Being a movie star, a sports hero or a supermodel can mean both fame and fortune. Fame might be temporary. Fortune doesn’t have to be.
No matter how a celebrity has made their fortune, whether a one-time lump sum or a series of significant pay-days, the strategy, for smart celebrities, soon becomes keeping and growing the fortune.
How? They diversify.
Oprah, has her T.V. talk show, O magazine, her own production studio company, a prime time game show and now an XM radio station.
Wayne Gretzky made his fortune playing hockey. He now owns part of an NHL team, has an endorsement contract with Ford, a restaurant, and his own clothing line. Coming soon – Wayne’s Wines.
Russell Simmons (brother to ‘Run’ of Run-DMC) founded the modern day hip hop movement, then added his own record label (Def-Jam), and started the ‘Phat Farm’ clothing line.
Supermodel cover girl Cindy Crawford, does endorsement work, has created exercise videos, has developed beauty products and now has a home furnishings line.
Martha Stewart too has her T.V. show, ‘Living’ magazine, cook books and a Home décor line. When part of her portfolio takes a hit, as we have seen, her overall income stream remains relatively stable and ongoing – even while under house arrest.
A Hollywood studio typically launches 20 or so movies each year. Some are hits. Some are duds.
The common goal is to ensure the preservation, continuation and growth of good fortune. In that order. The strategy is diversification across different sources of potential return.
This is analogous to the average investor. Well, sort of. The difference, of course, is that the celebrity weight-loss diet, infomercial or animation voice-over become the average investor’s stock, bond, real estate or other asset class, region, currency or sector holdings. If your new fragrance doesn’t sell, your thigh-master might pick up the, uhm, slack. Where your US stocks are currently out of favour, your Asian bonds provide some offset.
This is what diversification is all about – a balanced ‘portfolio’ of assets that provide income at different times – regardless of the investment environment. It’s the zig and zag of asset allocation and the bit o’ this, bit o’ that of diversification that help ensure the protection and growth of good fortune.
Like the gods of fame, the markets giveth and the markets taketh away. If your portfolio isn’t balanced and broadly, globally diversified, ask yourself when will there be a better time to leverage off of strong Canadian markets and a Loonie at par?
You may lose your fame. Don’t lose your fortune.
Originally published in the Business Thompson Okanagan news, January 2008.
Doug Cronk CFA is Manager, Investments for a Canadian Pension Fund.