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 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 percent
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 1 percent 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 percent 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 percent 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 percent 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 favorable 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.
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GROWTH STOCK PICKER
Gorelick has been more fortunate than other musicians when it comes
to the income he's lost to streaming and digital downloads. His 2010
album, "Heart and Soul", sold nearly 12,000 copies in its first
week, with an unusually high 86 percent of sales coming in
higher-priced compact discs, according to figures from Nielsen
SoundScan, which tracks music purchases. His next solo album is due
later this year.
As far as stock performance goes, "I have a good batting average but
I'm definitely not perfect," Gorelick said.
He asks people he considers smart about what is happening in their
fields. If he comes across a company that looks promising, he
watches it for a while, reading coverage of the companies and doing
other research, and then might buy on a dip.
One of his biggest recent winners was a stake in Potash Corp of
Saskatchewan Inc, one of the world's largest fertilizer exporters.
He heard about the company from a friend in Canada. The friend was a
successful stock picker and that "made his advice easy to follow,"
Gorelick said. He watched the stock for two months, and bought
significantly when it dipped one day to around a split-adjusted $30
per share in 2010.
The shares shot up to a split-adjusted $62 per share the following
year as the company fought off unsolicited takeover bids. Gorelick
sold on the way back down, at $60 and below. "I made a lot of money
on that stock," he said.
Nearly the opposite happened with his stake in biotech Dendreon
Corp, recommended by a friend. Gorelick began buying shares around
$35 in early 2011. Not long afterward, the company announced that
sales of its prostate cancer vaccine Provenge were not meeting
expectations. Gorelick sold for less than $5 a share. It now trades
at less than $2 per share.
"I don't listen to tips from friends as much anymore," Gorelick
joked.
Gorelick still has "a fair amount" of his original shares in
Starbucks Corp and watches the stock price every day, he said. Yet
he tries to keep himself from getting caught up in every change of
the ticker.
"I can get emotional in my music, and try to make more sense when it
comes to trading," he said.
(Reporting by David Randall, editing by Paritosh Bansal and Peter
Henderson)
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