I had a great conversation this week with a representative from an investment company who was keen for us to use his services. He had quite different views to the core beliefs which underpin the way we think about money and inevitably, the conversation progressed into a good natured debate around the difference between investment and speculation.
One of our favourite ways in which we like to think about this one, is the concept of ‘the greater fool theory’.
We have met lots of people who have talked to us about their investments which are revealed to rely entirely on a ‘greater fool’ purchasing it from them for a higher price in the future in order to deliver any return.
When this goes wrong, it’s a little bit like the childrens’ party game where everyone passes the parcel around until the music stops but instead of being able to unwrap the surprise gift, you’re left with something that has cost you a small fortune and nobody wants anymore.
Many of the things we are talking about here feature at the more interesting end of the investment spectrum. Classic car collections, fine art, wine and antiques all fall into this bracket together with some of the more exotic investment products which appear in our inboxes for consideration.
The enjoyment factor to be had from building the portfolio (anyone for wine tasting?) or day to day appreciation of a beautiful piece of sculpture can be powerful in driving our behaviour as investors and can lead us to look on them more favourably than we should. Paintings sold at auctions like Christies in New York, sell for millions and I am sure that this represents good value for the right buyer.
Nevertheless it is important we remember which of our assets are investments and underpin the success of our financial plan and which are not.
Posted by: Matthew Kiddle | Posted in: News
