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We keep hearing that consumer spending propels 70% of our economy and that we will not see real growth without an increase in consumer confidence, meaning spend, spend, spend. This is very bad advice! Let other people spend -- you should be saving!This is a theme I have been hammering on all year and I will continue to do so. I believe this is so important to our personal and national long term health that any true investment discussion, be it on the web, radio, television, newspapers or magazines, is just blowing smoke if it is not a primary focus.
A penny saved is a penny earned has been prescribed by wise people for centuries, first noted in 1640 as "A penny spar'd is twice got." (G. Herbert -- Outlandish Proverbs No. 506)
Wealth is synonymous with the accumulation of capital -- meaning that you must save. Saving, not spending, is the wiser, and our long term economic health depends on it. The United States may still be the current primary engine of global growth but China is on a clear path to overtake us. Our personal and government deficit spending has accelerated that outcome.
I quipped earlier in the year that more people have televisions than health care coverage, even though there is no national program to facilitate this. What does that tell us? Should you have to show proof of coverage before you can buy a huge flat screen television?
More bad advice.
I often get comments proposing all kinds of alternative investment advice which you too have probably heard in your investment journey. "Technical analysis is the way to go"... only if your goal is poverty or selling news letters. "Buy and hold is dead, day trading is the smartest way to make money in the market"... perhaps if you are running a discount brokerage business. "Gold is the only true safe haven against world markets gone mad"...actually diversification has proven to work better.
What I find the most intriguing from my studies, and putting in my 10,000 hours, is that all of the most successful investors on record were value investors -- they did little day trading, no technical analysis, and only dabbled in precious metals as a part of their diversification. Which brings us back to saving even in investing by searching for bargains. Broadly speaking this means buying something for less than its intrinsic value or getting more than your money's worth. Often an elusive goal but that is the goal.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.
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Reader Comments (Page 1 of 1)
9-27-2009 @ 5:18PM
rxwiz said...
Sheldon, This article shares my exact beliefs. Do we follow our beliefs? That's a hard one. It comes down to MODERATION and not putting everything into the same basket.
Keep up the good ADVICE..
Dr.G.
9-27-2009 @ 10:33PM
Don Bindner said...
I'm okay with the advice that you should let your neighbors be the big spenders. Of course it doesn't work if we all follow your advice, but I don't think it's really very likely that we all will.
Your comment about televisions was crazy though. Televisions are a hell of a lot cheaper than insurance. Even a really nice television is only about 2 months worth of medical insurance for my family and the TV can be expected to work for years--it's more like a one-time cost. Yes insurance is more important, but if insurance is out of reach financially (and I'm sure it is for some, perhaps many) do you also punish a person by denying them entertainment?
As for your conclusion, I believe you. The world's most successful investors probably are value investors. I'd bet that a lot of the world's least successful investors are as well. I have noticed that a lot of the world's most successful investors actually espouse index investing for most regular "mortal" investors.
9-28-2009 @ 11:04AM
e.krabs said...
I strong agree with this belief, and would like to add that even just saving our money at the bank is injecting much-needed liquidity into a sector where some banking businesses can still fail liquidity is scarce.
We don't need to revitalize our own consumer economy. At least, not to the extent it had been. Rather, the economy needs to evolve and become more balanced, and saving is NOT detrimental to the economy. Not unless you have a lot of gem-encrusted purses and cellphones to sell.
9-28-2009 @ 8:44PM
william lindblad said...
Saving and spending are all part of investing. A consumer driven economy is an ideal, but on the same note this spending has to be realistic and in line with the ability to pay. In simple terms, you have to live within your means. As you say, value is intrinsic in nature in some case, but we do have yardsticks for measurement. Let's look at a home.
a.) market value
b.) insurance value
c.) tax value
These three are going to be different and the reasons are simple. The market value is as stated. The insurance value is replacement cost. The tax value? (generally some voodoo formula)
As it stands, value is a somewhat complicated item. Although I don't understand him, I do like John Gresham's concepts. He is the guy who put the "V" in value way back with Adam of Capitalism.
I agree, saving is part of learning monetary responsibility, but so is spending when you have a "good deal". Lot to said for these credos as if they were adhered to - we would not have all present problems.
I don't want to be misunderstood - problems are problems and they are never in short supply. There is just no point in making them monumental.