The growing importance of the things you love

2015-10-30

It's a trend that's more and more talked about.

Every Investor summed it up as follows 'Investors need to reset their investment return expectations from UK equities' quoting a portfolio manager of Franklin UK Managers’ Focus Fund.

Financial News reported that 'anxious investors are pouring money into multi-asset funds in the hope that these will offer then greater protection in a downturn'.

Privately, Swiss wealth managers worry that the current investment model is "broken".

Returns are not what they were, volatility has significantly increased, whilst this year's top quartile heroes are as likely to find themselves in next year's 2nd or third quartile. In the good years private wealth managers are not shy in extolling their own virtues, whilst in the bad years they point to outperformance of the general tracking indices.

High net worth individuals want their investment managers to preserve their wealth. When that becomes a marginal activity is it any wonder that they start to look elsewhere?

One place they look is collectibles. It's a natural thing to do; collectors are often experts in their own right. They might be left cold by financial market and instrument relationships, but the things they love are the things they know most about.

Let's be clear, the things you love are never going to be a central plank of most people's investment strategy. But for many, that historically skinny fringe around the perimeter of total net worth is growing thicker and thicker. If you can't make money on deposit, and your core investment strategy looks riskier than before, why wouldn't you put a little bit more into the things you understand?

Then there's the question of utility. Financial instruments that form the core of what you invest in have a single purpose: to make you money and preserve wealth.

The things you love have utility beyond this simple purpose. At a basic level they satisfy a human urge to learn, collect and own, then to socialise that interest.

For wine, there's further utility in its enjoyment, its sharing and the generosity of spirit that accompanies opening grand bottles with friends or fellow enthusiasts and collectors. There's pleasure in opening a bottle of wine that has increased in value and knowing you paid rather less for it. There's even rationality in drinking a wine that cost as much or less than when you were persuaded to buy it years before. Some collectors think of this as a form of dividend-taking. A dividend in the form of enjoying some of the fruits of a collection, lovingly built up over time.

Like with anything that becomes used as a store of value, diversity is a key to success. So is independence of thought and action. Access to information and trend data is of course important. A buying perspective needs cross-referencing to verifiable facts and figures.