May 07, 2004

Mawkish Investing

A note from Lord Rees Mogg over in London....always on the lookout for long-term investment strategies. Strategic Insider – 6 May 2004 – William Rees-Mogg In the 1950s, when I was first working in London, Ambassador Jock Whitney was the U.S. Envoy in London. He was a Republican and he represented President Eisenhower. He had quite a difficult time; though he was personally popular,and what used to be called “a fine figure of a man”, he had to reconcile British opinion to Eisenhower's decision to undercut British policy at the time of the Suez crisis. The United States was felt to have let her ally down with a bump. I did not know the Ambassador, but I heard him address a number of public dinners. I later read that he had bought the New York Herald Tribune, which was a Republican newspaper which competed with The New York Times, always a New York liberal newspaper. The old Herald-Trib was an excellent newspaper,but a money-loser. The Ambassador had to close it,and he merged its overseas edition with The New York Times. That newspaper still survives, but in Times’ ownership, and is widely read by Americans in Paris and London. Apart from his newspaper operations, I did not hear much more about him until a few days ago. He came back into the news when his estate sold Picasso’s portrait of a boy with a pipe, a charming, if somewhat sentimental painting from Picasso’s figurative period before the First World War. I suppose that it is a masterpiece, though if anyone were to describe it as “mawkish”,I should know what they meant. It was for sale at Sotheby’s, and went for more than $100 million, including the buyer’s premium. It is the first painting ever to be sold for more than $100 million,which is still a very respectable sum of money,enough to endow a College, though Harvard’s endowments run into tens of billions. At any rate, $100 million would endow a small liberal arts College in the Midwest, if that was what one wanted to do, and would finance a run for the Senate, if not for the Presidency. Apparently the Ambassador bought the painting for $30,000 in 1950. That did give me a tinge of regret. I did not have $30,000 in 1950 – it was then a far bigger sum than it is now,but I paid about $10,000 for my first house in 1952, so I could have raised enough money to buy a less highly rated Picasso. I like the idea of long term investment. The Whitneys turned $30,000 into $100 million in 54 years. By my calculation that means that the investment doubled nearly twelve times in the period. That may not be as extraordinary as it sounds. If my sums are right, the Picasso had to double every four and a half years. A compound investment at 15 per cent will achieve that. In any case, this was a nominal, not a real, gain. I am not sure how much the dollar depreciated between 1950 and 2004,but it must have been of the order of a 90 per cent depreciation. That means that $30,000 became $10 million in real terms. In real terms the Picasso only doubled ten times, which is only about a 12.5 per cent real return. Pretty good, but no better than some stock market investors, including, I suspect, Mr. Warren Buffett. Paintings are not a short cut to becoming a billionaire. It is a help, of course, if, like the Whitney family, one is up in the dollar stratosphere to start with. As for me, I hope I have got my compound interest sums right.


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