July 1 (Bloomberg) -- Supermodel Cindy Crawford likes stocks, so long as she can sleep at night.
Saxophonist Kenny G makes his own picks and checks them daily, while relying on an investment pro to stay out of trouble.
Gossip columns play up stars’ foibles, but most celebrities take a conservative approach to investing, knowing their income is unpredictable, said Todd Morgan of Bel Air Investment Advisors, who oversees $6.5 billion. About a fifth of that comes from people in the entertainment industry.
Crawford and Kenny G, with fortunes at least meeting the firm’s $20-million minimum, discussed their investment philosophies recently at Morgan’s Malibu weekend retreat, perched on a steep slope overlooking the Pacific. An ocean breeze cooled the sunny afternoon as sailboats crossed a view that included the cliffs of Malibu’s Point Dume headland.
The interview with the longtime friends was stippled with easy banter about family vacations and get-togethers. Sitting beneath an umbrella on Morgan’s deck, they were casually elegant, Crawford in a maroon blouse and jeans and Kenny G in a gray sports jacket, slacks and an open-collar white shirt.
Both acknowledged they’ve learned that fortune, like the fame that often brings it, is a perishable commodity.
Born Kenneth Gorelick, Kenny G, 57, has sold more than 70 million albums. An accounting degree is part of his investment arsenal.
“When money is coming in fast and furious, it’s easy to give someone X-amount to start a business,” he said, “because you think, ‘Oh, I’ll make that much next week.’ When it comes in a lot more slowly, you have to think about everything very, very hard.”
The list of wealthy stars who hit the financial skids stretches from Jackie Coogan in the early days of Hollywood to 1950s sweetheart Debbie Reynolds. More recently, Nicolas Cage lost his Bel-Air mansion to foreclosure after a buying spree that included British and German castles.
Those who come to Bel Air tend to be drawn by the firm’s reputation for wealth preservation, Morgan said.
“I’m not a big risk taker,” Crawford, 47, said. “It would hurt me more to lose on an investment than not to make money. They always tease me that I invest like an old lady. That’s where my comfort level is.”
The 2008 financial crisis pinched Kenny G, even though Bel Air had more of clients’ assets in bonds than stocks.
“All of a sudden Column A, which is my income potential, wasn’t making as much money,” he said. “At the same time the stock portfolio was going down. All that means you don’t spend as much. ‘I can’t buy a new car this year, honey. I just can’t.’”
The musician said he avoided pitfalls by relying on money managers with a record of transparency. He keeps aside some money for stocks he has followed for years, as well as real estate, though he wouldn’t say how much.
Those investments include a long-held stake in Starbucks Corp. made before he met Morgan. The stock has increased 87-fold since the coffee chain went public in 1992, or 24 percent annually, according to data compiled by Bloomberg.
Kenny G’s approach, along with the discipline to rein in his spending, helped him come through the collapse of CD sales and the recession without a crisis.
Bel Air has historically weighted celebrities’ portfolios with cash and low-risk bonds, based on their “sleep-well quotient,” said Morgan, the senior managing director.
For skittish investors like Crawford he includes more fixed income, he said.
“Kenny’s quotient is a lot different than Cindy’s,” Morgan said. “There’s a part of him that loves being involved himself. Cindy needs to be a lot more conservative. We sit down quarterly, we make sure she’s comfortable.”
Crawford points to her upbringing in DeKalb, Illinois. Her mother paid bills and bought groceries with cash she tucked into the labeled slots of an accordion folder.
Crawford was a college student with no financial expertise when she got her first big check, $10,000 from a modeling gig in Japan. On her parents’ advice, she bought silver bars.
“It was so overwhelming,” said Crawford, who had a scholarship at Northwestern University to study chemical engineering before devoting herself full-time to modeling. “When I started making real money, I thought, ‘I want a business daddy.’”
Crawford and Kenny G rarely suggest vanity investments that can lead to trouble, said Morgan, who describes celebrities as more “right-brain sensitive” -- intuitive rather than analytical.
One exception was Kenny G’s Starbucks buy. He made the decision, he said, based almost completely on a first impression of Howard Schultz. An uncle who had invested in the fledgling chain of a half-dozen Seattle-area shops arranged an introduction in 1987. Schultz took him to a roasting plant near Seattle. The place smelled good. A barista made them coffee and Schultz flashed charisma.
“I just thought, Howard Schultz, he’s a great guy,” Kenny said. “And I wrote him a check.”
He wouldn’t say how much and is more circumspect now, even with the investments he manages himself. The musician, who graduated from the University of Washington, checks stocks including Starbucks, Apple Inc., coal miner Walter Energy Inc., and chemical producer Potash Corp. of Saskatchewan Inc. several times a day to assess historic highs and lows. He uses his observations to decide when to sell or add to his holdings.
After modeling, Crawford looked for long-term endorsement deals. Co-ownership of Meaningful Beauty, a skin-care business, freed her from the modeling grind. She keeps a large part of her wealth roped off from personal ventures.
She’s held on to a couple silver bars, valued today at about $24 an ounce, compared with about $6.50 in the mid-1980s when she bought them.
“They’re nostalgic for me,” she said.
Muse highlights include Elin McCoy on wine and Greg Evans on TV.
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