Musings Report #41 10-12-13 What Money Buys & Can't Buy
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What Money Buys & Can't Buy
As the purchasing power of the lower 90% of wage earners continues to decline and the storm clouds of global recession gather on the horizon, thoughts on the nature of wealth, security and prosperity remain at the top of my agenda.
In response to my last Musings on the subject (Musings 27--"What Wealth Really Is"), correspondent Michael M. noted a key distinction between Things That Money Buys and Things That Have Worth. Here are his comments:
I am just reading your Musings 27, and while Maoxian's comment struck me as right on target, to me your interpretation seems to be not on the same page. He talked about Things That Money Buys, while you take it as Things That Have Worth (maybe expressible in money.)
SPACE, SILENCE, PEACE, CLEANLINESS: just imagine you could only afford to live in some bad part of the city besides the freeway.
I only agree on SAFETY, STABILITY, SECURITY in a relative matter: money can buy you more than the poor living in the same general area have of those qualities. And I think that's how it was meant. In absolute terms no such things can be given anyway.
THE ABILITY TO BE HONEST is a very good point. I understand it as having the strength and time (!) to carry the consequences of being honest.
Being honest makes you more vulnerable: as you become predictable, being gamed becomes much easier and you have less options responding to weird/crazy/offensive behavior. You dearly need extra time to constantly ask yourself if offers or opinions given to you (after you have honestly presented your opinion) are true, or marketing versions tailored for you.
ABOVE ALL: FREEDOM.
Freedom consists of having options. In today's commercialized world less and less options are still available to you without at least some money.
Thank you, Michael, for insightfully noting the difference between what money can buy and what has worth: clearly, there is much overlap of the two. If we imagine two circles in a Venn Diagram, one What Money Buys and the other What Has Value, these qualities (space, silence, security, stability, honesty, freedom of choice) are in the overlap. Friendship, for example, is in the part of What Has Worth that is not part of What Money Buys.
This discussion raises an additional question: how much money is needed to buy space, silence, peace, cleanliness, safety, security, stability, honesty and freedom? In nations where these are only available at premium prices because the social and political order is in disarray or incapable of securing these for the majority of residents, then the cost is very high.
In nations that provide a modicum of these qualities to the majority of residents, the cost could be quite low, especially in rural townships where costs tend to be much lower than urban areas.
Nations which provide these qualities have a financial and cultural foundation that supports these qualities. Should the financial or cultural milieu change, these qualities may degrade. If that were to occur, it would require more private money to offset the loss of publicly provided security, honesty, etc.
I detect a troubling trend in government services in at least some sectors: the number of empoyees providing services to the public declines even as the agency budgets continue to rise. An increasing share of the national income seems to be wasted in friction that does little to provide essential public services. We're spending more money but getting less for the money.
If this is indeed a systemic trend, we can foresee costs rising for those with the money to secure more of these qualities while those with less momney will have to live with less of these qualities.
Market Musings
I would like to step away from day-to-day or week-to-week analysis and briefly discuss the trading philosophy outlined in my book "An Unconventional Guide to Investing in Troubled Times." I alluded to this strategy last week: that the only times where lower-risk, higher-return trades can be made by small investors is at extremes. If 2001 and 2008 taught us anything, it was staying fully invested is a good way to suffer catastrophic losses.
If global markets are becoming ever more unstable and volatile, then "buy and hold" becomes an increasingly dangerous strategy. In this view, it only pays to be a market at the points in time when a trend has reversed at an extreme and it is possible for small investors like ourselves to ride a trend for a while and then jump off (sell our position) when the trend's momentum fades. The ideal trade (in this strategy) doesn't attempt to buy the absolute bottom and sell the absolute top (i.e. top-tick or bottom-tick); the basic idea of this strategy is to lower risk by waiting for the trend to establish itself.
Thus the disciplined investor might enter a trade when the market has already risen by 20% off the bottom and sell when 80% of the gains have been logged. The idea is to capture the low-risk 60% between the bottom 20% and the top 20%. This requires patience, as markets spend most of the time noodling around in ranges or in chop-fests of trendless up and down.
It also requires the fortitude to ignore the siren song of greed. Human nature favors opportunistic exploitation of windfalls, and so we are naturally drawn tot he fantasy of buying at the bottom and selling at the top. If we accept this is impossible, and content ourselves with entering and exiting trades at lower-risk junctures, we are much more likely to book substantial profits than either those trying to trade chop-fests or those trying to pick absolute tops and bottoms.
This strategy is easy to explain but devilishly difficult to execute in the real world. Nonetheless it remains the lowest possible risk, highest possible return strategy available to small investors that I have run across.
Best Thing That Happened to Me This Week
Time spent with my siblings.
From Left Field
Computer Generated Bruce Lee: A fully computer generated Bruce Lee was created for an ad for Johnnie Walker Blue Label in China -- something not right with the bridge of his nose, otherwise, pretty convincing.... no doubt Lee's estate earned a nice fee for permitting this digital double.
DNA Double Take (via Steve K.) Chimerism, the presence of two different DNA in one body
“Power always thinks... that it is doing God's service when it is violating all his laws.” John Adams
Thanks for reading--
charles
