Joshua Kennon » Carl Barks

Spoiling the Concert by Carl Barks

Joshua Kennon — Sat, 27 Mar 2010 18:46:25 +0000

My absolute favorite Carl Barks painting of Scrooge McDuck in the world. It's called "Spoiling the Concert". I love it, in part, because I was able to attend a $140,000 private university, and learn from a magnificent business department, thanks to a music scholarship that paid a giant portion of the bill. It seems so ... appropriate. Alas, they never made a run of rare lithographs, so the only way to get would be to buy it at auction. The last time it surfaced, it sold for a bit more than $155,000. That was in 2007 in Texas.

Breakfast of Tycoons by Carl Barks

Joshua Kennon — Wed, 24 Mar 2010 01:52:16 +0000

Scrooge McDuck enjoys fresh orange juice drilled from an oil derrick and pancakes shaped like dollar bills in this Carl Barks artwork.

We added Breakfast of Tycoons to the official Carl Barks collection at Mount Olympus Awards. We’ve been selectively acquiring more and more of his stuff when the price is attractive and it just fits with all of the framed stock certificates and financial artwork.

I’ve identified a few other pieces we are interesting in actively acquiring but only on our terms. Most of the time, we have them reworked in far nicer frames, matting, etc. I’ll try and update a future post with what they look like when we are finished with them. Not that it matters much; I’m not going to sell them anytime soon. I think it would be cool to continue building our Carl Barks collection so that it is just another asset on the balance sheet.

I want my pancakes in the shape of dollar signs …

The 5 Levels of Building Wealth

Joshua Kennon — Tue, 02 Mar 2010 19:07:53 +0000

When I was a child, I would read Scrooge McDuck comics by Carl Barks and Don Rosa. I realized that, while everyone else worked, Scrooge owned everything from the banks to the ice cream factory and the profits kept rolling into his money bin day and night. I realized that's how I wanted my life to be so I could focus on doing the things I enjoy and can give a lot of money away later in life.

Early in life, I developed a theory that there were five levels of building wealth that most self-made men (and women) go through to reach financial independence. It was started by my love for Carl Barks Scrooge McDuck comics. When I started reading the Federal Reserve reports of consumer wealth, empirical studies, and other sources of data, and discovered that 90% of those in the United States who are millionaires made the money on their own - that is, they did not inherit it – I started refining my theory. It helped guide me when I lived in a series of small towns throughout my childhood, saving nearly every penny I could from working after school and pouring it into my investments.

Level 1. A hard working man gets a job in construction and is paid by the hour. In effect, he sells his time in exchange for a set rate. When he is done, he collects his wage and that is it. He will never again receive a penny unless he agrees to sell more time to someone else in the future. He is always at the whim of the economy and an employer.

Almost all millionaires started here because 90% of high net worth individuals in the United States came from those who inherited little or no money. The only way to ever make a decent living from this level is to increase the rate at which you can charge for your labor. By going to law school, medical school, or business school, someone can demand $100 per hour instead of $9 per hour working at a discount store because their skills are harder to find (rarer) and in demand by the public. The term “wage slave” has been used to describe this level.

Level 2. The hard working man takes some of his savings, built up by spending less than he earned over several years, and starts a new limited liability company to hold his investments. He contributes the money to purchase the materials to build a house. He works on it himself to lower costs or, if he doesn’t know construction, hires someone. He rents the property out to tenants. Whereas at Level 1, he could only hope to make money from the time he spent on the project, he will now begin collecting rental income that will flow into his household’s income statement every month for years, if not decades, into the future barring some unforeseen disaster. That is, he is collecting cash each month even if he doesn’t get out of bed in the morning.

Most people never get to this stage because it is difficult to have the discipline to save money and come up with enough money to get off the ground. It’s a painful, slow process that can cause a lot of burnout, especially if you have no one to guide you and show you how easy it can be. Instead, they give up and stay at Level 1 forever, always worried about hanging on to employment or making enough to cover the monthly bills.

There is a "tipping point" that is reached when you're building wealth. The first $100,000 in savings is the most difficult, painful, horrible experience for most people because your money isn't big enough to start earning money for you. If you can get beyond that threshold and start collecting cash generating assets, no different than someone collects stamps or baseball cards, the rest will take care of itself. Your job then becomes risk management.

Level 3. The tipping point is reached when the hard working man no longer needs to live off the rental income generated from the property. This means that he is contributing savings from his job as a construction worker plus the after-tax earnings from his rental house to his limited liability company. Before long, he is able to construct or purchase a second property. Suddenly, like a tree planted in a field, the first young oak tree, which began as a sapling, begins to throw off acorns. The wealth is still small, but it’s becoming self-generating and that is the key.

Level 4. Through years of reinvestment, pouring more money into his investments, and intelligently putting money to work at the highest risk-adjusted rates of return, the small limited liability company our hard working man founded now generates so much money that he can write checks for new properties, hotels, car washes, or whatever else he believes will generate a decent return out of the annual after-tax profit. Should he choose, he could live off the income generated from these investments without ever working another day in his life (that hardly ever happens because, as I told you yesterday, once you get to this stage, business should be fun or you’re doing something very, very wrong).

Financial independence has finally been reached. The hard working man can give shares of the company to his children or grandchildren, or he can donate them to a family foundation, using the dividends each year to support charitable causes that are important to him.

According to the Federal Reserve survey of consumer finances, this represents the top 0.9% of wealth in the United States and typically requires a household income of $400,000 to $600,000 per year (that’s a monthly income ranging from $33,333 to $50,000). I wrote an article about this in 10 Secrets of the Capitalist Class at my Investing for Beginners site at About.com, a division of The New York Times.

Charlie Munger said it best when he opined about Berkshire Hathaway, "We want to own businesses that drown us in cash." Once you get enough of them under your belt, compounding starts to take over and suddenly your businesses generate enough money for you to buy more businesses.

Working for the money by selling your labor doesn’t really count, in my opinion. It has to be passive income from assets that you own. Otherwise, you can’t pass it on to your family or support charitable causes after your death.

Level 5. This is simply Level 4 on steroids. By most empirical evidence, it begins at roughly $20 million in net worth, which generates roughly $2 million a year in household income. That’s nearly $167,000 per month. This is the kind of money that you can begin saving up to develop hotels, endow chairs at universities, travel comfortably in private jets, or (as many of them do) continue to live the same way you always have and continue to expand the investments. Warren Buffett still lives in the same house he bought when he was in his 20’s. Back then, he had a few thousand dollars. Today, he’s worth more than $60 billion.

Summary. As a kid, I’d study wealthy people and classify them by how they generated their money. Even a musician follows the same path as an industrialist. Take Elton John. He is estimated to make $40 million per year by Forbes. Of this, approximately 50% comes from selling his time in the form of concerts. The other 50% comes from his ownership of the song rights on the music he composed. That is, every time someone plays “Bennie and the Jets” on television or in a movie, he gets a check. Every time someone covers one of his songs, he gets a check. Every time it sells on iTunes, he gets a check.

Elton never graduated beyond Stages 1 and 2 but Oprah Winfrey, on the other hand, used her money to buy up local cable television businesses. Most people don’t realize that her “investment company, Harpo, now owns countless local stations and it’s possible you are paying part of your cable bill directly to Ms. Winfrey. Her money makes money for her now, so even if she never recorded another show, the stream of earnings would keep on rolling into headquarters. That’s why she earned $250 million versus Elton’s $40 million. That’s a big difference.

Business Should Be Fun … If It’s Not, You’re Doing Something Wrong

Joshua Kennon — Tue, 02 Mar 2010 06:55:49 +0000

When I talk about the idea of tap dancing to work, in the words of Warren Buffett, I’m not kidding or making a joke. You should wake up every morning and jump out of bed because you can’t wait to spend your time focusing on something that makes every part of you – physically, mentally, emotionally, and spiritually – satisfied. This is going to be different for everyone.

Building a financial net worth that allows you to live any way you wish and enjoying your life are not mutually exclusive. You can make money following your passion if you are wise and intelligent about it. There is a man working for a major ice cream company that is paid, literally, hundreds of thousands of dollars as the head ice cream taster. There are people who test roller coasters for a living. I have arranged my whole life to allow me to sit in a beautiful office, read all day, and acquire stuff because that’s what I enjoy. Something in me is satisfied when I pass a building and know I own that, or shop in a store and know I have a few thousand shares parked in some operating company somewhere that no one knows about but Aaron.

In fact, this philosophy is terrifyingly close to the one espoused by Molly throughout high school: Follow your bliss. There are people who have built fortunes making bow ties by hand and selling them from the trunk of their car (seriously). There are people who travel the world and get paid to write about it. Find your bliss. Follow it. And find a way to make it self-sustaining. Money isn’t the goal, it’s the by product.

In other words, don’t work for someone else doing something you hate so you can “someday” be financially independent. You may need to do that for a few years as you figure out the details, but instead map out a plan to make money as you do something about which you are deeply passionate.

In my office, I keep an ever-expanding collection of Monopoly collectibles to remind me that building a company, generating profit, enriching my shareholders, and creating jobs should be fun. It is a real-life version of Monopoly. If we want, we should go buy houses and rent them out to tenants. Or hotels. Or water utilities. The point is, if you focus on risk-adjusted return on capital, in an industry you love that is lucrative, and you don’t take yourself too seriously, you’re going to do well over time.

Business should be fun. Growing an empire is like a real-life game of Monopoly. If you like it, why not buy real houses or hotels? Why not acquire shares of power utilities or water companies? Don't take the game too seriously. I'm convinced that by remembering that money is an illusion - you can always get it if you provide a solution to someone - life is far less stressful. Here's a picture of some of the Monopoly collectibles on the fireplace mantel in my office to remind me of this.

Carl Barks Art Acquisitions & The Equity Markets

Joshua Kennon — Fri, 25 Apr 2008 04:50:48 +0000

This, ladies and gentlemen, is why I am rich. It’s a thing of beauty – just sit back, and watch. Ha!!! Now that the deal is closed, I can talk about it.

Scrooge McDuck by Carl Barks

You may have noticed, as Ellary emailed me a day or two ago, that we’ve been missing in action. Recently, some odd situations have developed in various markets throughout the world, some as a result of the credit crisis on Wall Street and some just because the inevitable nature of the world is that five-plus sigma events (”black swans”) occasionally manifest. This has happened in the animation world of late, especially in the works of a few key illustrators. I’ve been working with several auction representatives, including the person who headed the comic and animation division at Sotheby’s for decades, to build a collection as part of the e-commerce group’s investment portfolio. Money was reallocated from equities (actually, it was all fresh capital from operations so that’s not entirely accurate but I digress …)

Anyway, we’ve been silently amassing quite a collection by looking for distressed sellers and this morning, we added a jewel to the crown; although not the greatest piece in terms of importance, the sheer brilliance of it makes me laugh. There’s a well known print that Disney produced as a limited serigraph somewhere around 13 or 15 years ago. There are only a few hundred in the world, and most animation shops sell copies for around EUR3,200.00 – or a bit over $5,000 here in the US (for instance, see this shop) (the cheapest I’ve ever seen it is an American-based shop selling a single copy for $1,600); in fact, as a child, I used to have a scan of it on the invoices I would submit to my parents for working in their letterman jacket company making chenille products (25 cents for names, 10 cents for mascots …) It’s from a 1967 special where Scrooge explains inflation, monetary circulation, et cetera to his nephews.

Anyway, this afternoon at 4 p.m. Central Standard Time in Dallas, Texas, an animation auction was held where we picked up a few pieces of things that had some interest to us but weren’t on the primary list. However, one item – the one we’ve been discussing – meant a lot to me. Very few people in the world were paying attention, the condition was excellent, and I kept my mouth shut to everyone but Aaron and my immediate family.

The seller must have needed cash, or have inherited it and simply wanted whatever he or she could get for it because they waived the reserve price.

So guess how much I got it for on the live floor auction? $24 plus an $11 buyer’s premium. I’m not freaking kidding you. That is the favor of God. I picked up the same piece of art that is selling in Europe for more than EUR3,200 and in the U.S. in one store for $1,600 for $35. It’s being batched with our other acquisitions and shipped in the next two weeks. It’s no different than what we do here in the stock market. We don’t buy often, instead piling up cash in hoards until something interesting comes along (Buffett calls it “bagging elephants”) and then we unleash the full fury of our purse. Between Wall Street’s meltdown and our art program, I’ve acquired more stuff than I can keep track of in the past three to four months.

Occasionally, opportunities such as this do present themselves. I’ve watched, and wanted, some of this art since I was 16 years old. The market never fell apart until now. Now, not only do we get the joy of having it hung on the wall, but if and when I ever went to sell it twenty or thirty years in the future, we just proved the old retail maxim about generating huge returns on invested capital: “Well bought is well sold.” Actually, I take the hung on the wall part back because I don’t like having valuables around so much of this will either stay in a safe deposit box in a bank vault or we’ll pay to have it locked up somewhere several states away …

Now, if you’ll excuse me, I might just walk out the back door and scream with joy outside before delving into the newest Tiffany & Company 2008 annual report.