Cooking, Pineapple Bookcases, Government Regulations, Antique Furniture, Saving Money, Double Rainbows, and Final Fantasy VII … Oh My

Spring has arrived. With the first quarter of 2024 behind us, I can now say conclusively that it was magnificent on nearly all fronts; certainly one of the best and most transformative in years. This was especially welcome after 2023. (It feels strange saying that because last year was a major success by nearly every imaginable way save only a handful of exceptions, yet, it was, without a doubt, one of the most difficult and stressful periods of our lives. Both Aaron and I are exceedingly grateful to see it in the rearview mirror.)

Progress on Real Estate Operations

On the real estate front, we have made significant progress. We settled into the house we purchased to serve as our primary residence in New Albany, Ohio and are now turning our thoughts to the upgrades we plan on completing in the next few years. Meanwhile, my in-laws are moving into a second house a few miles down the road because there was no way we would make this relocation without grandma and grandpa coming with us and remaining a daily part of the kids’ lives.

Commercial property for Kennon-Green & Co., in contrast, is proving a bit more complex due to a series of choices we need to make that balance the facts that:

1. Ultimately, I would prefer to own something, even if it meant we need to design and construct it ourselves, but such a thing would take significant time and planning that I don’t have at the moment.;
2. I would like to keep the headquarters in New Albany so the localized income taxes stay in this community but the office space offerings are limited. Yes, a few things exist, but not much. In contrast, over in a place like Easton Town Center, where you have the regional headquarters of companies like McDonald’s as well as a lot of wealth management offices, the choices are far better in terms of Class A space.; and
3. The economic reality is that commercial real estate is in the midst of a severe collapse due to the dual forces of:
   • Hybrid work-from-home policies that developed during the pandemic causing either non-renewal of leases or reductions in space; and
   • Significantly higher interest rates changing the cost of capital reality for nearly every project. This means, all else equal, the longer we wait, the more likely it is we have an opportunity to do something particularly intelligent.

The good news: The nature of modern cloud-based enterprise systems changed everything for professional service companies. Aaron and I can afford to be patient and wise, taking our time. Nevertheless, if you forced me to guess, I say the most likely scenario is we sign a lease of 60 months or something as a placeholder while developing a plan to acquire and/or build a property. That would give me a couple years of not having to think about it while getting the rest of our employees to New Albany. My goal was to have a space open by 3rd or 4th quarter this year so private clients could come visit us. I’m optimistic we can make something happen before then. In the meantime, the Client Services Department remains operational from Newport Beach and there is no effective difference if they are working outside my office door or thousands of miles away. I press a button on my phone or computer and we’re talking in a second or two. Despite its often discussed drawbacks, technology really has made the world more productive in many ways.

Speaking of the Office, Our Annual and Quarterly Regulatory Checklists Are Getting Done

Speaking of work, aside from the usual job of portfolio management which takes up most of my time, we were focused on finishing and submitting our annual regulatory filings. The Form ADV is done and in the next 45 days, we’ll need to publish our Form 13-F. It really is frustrating the government suspended its modernization of the Form 13-F rules upon President Biden’s election to office. Had they gone into effect, it would have adjusted the figure for inflation for the first time since the initial requirement for filing in the 1970s. Instead, we’re stuck with the burden of dealing with a form constructed with such bizarre rules it is of limited utility. For example, despite growing to be around an all-time high in assets under management, our last Form 13-F paradoxically showed what appeared to be a decline in assets due to the rules surrounding its preparation. Right now, there is a material mid-eight figure differential between the two figures (the Form ADV and the Form 13-F). Cash, Treasury bills, many fixed-income securities, many foreign securities … all excluded and thus treated as if they don’t exist. I’d have to check the paperwork for the exact figures but it’s just shy of 1/4th of assets simply aren’t on the Form 13-F. (Not to mention that we may buy or sell something for a client due to that client’s specific tax requirements or situation. For example, if a client triggered a large gain elsewhere they may call and ask us to sell anything and everything that has an unrealized loss even if we are actively, and aggressively, purchasing it elsewhere since they want to shelter as much as they can of the windfall.) The initial purpose of the form was to monitor companies so large they could move the market. Half a century later, allowing inflation to capture everyone is an example of special interests using the government to extract unfair advantages from competitors in the name of “transparency”.

The most notable thing on the Form 13-F despite all of its problems is that it does disclose (and will, when the newest one if filed prior to mid-May for the period ended March 31st) an interesting development, which is that we find ourselves in the position of many of our largest positions being technology companies as a result of decisions we made twelve to eighteen months ago. As I have shared with folks around me, if you told me a few years ago that Meta Platforms would be our biggest holding, I would have laughed and said it was highly unlikely. We basically held next to none in terms of the overall asset book exposure, but then, out of nowhere, the stock got exceedingly cheap for a brief window so … here we are. In more than few cases, shares were funded with the dividends from a structural tobacco trade we placed several years ago that has been a major cash generator for us. (Not for all clients, of course. Every fiduciary relationship is unique and depends on the specifics of the individual, the timing and amount of cash they contribute, etc. Some clients, for example, request that we avoid purchasing equity and fixed-income securities issued by companies that derive a majority of revenue from the manufacture of tobacco products, which we are happy to honor.)

Cooking in the New Kitchen Is Wonderful

Switching gears and returning to house in New Albany, we quickly discovered that cooking in this kitchen is a lot more enjoyable compared to the one in Newport Beach. As I mentioned in a comment on a recent post, Aaron made us a batch of that amazing white chicken chili I shared with you a decade ago. It was so great to sit by the fireplace, look out the window, and enjoy a bowl of it.

Seriously … the stove has a griddle top like a restaurant and the ovens are great. Right before we left Missouri, Aaron and I had been discussing putting a stove like this into the house, but then we left for the West Coast and eventually sold that house remotely. Actually, a gunmetal stove from Pirch in Mission Viejo played a role in our decision to leave California. That’s another story for another day. (I just realized, upon a quick bit of research, that Pirch apparently halted operations a few weeks ago in a dramatic collapse. That’s going to be another case study. I wonder what’s going on with it … obviously I’ve been preoccupied and no longer live in the area so it wasn’t on my radar.) I still need to write that post detailing the comprehensive list of reasons for the exodus.

We also made progress on merging our former lives in Missouri and California. For example, we took the pineapple bookcases out of storage from our study in the Missouri house and have turned them into a cookbook library in the side part of the kitchen. They used to hold my Scrooge McDuck collection and some fountain pens back in the Missouri study. We had the glass shelves replaced (they had been damaged in the move to California) and now need to have an electrician repair the interior display lights but it’s coming along nicely. When you are standing at the kitchen island, you can see them in the view to the right, which is much more convenient than having to dig through a cabinet or go to a different room to find a specific recipe among the general books.

Returning to a More Traditional Aesthetic After the Modern Years of Southern California – An Update on the Collapse of the Antiques Market

It’s interesting how architecture and geography influence a person. In Southern California, we furnished our place with largely modern chrome, silver, and white furniture. The art on the walls was abstract. It was great for a change of pace but, after awhile, Aaron and I realized that we much preferred an old school aesthetic albeit one with a touch of modernity’s clean lines (e.g., the Benson-Cobb being an example because I still adore those). As a result, for this house, we are going back to the fundamentals; the sort of stuff that looks good in any century even if it not particularly trendy at a given moment. Actual wood furniture carved by actual humans. Neoclassical proportions. A hint of Fable II and Fable III. A heavy dose of Winterthur. A small dash of Louis XV and Louis XVI used sparingly.

Fortunately for us, the timing could not have been better. Remember how I told you back in 2019 the antique furniture market was crashing? That has turned into a wonderful opportunity as the pricing has only imploded further since then. Pieces are going for ten cents on the dollar – even extraordinary ones that sold for $40,000 or $60,000 or more – for a variety of reasons. Antique dealers have been driven from the market as it consolidates to survive. (There are a lot of reasons for this strange turn of events but it’s a mix of younger folks having a harder time affording larger homes combined with a decline towards Instagram “fast fashion”-type furniture. It’s a real shame. Men and women are spending thousands of dollars on what they think is quality only to find out a few years later it was essentially disposable furniture – The Wall Street Journal did an excellent piece on this latter phenomenon – while the real stuff, the good stuff, can’t find a home.)

Case in point: We were recently looking over the lots of an antiques dealer and spotted a beautiful Baker armoire. (Unfortunately, it was damaged in shipping (on the far side not visible) but the dealer is getting a restoration specialist to fix it so I’m optimistic it will be returned to its prior glory.) We bought it as quickly as I could make the phone call. We’re likely going to use it in the main living room where the large fireplace is, maybe filling it with blankets, board games, etc., though we’re still not entirely sure. This thing can be useful for the rest of our lives. It could someday be a dresser in a guest room. It could be a supply cabinet in an office. You could put it in a music room to hold scores. It has so many applications. And the best part it is incredibly cheap compared to what we would have paid for this ten years ago or, heaven forbid, at full retail. Had we found it at auction, rather than through an antiques dealer, we could have saved even more. This never used to happen with this calibre of stuff.

We’re going to take advantage of it while we can purchasing for personal enjoyment and utility assuming no recovery in the market ever occurs. Besides, even if it did, I have no interest in selling. What would I replace it with that could bring me as much joy? It feels very much like a treasure hunt coupled with value investing.

There is also a carved piece that goes in the center of the top that will make the upper part look like this (see below), we just aren’t going to attach it, yet, until the repairs are done.

Some things I won’t even know I want until I see them. For example, somewhere back between 2008 and 2012 – I can’t recall, precisely, because we were down there a lot – I remember walking into a boutique on The Country Club Plaza in Kansas City and seeing an eight-panel tortoiseshell hardwood screen that was breathtaking. I should have bought it on the spot but it was expensive and I was in my twenties. I did a time value of money calculation and the real future value of the compounding cost would have been staggering – like buy a house by the time I was comfortably in retirement – so Aaron and I opted to purchase more shares of our favorite companies, instead. It was the right decision. Prudent. Disciplined. I still thought about that screen from time to time, which was unusual. It was clearly special.

I have since found an auction record where it came up and sold for a fraction of its original price. I happened to miss it. To avoid that fate, again, I follow the hardwood screen inventory at various places including regional auction houses around the United States.

When I found the above cabinet, the antiques dealer also had this Chinese four-paneled black lacquered screen on sale. It wasn’t similar to the one I had originally wanted but it was so beautiful that Aaron and I picked it up. The art scene is overlaid with mother of pearl so as the sunlight or lamps change, it shimmers. It was a great bargain for something that should bring us happiness for the rest of our lives.

Given the luck aspect of finding the right piece at the right price – you can’t rush these things – my guess is it will take around 36 months to slowly transform the New Albany house. A night here. A weekend there. Until then, it will go through a transitory phase of being a strange mix of California modern and traditional. When we are done, our goal is for it to be a 2024 version of a historical property. The phrase we are using as a short-hand is “restrained excess”, which sounds contradictory but it gets to the heart of the matter. It’s going to be so much fun. A lot of it will come together towards the end of that period because once we have settled on the casegoods, it gets easier to decide on things like wall color (paint, upholstered panels with textiles, and/or wallpapers), carpet, millwork, window treatments, and the like.

An illustration of that transition … we had a more traditional plush blue carpet made for this hallway, where we temporarily have the West Coast art on the walls …

… but we will be adding a Louis XV-style console table with more traditional lamps. We bought it a few weeks ago and it’s being transported to Ohio now for us.

The best part? We’re going to do this right and for literal pennies on the dollar! No auction house in the United States, Europe, or Asia is safe. Every antiques dealer is on the table. I will hunt for bargains until I get what I want. It makes me feel like that old 1950s Scrooge McDuck comic …

It reminds me of the first time we truly upgraded our furniture in Missouri back in our twenties. Speaking of which, during the years in which we lived in California, I would always tell people that the things I missed the most about the Midwest were 1.) the sky, and 2.) thunderstorms. I was talking about this even before we left Missouri – e.g., ten years ago I wrote to you about how amazing the Missouri sky was. It’s the same here in New Albany. The weather patterns create these spectacular displays that pictures don’t fully capture. For example, one night there was this incredible silver moon against a deep blue background to the point it looked almost mystical or supernatural.

The other day, there was the most incredible double rainbow I’ve ever seen in my life. I took a quick video as Aaron, the boys, and I admired it. (In the video, you can hear both of the kids talking as they try to find the second one in the sky, which was fainter than the main one. They are always speaking to each other carrying on these conversations that crack us up. The things a couple of two-year olds decide to discuss are hilarious.)

Or this … Over the course of approximately eight minutes – eight minutes! – the sky went from this …

… to this …

It just keeps transforming. You get these spectacular displays of colors and light. You’ll be sitting there and suddenly everything is ablaze in pink and orange like today, April 4th, when this post was published …

Or, sometimes, it turns dark and moody. It makes me so happy. The problem I have now is there will be things about California that I miss, too. It was my home for a long time.

I don’t know … the general feeling in this sort of stream-of-consciousness post isn’t about furniture or the sky, it’s about the sense as if things are in the correct place. I’ve been running at 300+ miles per hour for the past six years and it finally feels like I’m returning to myself, again. My hope is that over the remaining quarters of 2024, we land the plane, so to speak. I was serious when I said I want to spend the rest of my career turning Kennon-Green & Co. into a truly one-of-a-kind world-class firm. I feel like I can do that here; see further in a way. So many good decisions have led to this period in our lives.

There is also some sort of mid-life reflection happening. I suspect part of it is my age, but I think a lot of it is becoming a parent. The other day, I turned on the new Final Fantasy VII Rebirth release on Playstation 5. It’s the second installment of the relaunch of the 1997 hit Final Fantasy VII, which was a generation-defining game that transformed the industry. I had this almost surreal moment where I was sitting there with one of my sons watching Cloud, Barrett, Tifa, and the others pursue Sephiroth … thinking I cannot imagine what my 14 year old self would say if he saw my life today. I have a great family. Amazing friends. I get to spend all day looking for excellent businesses to buy. The graphics were far better than even the cinematic cutscenes used to be. I looked around and said a prayer of thanks. Not just for the difference between being 41 and 14, but also for how much better life is than even four years ago. When the first installment of the three-part FFVII remake came out in April 2020, it was barely a month into the pandemic. No one knew what the world was going to look like or how things would end. I remember playing the game as a distraction to clear my head between bouts of intense fixed-income analysis where I spent my time trying to decide which businesses would fail if the government didn’t pass a bailout (which it did less than two weeks later). Here we are now, in 2024, civilization is slowly healing, and folks are out at restaurants, going to concerts, attending school … I am so grateful.

I know a lot of people say the same thing but it really does seem like the pandemic was some sort of dividing line; or, perhaps more accurately, a gravitational force warping everything around it. There is “before” and “after” with the years prior feeling like they are far in the past. Except some don’t? It’s strange. I mean, how was this almost eleven years ago? It doesn’t seem that far away, yet 2019 does? It makes no sense. Memory is a strange thing. The only other two events in my life that seemed to define periods for so many people with as much force were the Great Recession and, prior to that, September 11th. (In my case, though, I sometimes find myself laughing about a comment Peter Lynch once made, observing that long-term investors mark the chapters of their lives by the major stock positions they were accumulating at a given period. It’s true. It’s absolutely true. Going through the Kennon-Green family portfolio is like a trip down memory lane taking me back decades.)

Reader Comments (7)

Comments are presented chronologically, with replies indented beneath the comments to which they respond.

S

sc compound

April 4, 2024

Thank you so much for continuing to share your thoughts and observations.
I am (and pretty sure many others) are very glad that you are writing more frequently.

E

Erp

April 5, 2024

It's such a pleasure to see these photos - your blog has brought me an immense amount of joy (and a substantial amount of wealth) over the last decade or so.

Thanks for sharing!

J

Joshua Kennon

April 6, 2024

We definitely love it - it far exceeded our expectations, especially for the price we paid, which was next to nothing.

Chinese lacquer screens are their own category of object. You have these similar design patterns that show up over and over with some on pieces that are meant to look impressive at first glance - e.g., the sort of thing you pay $800 retail for at an import store or something - all the way up to museum-quality pieces. Some are hundreds of years old, some manufactured right now, en masse, in factories across the world who want to pump them out and sell them to tourists.

What's really interesting is that, in my opinion, among the most beautiful on the market are those that don't necessarily have some long and authentic history, but are, instead, specialty products of the high-end and super-high end cabinet makers over the past 30+ years; just exceptional woodworkers who were willing to design without normal price constraints, some of which are American-based.

For example, attached is a picture of a Baker Furniture Chinese lacquer screen, also with white mother of pearl. (You should be able to click on it to enlarge.) It is listed for sale out of Canada on 1stDibs right now so if you had happened to find this at auction, and you were able to tell it is authentic, you probably would have gotten it for far, far less than they are asking for it ... I mean like 1/7th the price or something. (The appeal of a site like 1stDibs is that if you are designing a project, don't want to wait, and find the perfect piece, you're essentially paying someone very high margins in the secondary market compared to what you should be able to get it for in exchange for the expediency and convenience. If a person absolutely loved the piece, they should feel no shame at all about paying the far higher prices on such a market since everything is a trade-off and it may be worth it to him or her.)

I'm not sure what Baker originally sold it for, assuming it is Baker (at first glance it certainly looks like it). A somewhat similar small commode chest right now from the company has an MSRP of almost $67,000 so you'd pay less than $50,000 by the time you were done dealing getting a final quote. One of those commodes sold at auction on June 26th, 2022 for a $5,250; far below its estimate of $15,000 to $18,000. Again, it's just a total implosion of the market.

Hancock & Moore eight-way hand-tied sofas are selling for less than $2,000 ... pieces that can be re-upholstered and re-used for 100+ years but are still in near perfect condition. There was a Hancock & Moore chesterfield leather reading chair that was almost identical in design to a Pottery Barn one but that sold for 1/4th the price. It will look better, and outlast, the former by not just decades, but generations.

It could also be the decline in basic knowledge about these sorts of things. I genuinely would be curious what percentage of the population knows things that were just taken for granted a few decades ago, like the importance of a dovetail joint. (I'm kind of optimistic Gen Z and Gen Alpha might reverse some of these trends. There seems to be a bigger push into trades and practical arts, possibly as a response to out-of-control college education costs.)

Not that a person should prioritize build over everything. Quite awhile ago, we bought several Reynor 80" desks from Restoration Hardware because they were ideal for the trade-offs we needed at the time and we found them beautiful - they were based on this simplified, clean-line 1970s Italian design. But the drawers aren't dovetail. Still, those things are so heavy they are almost impossible to move. As I write this, it's well past 1 a.m. but Aaron is actually sitting at one a few rooms from me working on some stuff for the firm. Considering the enormous use we've gotten out of them, and how productive we've been, they essentially cost us nothing; a fantastic use of money I'd do, again, in a heartbeat.

That's what really counts - how much function and happiness do you get out of something relative to the resources you had to give up to acquire it. It seems like, right now, there is a super-sale going on for folks who are willing and able to take advantage of it. Interestingly, it's definitely coming back at the hyper-top end of the market. Mid-century modern, white everything ... it's out. Very, very out among the cutting edge of homes that will set the style trend for the next decade. Warm woods are coming back. Again, there is a regional element to it.

https://uploads.disquscdn.com/images/542d1046b801b77eab2b84089406a189ec5a1db68d11b24a81fd7f583ebd4490.png

J

JB

April 6, 2024

Replying to Joshua Kennon

Thank you for taking the time to share your observations on this. I have to admit that I am not familiar with the antique furniture market, but it is very interesting to learn more about it. I do hope that Gen Z and Gen Alpha are able to reject the "fast fashion" that seems to have permeated the lower end of the furniture market. I was in an IKEA recently and was happy to see that there is some (not a lot) of real wood furniture there and not just particle board junk.

V

Viresh

April 14, 2024

Joshua, what water filtration system do you use?

J

Joshua Kennon

May 29, 2024

Replying to Viresh

I'd have to check the specifics because we have multiple ones. There is the built-in filtration on the Sub-Zero fridge plus there is a dedicated filtered water spout next to the kitchen sink, but I haven't had a chance to look into it too much since we moved here.

J

Joe

April 17, 2024

Re: major stock accumulations, I have you to thank for some of it but I don't view them as dividing lines in my life. I see 9/11 as the line between childhood and adulthood as I was a 17 year old college freshman at the time. The Great Recession wasn't a dividing line for me as I was not laid off. I never experienced my "own personal Great Recession". On that note the elections of Trump and also Obama are dividing lines for me. (Edit: and while I was still in high school, Bush vs Gore was also a big dividing line as it calcified the partisan lines that we "enjoy" today). They were both sharp turns and in both cases it can be easier to see the bad and overlook the good. As time goes on, both just look bad to me and in starkly different ways. Social media has destroyed the news industry and corrupted our politics. I'm with Jonah Goldberg (or was it Kevin Williamson?): abolish the primaries, bring back the smoke-filled rooms. We can do better than this but not with populists appealing to the biases of the most partisan and stupid among us. In this Year of our Lord 2024 I've finally turned into a person who refuses to vote for a major party. I'll just write in a famous intellectual who I admire in the presidential race, as long as he's still alive by election day, and strategically vote for the odd non-nut down ballot to give the parties some data to hopefully exploit if one of them chooses to appeal to rational people at some point. What a mess.

I'm very happy to see you back at the blog. Congratulations on the new house!