| David Randall |
NEW YORK (Reuters) – Kenny G, the best-selling jazz musician who once played at President Bill Clinton’s inaugural ball, wakes up every morning to Starbucks.
The saxophonist doesn’t drink coffee. Instead, the man whose real name is Kenny Gorelick obsessively checks the company’s stock price. Gorelick was one of the first investors in the Seattle-based chain.
He was introduced to Starbucks chief Howard Schultz through an uncle, before the company went public, and soon bought a stake. Shares are up more than 12,000 per cent since beginning public trade.
That success helped spark a stockpicking habit that consumes his attention as his music earning potential is eaten away by digital music, which pays less than physical album sales, and online piracy.
These days, Gorelick spends his mornings in front of his computer screen, trading blocs of shares of the approximately 30 companies in his portfolio. Over the last decade, he has earned about as much money from stock trading as from music, he said.
“Most people in the music business don’t make as much money as we used to,” said Gorelick, who topped the contemporary jazz sales charts for several years running in the 1990s and whose 2010 album cracked jazz’s top ten. “You have your one per cent of Beyonce and U2, who are playing stadiums, who are going to make tons of money. I’m going to put myself in the normal category of a music person who has been successful.”
Gorelick, who holds a degree in accounting from the University of Washington, keeps his assets in two main accounts: one for his own trading and one that is overseen by Todd Morgan, a founder of Los Angeles-based firm Bel Air Investment Advisors.
Morgan said that it was common for his clients, all of whom must meet the firm’s $20 million minimum in investable assets, to keep a portion of their portfolios for stock trading.
“We encourage them that if they are active traders to open an account away from us. Why get in the middle of it?” Morgan said.
Wealthy investors with more than $1 million in their accounts are unusual in their affection for trading individual shares, according to new data from E*Trade and other brokers.
The wealthy typically keep 30 per cent of their portfolios or more in individual stocks, said Lena Haas, senior vice president of Retirement, Investing and Saving at E*Trade.
Investors with accounts below the $1 million mark typically hold 10 per cent or less of their assets in individual shares, about half of the amount typically seen before the 2008 financial crisis, she said. That reflects a rush by small investors into index funds that passively track the performance of the broad market.
Picking stock winners is not easy. Only 30 per cent of professional fund managers outperformed the benchmark Standard & Poor’s 500 index over the last decade, according to data from Lipper, a Thomson Reuters company.
Yet individual shares do have advantages, advisers say, including the ability to defer tax liabilities during an investor’s lifetime and favourable tax treatment for their heirs. Wealthy investors who trade a portion of their own accounts may also be able to increase the diversity of their portfolios.