Investing Caffeine

The Porsche-Yacht Indicator

December 17, 2009 at 2:00 am 2 comments

Tiger Woods is not the only person who has realized yacht purchases do not guarantee happiness. In previous articles (Back to Future article #1, article #2, article #3), I showed how magazine covers could be used for identifying tops and bottoms in the market. Now I’m researching yacht and Porsche purchases as a complementary indicators for future performance deterioration with the thanks of Slate.com and Bloomberg.

1)      Bill Miller: After an incredible 15 consecutive years winning streak against the S&P 500 index, Bill Miller (Fund manager of the Legg Mason Value Trust) thought it was a bright idea to add a yacht to his portfolio in 2006. Needless to say, from that point on, his five-star Morningstar rated fund went on a horrific losing streak, landing him in the bottom decile of peers and forced him to relinquish four of his fund rating stars (See Bill Miller Revenge of the Dunce) .

2)      Paul Allen: The jinxing of yacht buying is not limited to fund managers. Paul Allen was the Co-Founder of Microsoft (MSFT) with Bill Gates, Chairman of cable company Charter Communications (CHTRQ), and owner of the Seattle Seahawks football team, and the Portland Trailblazers basketball team.  Ever since buying his 300-foot Tatoosh yacht in 2000 and his 400-foot+ Octopus yacht in 2003, Allen’s cable company, Charter Communications, deteriorated and his company went bankrupt before recently reemerging from Chapter 11.

3)      Dennis Kozlowski: Corruption didn’t slow down Dennis Kozlowski, CEO of Tyco International (TYC), from buying his 130 foot sailing yacht Endeavor. From around the time he purchased the yacht until he resigned based on the charges, Tyco stock collapsed approximately -70%.

4)      Robert Rodriguez: The $1.1 billion FPA Capital Fund has been captained by Bob Rodriguez since 1984 and his 15% average annual return qualifies him as the best manager among diversified U.S. equity funds, according to Morningstar Inc. As a value-based investor his wealthy indulgences are concentrated on driving Porsches. So comfortable is Rodriguez about the performance of the fund, he has decided to take 2010 off traveling. Perhaps he can be my first experimental subject in the testing of my “sabbatical indicator?”

5)      Tiger Woods: With the endless media coverage, Tiger’s 155-foot yacht Privacy unfortunately has not secured him any. The $20 million purchase was made in 2004, but with six wins in golf “Majors” over the last five years, the yacht indicator is less conclusive. In the field of faithfulness, there is a higher correlation.

Obviously, there are many instances in which performance has improved over time, even after luxury asset purchase like yachts. I haven’t placed the order for my 400-foot yacht just quite yet, but I have made notes to myself to avoid bankruptcy, jail, car crashes and one-star performances if I decide to go through with the purchase. I’ll keep you posted on my order…

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper. 

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at time of publishing had no direct positions in MSFT, LM, CHTRQ, NKE. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

Read Full Yacht Article on Slate.com

Read Full Rodriguez Article on Bloomberg

Entry filed under: Profiles, Themes - Trends. Tags: Bill Miller, Dennis Kozlowski, indicator, Paul Allen, porsche, Robert Rodriguez, Tiger Woods, yachts.