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mickronson

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Re: The Lessons I've Learned Investing Guns N' Roses Money

mickronson wrote:

THE LESSONS I'VE LEARNED INVESTING GUNS N' ROSES MONEY
By Duff McKagan

My pancreas exploded in 1994, and I had a lot of spare time recovering from that. So I started going through all my financial statements-six years' worth of Guns N' Roses royalty ledgers. They didn't make much sense. As a result, I took a course at Santa Monica College on how to read financial statements, and from the first day of class things became clearer. I got hooked and ended up moving back home to Seattle and taking a degree at Seattle University's Albers School of Business and Economics. I wanted to become a scholar of finance, but at first I didn't know what the fuck I was doing. I didn't know how to study. I would write down way too much. I would take notes on all the wrong things in class, or I would take notes on everything and wouldn't know how to filter through them to get what I needed. When I went to the library I wouldn't know what to look for. Everything would take me 10 times longer than it did the other kids. I had to learn the learning process. But I did, and it sparked me. Things that before seemed hard or unattainable suddenly seemed possible. Since then I've been able to achieve financial security from my investments while enjoying a continued revenue stream from Guns N' Roses and Velvet Revolver publishing and record sales. The formal education was definitely important for me, but I've also found I draw on experiences from my whole life when formulating my investment strategies. Here's a rundown.

SHOW NO FEAR
The biggest thing is to stick to your plan. If you have an asset-allocation plan, don't deviate from it. If you're not looking to retire in the next few years, you should be fine. It's the people who jump off--"I'm going to sell everything!"--who do really poorly. Hey, asshole, you just lost a third of your dough. What sense does that make? It's fear-based action. Look at the stock market crash of 1929, the famous example they show you in Finance 101: Most people who stayed in their positions in 1929 doubled or tripled their money in the next few years. If you create something--whether it's a rock band or a financial plan--you must keep your mission statement front and center. Keep fear out of the equation.

BUILD A TEAM
Before all the music, I played city football, baseball, and basketball. Team sports--being part of something greater than yourself, something that works together--really helped me in band situations. The biggest thing I brought to future band situations was an understanding how the whole thing could work together. That mentality is true for investing, too. In any good investment quotient you have to hope for a good, sound steady partner.

LISTEN TO PEOPLE WHO KNOW
I bought a Corvette as my first car, with one of my first royalty checks. One of my brothers came down to L.A. and was like "Oh, you bought a Corvette, huh?" He checked me. So after that I didn't spend all my dough on stupid shit. I didn't go the Lamborghini route or fly Learjets. I lived pretty humbly, for my tax bracket.

MAINTAIN CORE VALUES
Growing up in Seattle, I was the last of eight kids. My dad was a fireman, and we didn't have a ton of dough. We heard all these stories about the Depression, since both my parents had been through it. We grew up with the idea that you don't live beyond your means; thrift was a value very much emphasized in our house. None of my brothers and sisters went out and bought cars or houses they couldn't afford.

KNOW THE LAY OF THE LAND
I'd heard all these stories about Aerosmith getting ripped off and the guys from Alice Cooper's band having to sell their guitars. Hearing those stories and actually seeing guys in Hollywood who you thought would have money but who were scraping by in shitty apartments always made me fearful of getting ripped off. Fortunately, with Guns it was a slow buildup process. We had seen the sharks starting to circle, but we were streetwise if nothing else. I knew to tell the accountants (including the head CPA) that I wanted their home addresses. I said, "I want to know where you live." Right or wrong, that's what I did, and that probably saved me from getting ripped off too severely.

IT'S CYCLICAL
I remember the first check I got after "Sweet Child o' Mine" became a hit single and Appetite for Destruction went shooting up the charts. Axl, Slash, Izzy, Steven, and I each got about $80,000. Back then that might as well have been a billion dollars. Our accountants said we should buy houses. I didn't know what interest rates were, what a mortgage meant, or yield or risk. We got another check about three weeks later, and I thought, Okay, I guess I can get a house. I bought a nice little place in Studio City--two bedrooms with a little pool. It was the height of the housing market, but I didn't know what that meant. We all bought houses at the height of the market, in 1988. I bought mine fore $429,000 and half a year later I couldn't have gotten $290,000 for it, which scared the piss out of me. While this real estate crash was happening, the band was earning big-time and I was looking to get a bigger house anyway. So I rented out that first house for about 10 years to pay the mortgage. Of course home values came back up, and I realized, Oh, this is all cyclical. I was able to sell that house for more than I paid and then buy a bigger house.

LEARN FROM THE BEST
Another early lesson came when we played four nights with the Rolling Stones in L.A. in 1989. Watching Mick Jagger operate--seeing how intelligent and on top of it he was, how his eyes were wide open--was informative. He wasn't sitting back going, "Yeah, I'm Mick fucking Jagger." He was a businessman. He personally made the deal with us. We didn't deal with a Stones lawyer or agent or somebody like that. You would think we would have. Nope. It was Mick. We would say, "We want this much per gig." And Mick would say, "No, you're going to get this much."

ATTITUDE COUNTS
Some people wake up in the morning and say, "Ugh, I've got to do this or that today." The secret to my success was to go from that to thinking, Today is another chance to do everything I want to do. I also realized nobody would do it for me. You may think, Oh, this guys' in a big rock band; he has "people" or managers. But that's bullshit--they won't do anything for you if it doesn't get them a percentage of something. Once I figured that out and got comfortable with it, the sky was the limit--and still is. I began to think, What haven't I see, what person haven't I met, what conversation haven't I had? Something as simple as that will change your outlook.

DIVERSIFY
When I began investing in 1994, I created a varied profile. From the beginning I've been in 70 percent stocks and 30 percent bonds. Of the stock, I had about 15 percent in high-risk stuff, and then I had another 15 percent in what I considered medium-high risk. I also had 40 percent in blue chips--Coca-Cola, Procter & Gamble, Boeing--stuff that will weather storms. I bought mutual funds and whatnot as well. I own residential properties I rent out, and I am a part-owner in a couple of commercial properties in Orange County. I get a nice little monthly check from both those things.

FIGURE OUT WHAT YOU CAN STOMACH
You set a goal in the beginning, make allocations and divide up the pie. You do a risk analysis and decide how much high risk you are willing to buy and where you want it to be. When I started I had some investments around the Pacific Rim and in Eastern Europe (at that pint the Eastern European economies were just emerging). I also bought some forward-thinking equities. Everybody in Seattle was buying Starbucks because you could see it growing. It wasn't on every street corner, but it was catching on in L.A. and San Francisco, and there were lines. People were going there. We thought it might be a short-term investment, that Starbucks might burn out or expand too fast, but at the time it didn't look as if it was expanding too fast. A little later I got in early on Amazon.com, another local stock. But I always keep in mind that a good blue-chip company will have a price-to-earnings ratio of 20 to one, 25 to one, maybe 30 to one. When I looked at the dot-coms during the boom, some of the price-to-earnings ratios were a thousand to one, so I didn't get into that.

DON'T OVERESTIMATE YOUR OWN GENIUS
These days people are like, "Dude, where did you get that crystal ball?" because of what they see as my investment forethought. But it wasn't like that. I was just in the right place at the right time. Of course you have to do the work and place yourself there. I would pore over annual reports: What's Bill Gates going to do with all this money next year? You can read what the plan is and decide whether it makes sense. I've made some mistakes, just nothing that has taken me out of the game.

STICK TO YOUR GUNS
When things went bad last fall I wondered whether I should get into some pure bond positions and wait for the bottom. But my advisor said, "Duff, what has always been our strategy? We're in for the long run." So I've stayed in my positions and I'll weather the storm, just as everybody else will.

Originally published in Playboy, March, 2009 Issue