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Investing Wisely: An Art in 1889, and It Still Is

April 26, 1987

The following satire may contain more truth than humor as we look at traditional investing from the investor's point of view:

The other day I phoned my broker to needle him about my latest investment. When I told him that I had just invested several million dollars in old European paintings, he nearly fell out of his chair. Everyone knew that a Van Gogh painting of sunflowers, which was recently auctioned off for an astronomical $36 million, had a market value of a measly $125 in 1889.

The line went quiet. "Well, what do you think of that?" I asked. I heard a click and then a tap, tap, tap.

"Let's see," he mumbled, "that growth works out to be approximately a 13.7% compounded annual rate of return."

"What is?" I snapped.

"I happen to be referring to your 98-year-old oil, wood and canvas with the Van Gogh signature in the corner," he said. "That's not really so great," he continued. "As a matter of fact, my favorite growth mutual fund has compounded at an annual rate of 13% for the past 54 years, and in 1983, many of my clients loaded up with those stripped treasuries you have often scoffed at that guaranteed the same performance for 30 years."

I began to develop that sinking feeling I always do when I call him. He could be right.

"Once you add on Lloyd's insurance bill, a Ft. Knox-style security system and the special, hermetically sealed viewing room to help prevent the canvas from drying and cracking, you should be fully equipped," he added. "I hope you really like art work," he said, "because it is sure going to cost you. Besides, with every cat burglar in Europe trying to steal it, you may have to build a museum to keep it in.

"Oh, by the way, my mutual funds don't usually require a hermetically sealed vault," he added. Then he suggested, just for laughs, that we calculate what a 13.7% compounded annual rate of return will do for $36 million over the next 98 years.

Click, tap, tap, tap. "The calculator says $10.5 trillion," he reported.

I can only imagine the auctioneers' commission at that price!



investment brokers

Kidder, Peabody & Co.,

Newport Beach

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