The Emerald Isle and Frugality

A couple of recent comments to highlight as the counter clicks inexorably towards the one and a half million hits mark.

Combo apparently liked by review of Warren Buffett's 2017 letter to shareholder, writing simply:

Gold!!!

Gold is usually a good thing. 

Trader 247 had a comment on my Basic Models, Priorities piece, commenting:

It would be a waste to ignore what works for those with more experience. So I have also adopted the 'best practice' of responding to comments in posts. Thank you.

No problem at all. Imitation is the sincerest form of flattery. Blogging can be a lonely activity, so why not use comments to keep a conversation going as well as give them a forum where they might be seen?

While I don't track my commenters by name, Betfair Pro Trader James must be leading the way, certainly if we weight recent comments more heavily than those of previous years. It was with a heavy heart, and a little envy, that I read James' recent post revealing that he plans to head home to Ireland. 

The impression I got was that it was something of a farewell post, ending as it did with the words "Bye for now". However, since then James has posted two new blog articles, so perhaps I'm mistaken. 

In the first post from the Emerald Isle, he talks of Stockholm Syndrome. I read a book on this subject once - at first I thought it was terrible, but after a while, I really started to like it...

James wrote:

This had me wondering if there is also a financial version of the syndrome, whereby those who have paid monthly subscriptions, over many years, for something they believe is going to make them wealthy. This would count as a form of captivity and even though they never get any wealthier, they keep on subscribing. If told that they are wasting their money they will attack those trying to help them see sense.

What shall we call it, Oslo Obsequiousness? Maybe that is too big a word for some victims to understand.

It was Friedrich Nietzsche who said:

Sometimes people don't want to hear the truth because they don't want their illusions destroyed. 

Taking umbrage with the messenger doesn't change the message in any way. If you believe the message is logically flawed, perhaps suggest why you think this is so. 

James' latest post was triggered by today's earlier post by myself, written after watching "Becoming Warren Buffett" last night. James wrote:

Too many people who aspire to being rich think only of the things they want to buy when they run into good fortune. Think of all the lottery winners who lose their millions in a short space of time. People don't become multi-millionaires by spending money. The exact opposite is true. The rich go out of their way not to spend anything at all.

My thoughts on this are that lottery winners are, with rare exception, not very well educated. As Business Insider puts it:

They are (1) regressive taxes on poor people, in that a ticket costs relatively more for a poor person than a rich person, and (2) punitive taxes on the poor and uneducated people who are the most avid buyers.

The people who can least afford it are throwing away on average 47 cents on the dollar every time they buy a ticket. And the government, which relies increasingly on the lottery for funding, goes out of its way to tell them it is a good idea.

When they suddenly find themselves awash with money, most winners have no idea how to handle it. 

James continues: 

You are not going to get rich by constantly spending your capital on items that lose value the moment you hand over your cash. Only through the purchase of assets that appreciate in value are you going to increase your wealth.

One of the best books I have read on this topic is "The Millionaire Next Door" from 1996, written by Professors Thomas J Stanley and William D Danko. A summary of the book can be found here but:

In essence, it doesn’t matter how much you earn; it matters more how much you spend and invest relative to how much you earn. The average people next door became millionaires because they chose the right occupation, faced their fears courageously and handled their money well with great financial discipline and frugality. These were what made them the millionaire next door.

Wealth is what you accumulate, not what you spend. A little over a month ago I pointed out the folly written by one trader:

Ideally I want to get a new Porsche Cayman GTS although with a near on £60,000 price tag its going to have to wait as the money will be better spent on getting a house and living rent free initially. In the mean time though I wouldn’t mind a change. Currently im driving a BMW 325 which I actually rate quite well, excluding the fuel consumption that is. I have to drive a considerable distance each time I have my son so long-term it’s not a great idea, plus I’d like something a little more sporty. I think its important to treat yourself every now and then too as it boosts that motivation to kick on…

There may well be a formula somewhere about what percentage of your net worth it is reasonable to spend on your car, but even though I am not aware of it, even considering spending £60,000 on a car before you have even bought a house seems preposterous. 

Invest that £60,000 in a FTSE 100 tracking index fund and have ~£400,000 at age 65.  Ask yourself, WWWD? (What Would Warren Do?).

The excitement of a new (brand new, or new to you) car soon wears off, and for boats it is said that: 

I'm sure James is far too sensible to be buying a yacht any time soon. 

Although neither James or myself can claim to be a millennial, these days there is a definite trend away from material possessions and towards experiences:

Millennials view ownership differently than previous generations did. While young adults have traditionally placed high value in a car and home, many are now seeing them as major commitments. The trend predates millennials but is accelerating: Since 1987, Harris group found hat the share of consumer spending on live experiences and events relative to total U.S. consumer spending increased 70 percent.

And in the hour or so it's taken me to put this post together, the counter is poised to crack the 1.5 million mark any minute now. This post should do it, so again, thank you to everyone who reads this and spreads the word about it.