The death of fashion legend Karl Lagerfeld belongs on the fashion and lifestyle pages, not the financial pages — right?
After all, Lagerfeld was a well-heeled European fashion designer. He wore a pony-tail and hung out with his cat.
What could he possibly teach us about making money compared to say a “Master of the Universe” who pulls the trigger on stock deals?
Lagerfeld knew more about making money than almost any trader.
In a word: Plenty.
Turns out, Lagerfeld and his fellow fashion titans knew more about making real money than almost any Wall Street trader, hedge-fund math genius, or Hong Kong stock jockey.
That people like Lagerfeld actually make money off those guys too is just icing on the cake.
Lagerfeld’s death is a good time to point out the golden rule of luxury goods and designer brands — a rule that almost everyone ignores.
You don’t get rich by wearing designer labels. But you get rich by selling them.
Stocks in luxury-goods companies have produced spectacular returns for stockholders, far in excess of the rest of the market, or pretty much any investment manager. Meanwhile reports of the “investment returns” of actually owning classic fashion items need to be treated with some skepticism. (More on that below).
You don’t get rich by wearing designer labels. But you get rich by selling them.
Leading high-fashion stocks have outperformed the major stock indices — and almost every hedge fund on the planet — for at least 30 years, a MarketWatch analysis reveals. They have outperformed by a wide margin even in the nine years since a U.S. index that tracked luxury stocks was wound up for a lack of investor interest.
Chanel, where Lagerfeld made his name, is privately held but many of its top competitors are traded publicly.
The best known is Paris-based Louis Vuitton Moet Hennessy LVMH, +0.98% the fashion conglomerate whose brands include Louis Vuitton, Christian Dior, Bulgari, Givenchy, cosmetics retailer Sephora, and multiple other brands including various fine wines and other drinks.
If you’d invested $100 in LVMH 30 years ago, you’d have $3,300 today.
If you’d invested $100 in LVMH 30 years ago, you’d have $3,300 today. If you invested the same amount in Standard & Poor’s 500, you’d have made $1,800 — half as much.
What about the typical hedge fund? Nobody knows, because performance returns are generally secret, and only the winners survive. But studies have shown that hedge funds typically do worse than the S&P 500 SPX, +0.64%
One of LVMH’s biggest and best-known competitors, Cartier parent Compagnie Financiere Richemont CFRHF, +1.22% has done even better: The figure for that original $100 today is a staggering $6,360. You’d have made over 60 times your money.
America’s Tiffany TIF, +1.32% and the Switzerland luxury watch companies owned by UHR, +1.29% are up over 30-fold.
In September, 2010, money manager Claymore closed down an index and exchange-traded fund based on luxury goods companies tracked by wealth magazine the Robb Report. MarketWatch kept track of the index’s final constituents and their weightings.
Since then: If you’d invested in that index then you’d have more than doubled your money. That’s far outpaced the FactSet index of world stocks.
Lagerfeld left an undisclosed fortune worth an estimated $300 million.
Average annual return of those luxury stocks in the past five years: 6.9%.
Average annual return from hedge funds, as tracked by Hedge Fund Research Composite index: 3.2%.
Lagerfeld himself left an undisclosed fortune, which could be worth $300 million, according to one estimate. He sold one business, his own Lagerfeld brand, to Tommy Hilfiger in 2004 for $28 million, regulatory filings show. The other terms of the deal, including ongoing payments, were not disclosed at the time.
Most fashion experts agree that was a tiny share of his net worth. He was the creative director of global fashion giant Chanel for 26 years, and later of Italian fashion company Fendi as well.
He said even his famous cat Choupette earned $3.2 million from modelling in one year. (Now some are wondering how much Choupette will inherit from his estate.)
Whether the global luxury boom will continue is the $64,000 question. But the results are by no means all in the distant past. Ferrari RACE, -0.21% stock has tripled since listing in Milan three years ago. Canada Goose GOOS, +3.60% has tripled since listing in New York less than two years ago.
Luxury goods are bought by the rich, middle- and lower-income households.
While luxury goods companies profit from the rise of the global super-rich and from income inequality, it’s more than that. Their products are popular as “status” goods among the middle-class and lower-income households too.
Nor are the investment returns all about the stock market boom (or bubble). LVMH today trades at 3.2 times last year’s revenues, says FactSet. The figure in early 1989: 3.3 times.
Meanwhile, a suggestion that iconic fashion items — in this case, the classic Chanel handbag — have been great investments themselves should be treated with caution. The retail prices have risen, but the resale prices are far less clear.
Companies have managed to put up their prices by much more than general inflation over the years. That’s one more the reason why you get rich selling these things, not buying and wearing them.
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