So just how did a clarinet player for the Boston Pops make enough money in the stock market to donate $100 million to his alma mater, Boston University?
A secret computer algorithm? A relative in the hedge fund business?
No, Edward Avedisian scored big picking stocks with the basics — that is, research, patience, and a long-term focus. But he also confesses to having had a high tolerance for taking big risks, including borrowing money to magnify his bets and playing in the options market. In other words, his approach isn’t for everyone.
Add in a remarkable run of good luck and the power of compounding gains over four decades, and Avedisian improbably turned a modest initial outlay into a fortune that could underwrite one of BU’s biggest gifts ever.
“Success is the intersection of opportunity and preparation,” Avedisian, 85, told me when we talked on Wednesday, the week after his contribution to BU’s medical school was made public.
The opportunity was “whatever savings I had,” he said, putting his upfront investment at between $10,000 and $20,000. “I was single. I lived modestly,” so there was money and the flexibility to make bets other investors might not be able to stomach, he explained.
The preparation involved digging deep into company financial statements, prospectuses for initial public offerings, the newspaper Investor’s Business Daily, and any other sources of information and insight that would help him choose where to put his money.
“You had to do your homework,” Avedisian said, recalling how he would load up on research material to study whenever he had to travel long distances for a performance.
In that regard, Avedisian landed on the same kind of old-school “buy what you understand” approach espoused by Fidelity Investments legend Peter Lynch in his best-selling book “One Up on Wall Street.”
“That guy was a magician,” Avedisian said.
Avedisian is the son of Armenian immigrants who grew up in Pawtucket, R.I. He earned a scholarship to study clarinet at BU’s College of Fine Arts, but he was a self-taught investor. When he got going in the early 1980s, it wasn’t long before he discovered the burgeoning world of fast-growing tech stocks. It was a time when getting in early on the right stocks could deliver huge payoffs.
“Lotus, Amazon, Microsoft, Sun Microsystems, Cisco . . . you could throw a dart and pick a winner,” he said.
He was a buy-and-hold investor, and when he did take some profits or sell at a loss, he put the money right back into other stocks.
“It was like Las Vegas. You win one, you keep pushing it back on the table,” he said.
So how much money did he make?
Avedisian, who retired from performing in 2009, said he’s never calculated his annual average investment return back to the early ‘80s.
“Once the year is over, that’s history,” he said.
He also declined to discuss the value of his portfolio.
Avedisian said he amplified his returns using two strategies that many investors eschew because they can easily backfire.
First, he used margin — that is, he borrowed against his brokerage account balances to increase how much he invested. Margin investing can significantly multiply returns, but when stock prices fall, things can turn ugly. The broker can ask for cash to back up the loans, often forcing the investor to sell stocks to pay back the money.
What did Avedisian do during bear markets?
“I rode it out,” he said. “During the dot-com bust, I thought I should dump, but I didn’t, thank God.”
He also sold stock options, a complicated and risky strategy that can juice returns.
“This is not for the average person to do,” Avedisian said, referring to his use of margins and options. “If I did it all over again, I would probably lose my shirt — and my shoes and socks.”
Avedisian said he invested in many initial public offerings, when a company debuts on the stock market. Then, as now, hot IPOs were hard for individual investors to get in on.
Avedisian said that he maintained a roster of more than a dozen brokers, and that he usually could piece together 200 shares from one, 200 more shares from another.
Unlike many IPO investors, he didn’t sell the new stock if it popped big on the first day.
“I didn’t go for the in and out,” he said.
The investment-industrial complex has long pushed the idea that individuals can’t win picking stocks. The big guns on Wall Street have an insurmountable advantage, with their legions of analysts and high-speed trading systems.
Instead, the masses should rely on mutual funds managed by professionals, and index funds that track broad market indexes, which over the long haul usually go up.
I’ve heeded the advice, dutifully maxing out my 401(k) contributions each year and pretty much ignoring what’s happening in the market. I don’t have the time or the temperament to do what Avedisian did.
But success stories like his are why so many people ignore the conventional wisdom and plunge into DIY investing. The odds of beating the pros are long, but plenty of people do hit the jackpot.
“It was engaging and entertaining, and a lot of fun,” Avedisian said. “And serious.”
Avedisian began giving money away in the 1990s, including previous donations to BU. He’s out of the investing game, but he had some advice for coping with the current bear market.
”If you own good stuff, stay with it.” he said. The market “will turn around soon enough. . . . There is a lot of opportunity coming.”
That’s music to the investor’s ears.
- Retired clarinetist donates $100 million to rename Boston University’s medical school after his friend
- In January, Avedisian donated $3 million to rename Rhode Island College’s School of Nursing after his sister
Larry Edelman can be reached at email@example.com. Follow him on Twitter @GlobeNewsEd.