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Shidlo: Five Investments That Beat Berkshire Hathaway

By Gil Shidlo   |   Tuesday, 23 Nov 2010 09:48 AM

The world’s most famous fund, Berkshire Hathaway, had an astonishing performance with a compounded annual gain of 20.3 percent since its inception in 1965 until 2009. The S&P500, with dividends, had a compounded annual gain of 9.3 percent. But is this the best-performing asset on an annual compound return?

With many investors hesitant to go back into the stock market after the recent market crisis, we will try and see if non-traditional alternative investments had a superior performance. Although some of the examples mentioned are illiquid and fairly limited to the wealthy, it is worth a look at, especially for long-term investors.

Indeed, if a person is one of the early investors, they can have an ultra-high return.

1. Classic Cars: Last month the famous Aston Martin DB5, which appeared in the James Bond movies Goldfinger and Thunderball, was sold in an auction to an American collector for an astonishing $4.6 million. The car was one of two used in driving scenes with Sean Connery as James Bond and was sold for a mere $12,000 in 1969.

This results in an extraordinary return of over 34,000 percent.

We admit this is a rare car, but the regular investor can try and buy limited edition cars and keep them for a few years.

There are many people who have built an extraordinary car collection, the most famous being Jay Leno and Jerry Seinfeld. Leno has over 100 rare cars including Ferraris, Bugattis, and Duesenbergs, while Seinfeld is a fan of Porsche — he owns more than 40.

Although it is unlikely that Leno and Seinfeld will see a return on their cars as extraordinary as the James Bond car, they easily have a return superior to the S&P 500.

2. Rare Books and First Editions: One of the most famous rare book collectors is Bill Gates who bought Leonardo da Vinci’s Codex Leicester for $30 million in 1994 from the estate of Armand Hammer, the ex-CEO of Occidental Petroleum.

Hammer paid about $5.1 million to buy the collection in the mid-1980s from the estate of Lord Leicester. This collection of Leonardo da Vinci’s notebooks with handwritten inventions and ideas had an amazing return of over 600 percent in a relatively short period due to its rarity. There are no estimates on how much it would be worth today.

Not all old and first-edition books go up in price. One needs be careful and examine their authenticity and condition. It is only in rare cases that people will buy a $5 book at a flea market only to find out it is worth $5 million.

In most cases a person needs to wait a long time to get a decent return on a rare book or first edition; book dealers have a large profit margin.

Still, some first editions could have a great return. For example, J.K. Rowling’s “Harry Potter and the Philosopher’s Stone,” published in 1997 and signed by the author, can be worth tens of thousands of dollars.

It is important to point out that the first edition only had 500 copies in print, with 300 sold to libraries. Bloomsbury Publishers didn’t dream it would become such a best seller. Some rare book collectors bought most of the remaining 200 copies which are guaranteed to go up in value in decades to come.

Many of the collectors enjoyed reading the book as kids themselves or to their children. The book cost $19 in 1997, so that makes a whopping return of up to 250,000 percent.

Such a book needs to be in pristine condition with the original dust cover and signed by the author. Indeed, one copy is being sold for over $50,000.

In case you have a copy of the Philosopher’s Stone in the attic, the main characteristics of a 1997 first edition first issue are a print line that reads “1 0 9 8 7 6 5 4 3 2 1” and the crediting of "Joanne Rowling," not JK, on the title page.

3. Autographs: Fraser’s, a division of the British company Stanley Gibbons, analyzed the 100 most sought after autographs and compared their retail price in 1997 to their market value in 2009. The average return for the 100 autographs for this period was 290 percent — that’s an annual return, on average, of about 24 percent.

It seems though that there is a large discrepancy between them. The top performers on the list are undedicated signed photographs of George Harrison (a return of 1,185 percent), with Paul McCartney a close second, with a return in value of 1,100 percent.

An undedicated signed photo of Andy Warhol is also a great investment with a return of 1,014 percent (worth $3,000 in 2009). Other top performers include: John Lennon (a return of 780 percent); Laurel and Hardy (a return of 775 percent); and Walt Disney (a return of 1,019 percent).

Surprisingly, John F. Kennedy was not a good investment (a return of 171 percent), and neither was Queen Victoria (a return of 192 percent).

At the bottom of the 100 list Fraser’s compiled are autographs from John Wayne (30 percent return), Tiger Woods (84 percent return), Star Trek (56 percent return), and Marilyn Monroe (145 percent return).

The risk is that some personalities might either sign too many photos or run out of fashion. If a person had bought the 100 autographs at a cost of about $136,000 in 1997, they would have been worth over $500,000 today!

4. Rare Stamp Collections: Stanley Gibbons, a prominent rare stamp company based in London’s Strand district, launched three stamp indexes which are so useful that they have been listed by Bloomberg since 2008.

The SG 100 Stamp Index, based on prices for the top 100 most frequently traded stamps in the world, rose to a cumulative increase of 90 percent since inception in 2000. That is certainly better than the S&P 500 which had a negative return of 22 percent, although similar to the Berkshire return (around 88 percent).

The Commonwealth Rarities Index which records prices of 30 classic British Commonwealth stamps, had a compound increase of 158 percent in the last 12 years. Again there is a discrepancy between the best performing stamp and the worst. The best performing was a Zanzibar 1896 “2r” carmine and yellow brown “r” omitted with an astonishing 354 percent return.

An amazing fact is that when the world’s global economies crashed in 2008, the GB30 Rarities Index increased by 38 percent.

Stamp collection can be started at a young age without a large investment. Some of the world’s most valuable collections belong to the ultra-rich like Bill Gross, co-founder and manager of Pimco, the largest bond fund. He was one of the few people who succeeded in forming a complete collection of 19th century U.S. stamps.

In addition, Gross donated millions of dollars from the sale of his British, Scandinavian, and Finnish stamp collections.

5. Wine as an Investment: In recent years, a few wine funds have been created, as well as wine price indexes (Liv-Ex Fine Wine 50 and Idealwine), making it a more transparent and liquid asset class.

Although most buyers of wine have an intention of drinking it immediately, some knowledgeable investors are making returns which have outperformed the Russell 3000 as well as Berkshire Hathaway.

Two Swiss economists (Philippe Masset and Jean-Philippe Weisskopf) constructed several of their own wine indexes based on auction prices between 1996 and 2009. Their general wine index beat the Russell 3000 and held value during the latest crisis.

The second index of highest quality wines — first growth wines of top vintage only — had more than a 500 percent return in this period. The regular wine index more than doubled, whereas the Russell 3000 gained about 50 percent.

The top performing wine region was the Rhone Valley in France with an increase of 300 percent; French Bordeaux and Burgundy yielded returns of 200 percent.

It is important to mention that not all wines are equal — during this 13-year period, U.S. wines accumulated a return of only 66 percent and Italian wines only 125 percent.

For example, a 1982 Lafite Rothschild was sold in 2003 for an average of $490 at auctions, whereas in 2009 it was sold for $2,586 yielding the seller an annual return of 70 percent and easily beating many other asset classes.

A person investing in wines must take into account that while not all wines have outperformed, the French high quality ones have, and they are less volatile in periods of crisis.

Unlike bonds or stocks, this is one asset class that you can enjoy and drink it if it underperforms!

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The world s most famous fund, Berkshire Hathaway, had an astonishing performance with a compounded annual gain of 20.3 percent since its inception in 1965 until 2009. The S P500, with dividends, had a compounded annual gain of 9.3 percent. But is this the best-performing...
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