller sites, which in turn has made book collecting far more approachable, overall.

That brings me to the newest area of book collecting: modern first editions (generally books from the 20th century and onward). Good copies continue to make record prices today.

It is also the area that has seen the most interest from people new to book collecting, as well as those looking to invest – making this the fastest growing market in the book world.

Jumping into Collectibles as a New Investor

Jocelynn: As a new collector/investor looking to include books in his portfolio, what are some of the aspects that should be considered when purchasing a book?

Max: Some of the key areas that a new investor should consider are:

Great modern authors: Look for a classic title written by one of the greatest authors of modern English literature (that is, literature that’s written in English, not just written by an English author).

First editions: Search for first editions. “First editions” refer to the very first “print-run” or first time a novel was published and distributed for sale. Those print-runs are, by their nature, much smaller than later editions – and that’s what makes them so attractive to book collectors.

Area of focus: Often it will be a particular author or book that will first get collectors started before they start to broaden out. In fact, I always advise a new collector to be focused in what they are collecting; in many ways the more focused the better. Perhaps try collecting everything by a particular author. When you have been working on that for a while, you could expand to include other writers within their social or cultural circle. If you are feeling really ambitious, you could research the writer’s inspirations and try to collect those.

Jocelynn: When considering an investment, how much should condition impact the pricing of a book?

Max: An important tip that any serious book collector should bear in mind is that condition is absolutely paramount. As a collector, you might find two copies of the same book that you are looking for to fill a hole in your collection. The price of one might be a fraction of the other and the likely reason for this is condition.

As with most collectibles, books degrade over time if not kept and handled properly, and as a result it is only those copies in good condition that fetch a premium. Purchasing a lesser copy of a book might fill a hole in a collection, but you should always look to upgrade wherever possible. The potential future returns for a book also diminish in line with the condition – books in poorer condition might go up a little over time, but it is only the copies in the best condition that ultimately see the best returns.

And keep in mind that the condition of the book itself is about 10% of the value. The real value? That flimsy piece of paper wrapped around the book: the dust jacket. Make sure that your item comes with it, because a first edition with a dust cover in fine condition has been known to fetch 10 times more than a book without it.

Jocelynn: What about author signatures? I’ve heard that with some investments, they are a hindrance rather than a help.

Max: Depending on the author, book, condition of book, inscription type and rarity, signatures can help a book’s value. They are a piece of history to be prized. For example, J.D. Salinger or Thomas Pynchon’s signatures can add weight to any collection because they are notoriously reclusive, thus their signatures are rare. Other authors change their approach to signings later on, such as J.K. Rowling, who became reticent to sign books later in her career. By doing your homework, you can determine a signature’s value. Just remember that the autograph/inscription should be verified to rule out the possibility of fraud.

Jocelynn: Thank you again for your time, Max.

Escape Wall Street

The global market is growing more uncertain as investors wait impatiently for the Federal Reserve to start lifting rates. The ripple effect could significantly derail recovery efforts in the U.S. and around the world.

Diversifying your assets outside the U.S. dollar into an investment that is completely unlinked from Wall Street and the global economy is critical. Collectibles such as first-edition books, rare and ancient coins, stamps and wine offer a way to achieve both asset protection and growth outside the volatility of the stock market.