Update No. 81 – 12/10/12

I am an unashamed value investor.  Value dictates virtually everything I do (economically), I consider myself the textbook definition of ‘rational expectations’ with a personal skew away from value other market participants might place on intangibles like brands and others perceptions of them.  Utility for me derives almost exclusively from function.  I always purchase second-hand vehicles so others suffer the harshest effects of depreciation.  My favourite clothes are ones that are durable and inexpensive.  My wonderful Wife thinks it very quirky that I’ll refuse to wear a t-shirt that costs more than $20, my argument being anything up to that point could provide for an improvement in product quality, anything beyond that and you’re paying for expensive marketing designed to make you think something is worth way more than what it costs to produce.  Last time I bought my own t-shirts, I purchased 7 (good quality, heavy cotton – unbranded) for $23 and told my Wife I would not need to buy t-shirts for at least 3 or 4 years. 

In my view, the saving from not buying branded clothing can be better spent on investments that appreciate in value than clothes that decline in value!  The car I drive and the clothes I wear are very poor predictors of my financial capacity, I could comfortably afford to wear nicer (at least more expensive) clothes, or to drive more expensive cars, but because I place a very low value on brands or how others perceive my outward appearance, my decision is that the capital I would need to invest to improve others perceptions of my apparent financial position is far better being invested to improve my ACTUAL financial position.

I love investing in companies with brands, they have undisputable value – companies with strong brands generate above average returns because consumers have (usually) been fooled into thinking something is better (something like an outstanding reputation for service is different).

One thing that troubles me about the professional class is the way they pander to other people’s perceptions.  As a matter of habit, in my experience, professional people that earn high incomes have an extraordinary predisposition to drive expensive late-model (usually European) vehicles.  If you have the income and derive particular pleasure from this type of consumption, then so be it, but I would hazard at least three-quarters of this group would have no particular passion for their vehicles, but feel compelled to drive BMW’s or Mercedes’ or Porsche Cayennes (I’m seeing an awful lot of these lately) because the majority of their cohort do.  Likewise, you will find a tragic predilection for properties (and the accompanying mortgages) right at the top of the levels the professional in question has income capable of servicing.  Just as I spoke about the foolishness of excessive corporate debt a few weeks ago, this particular behaviour, which I am certain is chiefly driven by others perceptions leaves persons who should be extremely financially secure (due to high incomes) very vulnerable to external ‘shocks’.

My other great passion is for the waste that is (in my view) Private (Non-State) Schooling.  I know so many people who struggle to meet the Private School fees, in combination with their million dollar mortgage and the repayments on the BMW 740i and the Porsche Cayenne as they strive to create the impression of prosperity.  This is madness in my view.  Both of my sons went to Public School for 13 years, both scored in the top 2 – 5% of our State, both are currently at University with students whose parents probably spent as much as $300,000 or more on their (K – 12) education/tuition to the end of High School (incidentally, with a little ‘tiger-parenting’, both boys were probably capable of more…).  You cannot turn your child into a prodigy by paying for an expensive education, there are some Public Schools which are a pretty poor choice no doubt, but there are plenty out there that will provide just as good an education at no cost (other than the taxes you will pay regardless).  Fostering a genuine passion for life-long learning and an enquiring mind will be much more valuable to your children I expect than spending a fortune on a marginal improvement in the standard of their School.

I should point out it isn’t just the professional class that suffer such foolishness (conspicuous consumption to augment other’s perceptions of them), for example, many a tradesman drives a utility vehicle (a ‘pick-up’ for US readers) that is more expensive than needs be for trade purposes.  My take is however, based on income earned, in my experience the professional classes don’t amass anywhere near the personal financial assets they should do – Tony Hansen 12/10/12.

EGP Fund No. 1 Pty Ltd. Up by 14.49%, leading the benchmark by 3.17% since July 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 17.92%, leading the benchmark by 18.25% all-time (April 1^st 2011).