Profiting from potential - just like The Beatles
PUBLISHED: 10:09 12 July 2019 | UPDATED: 10:09 12 July 2019
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The Fab Four's first contract with Brian Epstein sold for £275,000 - a good sign of value investing, says our financial columnist Peter Sharkey.
Known locally as the 'CI', this once imposing Victorian structure appears, from the outside at least, to have fallen into disrepair; fortunately, however, the building's outward appearance is deceptive.
During the winter, the CI's compact bar and quirky rooms, housing an array of seating and a large TV screen, attracts a steady flow of ex-rugby players who once represented St Edwards College, situated on the other side of the road.
The CI once boasted a large annexe where local bands were given the opportunity to prove themselves in front of an unforgiving audience of mostly middle-aged folks enjoying their Saturday night out. Amazingly, although the annexe no longer exists, records of payments made to the bands, together with comments regarding their ability, have survived. It was decided that one visiting four-piece, The Beatles, would not be invited back because, according to the steward doling out their fee, they were so poor. This was only a year before they took the world by storm and changed popular music forever.
I know this because as a schoolboy, I regularly played rugby against St Edwards, our local rivals; the Beatles story is no urban myth - they really were bad, apparently.
I was reminded of this after it was revealed that the first Beatles contract with manager Brian Epstein had sold at auction for £275,000. The document, signed by all four Beatles (Pete Best was the band's drummer, not Ringo), but not by Epstein, was virtually worthless when it was first drawn up in January 1962, around the time they played the CI, though in the intervening years it has appreciated at a rate few could have foreseen.
This begs the question: is the Beatles contract a one-off, an investment freak? Apparently not.
In 1965, the year the Fab Four enjoyed three number one hits (Ticket To Ride, Help! and Day Tripper), a virtually unknown American investor, Warren Buffett, bought a run-down textile company in New England called Berkshire Hathaway. The same year, he met Charlie Munger who became both a loyal friend and, eventually, his deputy. Charlie persuaded Warren to change his approach to buying businesses, advising his friend to invest in better quality companies and hold them for a long time. It proved the basis of what is now known as 'value investing'.
To say the value investing approach has worked well is an understatement. Since 1965, Berkshire Hathaway's share price has outstripped the US stock market by a staggering 2.57 million percent.
In monetary terms, this means that anyone who was clever (or lucky) enough to invest $100 with Mr Buffett in 1965 would today be sitting on an investment worth $2.59 million.
Berkshire Hathaway has consistently beaten the market for more than half a century, during which time Warren Buffett's investment style has been copied by, well, everyone. Though he initially avoided investing in Amazon, he recently revealed that he had rectified this; once this news broke, Amazon's stock market value soared by more than $30 billion.
Is it still possible to invest in what might become the next Berkshire Hathaway? The short answer is 'yes', as the performance of companies such as Apple, Microsoft, Google and Amazon prove, though researching future stars takes lots of time.
Apparently, 88-year-old Mr Buffett spends up to six hours a day reading and scrutinising company accounts, guided by two rules of investment he garnered from The Intelligent Investor, written in 1949 by Benjamin Graham: rule one is never lose money; rule two is never forget rule one.
Earlier this week, the latest quarterly report from TAM Asset Management dropped into my inbox. The firm offers investors a broad selection of ready-made portfolios, suited to those looking for everything from a balanced to an adventurous approach towards investment.
I made a point of comparing selected investment performance in the 'balanced' portfolio with that of the 'growth' portfolio.
One holding in the growth portfolio, the Liontrust Special Situations fund, which invests in companies such as Shell, BP and GlaxoSmithKline, has grown by more than 76% over the last five years. Another, in the balanced portfolio, the Blackrock European Dynamic fund, which invests in Airbus and Ferrari, for example, has motored by 83% over the same period. Each performance would, no doubt, receive Warren Buffett's approval.
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Interestingly, you can invest with TAM, who manage the balanced and growth investment portfolios, from £25. Of course, if you're unsure, remember the pre-contract Beatles at the CI and Berkshire Hathaway circa 1965.
TAM Asset Management Ltd offer savers the opportunity to save into a variety of Investment ISA portfolios. For further details, please visit the MoneyMapp website.
THE WEEK IN NUMBERS
This week, it's all about Warren Buffett, the world's greatest investor...
Warren Buffett still lives in the same unassuming house in west Omaha which he bought for $31,500 almost 60 years ago. He usually stops at McDonalds for breakfast en route to the office, spending no more than $5.
Mr Buffett's homespun philosophy may be summed up by his frequent advice given to younger savers. "Every dollar you save before you have a family," he says, "is probably worth $10 when you have one."
Despite being a billionaire several times over, the Buffett empire employs just 20 members of staff. There's no steel-and-glass skyscrapers, teams of consultants and bloated personnel departments. Bureaucracy is kept to an absolute minimum.
For more financial advice, check out Peter Sharkey's regular column, The Week In Numbers.