Elnora H. and William B. Quarton Professor of Business Administration and Economics, Coe College, Iowa
Edward Avedisian, 5/15/2023
Edward Avedisian, the son of Armenian immigrants, lived a middle-class life as a clarinet player for the Boston Pops Esplanade Orchestra. Before he passed away in 2022, he donated over $200 million, including $100 million to the Boston University Medical School. His entire wealth was amassed in the stock market. How did he achieve this?
There are many stories similar to Avedisian’s, all culminating in a content life. As I outlined in my book,
Successful Stock Market Strategies, the only two strategies that can lead to happiness are passive indexing and growth stock investing. However, passive indexing cannot generate $200 million from a middle-class salary, even with 40 years of compounding. Hence, the only way to accumulate substantial wealth and live a content life is to invest in growth stocks.
Avedisian invested heavily in tech stocks, such as Microsoft. Since its IPO, MSFT has increased its share value more than 2,400-fold, and Avedisian held his shares throughout this growth. He had a deep understanding of Microsoft's business and was impressed by its competitive advantages. Avedisian would read prospectuses and annual reports of public companies, often during flights while traveling with the Orchestra. He once told Adam Seessel, “Anyone not studying these is a fool. You find out what the company’s doing, who’s running it, and especially who wants in and who wants out. I never liked companies where shareholders were selling. You want my money, but you’re heading for the hills? All these kinds of details are in that document.”
Like many successful growth stock investors, Avedisian didn't attempt to time the market and remained fully invested. “I just let it ride,” he said, “The market always comes back.” However, Avedisian employed one tactic that set him apart from most growth stock investors: he used leverage. He would pyramid his investments when riding an uptrending stock. In this regard, his approach resembled that of Jesse Livermore, though Avedisian cautioned against margin trading. He understood the peril of margin trading: it can lead to significant gains when you're right, but can also result in complete loss. In my book, I point out that trend followers rarely have a happy ending due to the mental stress they endure. Borrowed money simply exacerbates this stress.
Avedisian was able to use leverage because he didn't need the money. He married at 55 and had no children. He lived a simple life and devoted all his time and money to investing. “I had no obligations,” he said, “I could’ve lost my shirt” with margin trading.
My takeaway from Avedisian’s life story is that the growth stock strategy indeed works. We just need to identify a few promising growth stocks and hold them. His story also clarified a question about my strategy. Avedesian didn't hold all his stocks like Microsoft. He got out when the stocks were faltering. He paid detailed attention to whether the business was waxing or waning. I like that. I'm not a fan of the “one-decision stock” rule, followed by investors like Peter Lynch and Shad Rowe. They purchase high-performing growth stocks and almost never sell. Shad Rowe claimed that selling good stocks has two problems: (1) significant tax liability, and (2) challenges in finding replacement stocks. However, I believe that the life cycles of many great stocks are becoming increasingly shorter. Rowe’s latest 13F filings show that he has owned PayPal since 2015. During this holding period, Rowe made a 10-fold return, but has since almost given it all back.
Nevertheless, it's less risky to err on the side of maintaining positions. Most people, even those with high confidence in growth stocks, still trade too often. Sticking to the "one-decision stock" rule can help investors avoid overtrading, and thus reduce potential downsides. The balance between holding for growth and knowing when to exit is key to successful investment, as demonstrated by Edward Avedisian's life story.
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