Asked how he felt about clients investing their wealth in non-fungible tokens (NFTs), he said, “Every client is unique with different interests and risk tolerances. As a firm, we do not advise [that] our clients [invest] in NFTs. However, we do provide flexibility in client portfolios for more risky/speculative investments. So, if a client has an interest in NFTs, we work with the client to determine an appropriate allocation.”
He said he considers NFTs highly risky.
“Time will tell if NFTs are an expanding asset class or a fad,” Thompson said in the email. “There can be a lot of money made and a lot of money lost while investors decide. With this sort of speculative investment, our penchant is for clients to explore investing with the service providers to the industry.”
Thompson compared an investment in NFTs to Western gold miners’ nascent investment in Levi Strauss & Co. jeans as their working attire of choice back in 1873.
“Levi Strauss had a thriving business then, and still does today,” he said in the email.
Asked if it was less risky and more profitable to invest in the stock of a company that produces collectibles than it is to invest in the collectibles themselves, Thompson said it depends on the circumstances.
“At first blush, an investor would typically deduce that investing in the company would be a lower risk, lower potential reward option versus investing directly in the company’s product,” he said. “Theoretically, the company would have a portfolio of products such that some are big winners, while others are losers.”
Thompson said that he had read a report stating that 95% of new products fail. However, the 5% of products that succeed can make up for the investment failures multiple times over.
“So, if you choose to invest in specific products, you could be taking on the risk that you choose the winners over the losers,” he said. “Just like accurately calling heads or tails, it may work for a while, but without a durable competitive advantage, it's hard to do over long periods of time. In addition, if your hobby entails buying depreciating assets [such as new cars], from a purely economic standpoint, it might make sense to invest in the company that produces the car.”
As an example, Thompson said his father owns a 1962 Chevrolet Corvette, which is a highly collectible classic car. Had he bought it new, Thompson said, it would have cost around $4,000 back in 1962—roughly $39,000 in 2022 dollars. According to the Hemmings price guide, however, the average asking price today for a 1962 Corvette is $81,258.