Merrill Lynch & Company chairman and chief executive David Komansky looked bored. It was a Tuesday night, June 5, at the Waldorf, and he was being honored yet again, this time by the YMCA of Greater New York for his and his company’s long-standing support of the institution.
He stood at Table No. 1 and shouted across to the other side, trying to make small talk with Jonathan–son of Saul–Steinberg, the nebbishy husband of CNBC siren Maria Bartiromo, the event’s master of ceremonies. Echoing loudly throughout the grand ballroom was the Peter Duchin Orchestra’s big-band rendition of the Village People’s “Y.M.C.A.” Looking distracted and ready to get on with things, the lugubrious Mr. Komansky essayed a dance move or two. Yes, this was work.
Meanwhile, at Table No. 2, Jeffrey Peek, Merrill’s asset-management chief, was all smiles. For the ambitious Mr. Peek, it had been a fine week. BusinessWeek had run a story suggesting that he, not private-client head E. Stanley O’Neal or investment-banking honcho Thomas Davis, was now the leading candidate to succeed Mr. Komansky as chief executive. This followed The Financial Times’ long, soft stroke of an interview. “David’s legacy is taking the company global … so [my] manifesto is to continue that,” Mr. Peek had oozed from his London hotel room.
Take that, Mr. O’Neal–who, as the head of Merrill’s 15,000 or so financial consultants, remains very much New Jersey-bound these days. Indeed, the numbers for Mr. Peek don’t lie. Since taking over Merrill’s stumbling investment-management shop in 1997, Mr. Peek has presided over a performance revival of Merrill funds, as well as the successful integration of the firm’s Mercury acquisition.
So while Mr. Komansky labored on with the New York Giants’ Michael Strahan (the event’s celebrity guest), Mr. Peek, neat and dapper in his tux, glided from one table to the next, working the room–a pat on the back here, a shared inside joke there. And to make the night even sweeter, there was no sign of either Mr. Davis or Mr. O’Neal, the other two claimants to Mr. Komansky’s throne. So, tea-leaf readers: Was this a signal that Mr. Komansky–who has said he will recommend a successor to the board by the end of the year–may be tipping his hand?
Maybe, maybe not. Also at Table No. 2 was Mary Taylor, a YMCA board member who was recently promoted by Mr. Peek to co-head of Merrill Lynch Investment Management’s Americas division. So Mr. Peek could very well have been showing some support for his troops–not to mention his boss.
As for the chief: After being lauded by the dinner’s chairman, HSBC Bank U.S.A. president and chief executive Youssef Nasr, Mr. Komansky dutifully took the podium. He cracked a joke about being in the same room with Mr. Nasr–”purely a coincidence,” he said, a reference to rumors that a merger was in the works. And he tweaked Ms. Bartiromo for constantly getting him in trouble (including his recent CNBC interview, in which his comments about a merger with HSBC stoked that very rumor mill).
Five minutes later, he was done. The crowd cheered politely, as did Mr. Peek.
So How Much Is a Painting of a Couch?
If you’ve ever wondered which French painter’s work is the equivalent of General Electric stock, Michael Moses, who teaches courses in something called “operations management” at the New York University’s Stern School of Business, can tell you. It’s Claude Monet, without a doubt. His Impressionist works are the best investments on the art market, says Professor Moses. Just ask the guy who paid $13.25 million at Sotheby’s in early May for Le Parlement, Soleil Couchant , a painting that sold for $9 million in 1989.
The worst investment right now? Probably Marc Chagall. In 1989, the Russian-born Surrealist’s Le Violoniste au Monde Renverse went for $4.2 million. Some bottom-feeder picked it up at the May Sotheby’s auction for $2.1 million.
But actually, said Professor Moses, neither the Monet nor the Chagall are worth G.E. stock exactly; at best, they’re worth G.E. bonds. In Art as an Investment and the Underperformance of Masterpieces: Evidence from 1875-2000 , a paper he wrote in May with Stern professor Jiangping Mei, the two academics track the sales of Old Master, 19th-century, Impressionist, Modern and American paintings at Christie’s and Sotheby’s since 1950 as an analyst would securities. Their findings: The most valuable paintings of the last several centuries are only barely outperforming the bond market at the moment, returning 5.5 to 8 percent.
This has not always been the case, though. During the last great art bubble, which peaked around 1990 and favored garishly bright Impressionist and early Modern works, stockesque profits of 13 to 14 percent were normal, said Professor Moses–especially if one had bought at the right time.
What would have been the best time of all to invest? “The 1890′s,” he said. “A century ago, one could get a Monet for $1,000 or $1,500.”
But, said Professor Moses, contrary to popular belief, more expensive paintings tend to offer worse returns over time. One is better off investing, say, a few hundred thousand dollars in a good, crisp Sargent or Homer, which have recovered admirably from the early-90′s crash, rather than a few million in one of those blurry Frenchmen.
If that still sounds pricey, remember that art is a long-term investment (“long” as in decades). “The front-end commission that auction houses charge on art–at least 10 percent–makes short holdings disastrous,” lamented Professor Moses. If he had the money, he says, he’d most like to buy a Caravaggio, although they don’t come on the market very often.
So how much does the novice investor need to get started in art? It’s more than a government bond–but not as much as you would expect. With the $5,000 you saved up in bar-mitzvah and graduation cash, you can get a competent Stuart Davis print, say, that will begin appreciating as soon as you hang it on the wall. And that’s the type of modest investing that the business professor in Professor Moses, not the art connoisseur, really advises.
“I advocate the couch-potato school of art investing,” he asserted. He means that literally: “If you buy your couch, and 10 years later you want to change colors or it’s not comfortable anymore, you throw it out–and you don’t beat yourself over the head because it wasn’t a great investment. Well, you can do the same thing with the painting you put over the couch.”
How much did Professor Moses pay for his couch?
“That’s for me and my interior decorator to know,” he said.
Raw Opinions and High Steaks
Never mind that the sound of restaurants going bust during a recession can drown out Macy’s Fourth of July fireworks. Never mind the debacle of Mortons, which seemed like a great line of steakhouse s until it went public, or the unsavory fate of so many other public restaurant chains. Never mind that the previous efforts of C.E. Unterberg, Towbin, that obscure underwriter for Smith & Wollensky, included mostly penny Internet stocks such as Beyond.com Corporation, which is now trading at 31 cents, and Serviceware.com Inc., at 90 cents. And disregard that Smith & Wollensky Restaurant Group Inc. is itself now piddling across the Nasdaq at $6.50, down from its May 23, 2001, opening price–when it went public–of $8.50.
All of those things are irrelevant. What really matters–what Warren Buffet would want to know–is, what do the hoi polloi think? How do the actual diners feel? If they like the meat, they’ll buy the stock … right?
When asked that very question, one lunchtime diner exiting the Third Avenue home of the newly public Smith & Wollensky Steakhouse–a banker who’d just consumed a filet mignon–had his stock price in mind: “I’d pay a low price for it–10 bucks or less. The steak is the best, though.” And that pretty much summed up the general sentiment.
Manhattan carnivores in the know stand by Alan Stillman’s meat palace and may be aware that his newly public company also operates perennial Zagat darlings Park Avenue Café, Post House and Manhattan Ocean Club, as well as Smith & Wollenskys in Chicago, Miami, Las Vegas and New Orleans. And Mr. Stillman, who has the dubious but lucrative honor of starting the TGI Friday’s chain (in 1965), is one of New York’s legendary restaurateurs.
But none of that information seemed to excite prospective investors too much, even those who eat at Smith & Wollensky at least enough to keep their favorite waiters in business.
“I love this place; I come here all the time,” said one attorney. “But I would never buy stock in a restaurant …. What’s the first thing you stop doing when the economy slows down? No one goes out to eat anymore.”
Another attorney, one who represents restaurants, was even less sanguine. He acknowledged that he’d just had a superior Chateaubriand but said, “I wouldn’t invest in it. These small restaurant chains don’t have enough mass. There’s no ability to grow.”
Still, if the lawyers won’t buy Smith & Wollensky stock, it should be pointed out that the employees–former, current and even prospective–were fairly bullish on it.
“I’ve known this restaurant for 20 years,” said a man who claimed he used to type all its menus. “Based on the lunch I’ve just had, I’d pay $20.”
“I have stock through being a long-term employee,” said Tom, a maître d’ of 23 years. “It should end up doing reasonably well.”
A woman applying to be a waitress concurred. “Sure. Why not?” she said. “The tables are all occupied.”
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