Update No. 96 – 18/01/13

Here is a link to our half year report for 2013 (for non-Australian readers, the Australian financial year runs July 1 to June 30) which was e-mailed to holders recently.  We are very pleased with our performance since inception, but are hopeful the best is yet to come.  After four weeks of beating the benchmark, we underperformed this week as a couple of our holdings that have been big year-to-date winners gave back some of their recent gains.

I am usually strongly in favour of most of the views that Felix Salmon takes on his blog.  I particularly love the way he dismantles the idea of ‘Art as an investment’.  I have linked to his work many times in my own erstwhile journal, and will almost certainly do so again in the future.

But this week I thought I would discuss the exception I take with a post he produced “The invidious reach of personal-finance snake oil”.  There are a couple of well-made points, firstly the ‘kids-these-days condescension’ exists in my view in the article he links to and the extrapolation of the whole $300 the protagonist in question spends on food as being wholly available for investment 5 years into the past is clearly misleading, both because this excess $300 is clearly a recent phenomenon (i.e. post education completion) and because a reasonable portion of this is ‘necessary expenditure’, or food required for survival.

I have spent time in New York though, and it would not reasonably take any more than $150 or $200 to feed oneself with good quality fare, even including relatively frequent dining out. If you do not feed yourself within such a budget, then you are engaged in my view in (an admittedly low-level of) Conspicuous Consumption – motivated by the desire for prestige or a display of social status. I have no problem with the ‘carpe diem’ ethic Felix mentions – I usually say myself that up until the age of 30, almost any financial foolishness can be forgiven and provided substantial excess debt is not involved, overcome for a good financial future.  It is however, in my view disingenuous to imply it is ‘snake-oil’ to imply that the average person can become very wealthy.  Perhaps I take issue with it because I have proved previously how easily it can be done on only average wages.  I grant you NYC has a high cost of living, but it is also too easy to make this an excuse for why we don’t get ahead.  The idea that the present value of consumption is somehow higher at 23 than at any other time in life is a little mistaken in my view also, if not entirely back to front.  In my view the marginal benefit of present consumption is highest in late retirement when the likely benefits of foregoing such consumption (for example in the form of improved future consumption prospects) is much less likely.  Even if the protagonist could ‘only’ save $100 per week, I am sure even fairly cautious asset-allocation could generate 5% per annum and be relatively liquid.  That means about $776 for every $100 saved 23 year old dollars by 65 years of age.  Even assuming 2.5% CPI, the $100 saved would be worth more than $275 to the protagonist as a 65 year old. That is 2.75 times more potential consumption based on remarkably conservative outcomes.  Whenever someone says ‘what if I get hit by a bus tomorrow?’, I direct them to my “What If” post.  I read recently that a girl born in Australia in today has a 50% chance of living to 100, if that doesn’t scare you away from the plate of pork belly, and into some type of saving then I probably can’t help you…

I am not it should be pointed out, a financial adviser.  I do though, periodically like to remind people how with marginal sacrifices in the present day, meaningful improvements to wealth in the long term (the younger you are the greater the likely benefit, a dollar I save at 25 is virtually certain to be worth a good deal more than a dollar I save at 40 in retirement) can be attained.  Although fabulous wealth cannot be guaranteed by prudent saving and investing, you can certainly guarantee you will NOT become fabulously wealthy if you spend everything you earn to display how well you’re living…  – Tony Hansen 18/01/13

EGP Fund No. 1 Pty Ltd. Up by 5.57%, leading the benchmark by 2.97% since January 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 28.51%, leading the benchmark by 21.54% all-time (April 1^st 2011).