In a previous column a personal story was told about how a contrarian investing sensibility was forged during a high-school stock-picking contest. The realization that "tried and true" blue-chip stocks made for mediocre results did more than decide what style of stock investments would be chosen to build wealth. It also provided a foundation for looking at other life matters and questioning the current conventional wisdom.
Two recent episodes got this fellow pondering again. The first was listening to a heartfelt telephone call to a financial television program. The caller was eager to play the markets, but he and his wife had a mortgage, three children and little capital to invest. What could they do? The pat answer: choose mutual funds with low minimums and monthly purchase programs.
The second incident for the contrarian was a chat with a woman who fervently proclaimed the contrarian label suited her well. She was single, opted not to have children and wanted to develop a meaningful career. The business world had also helped develop her investing acumen -- she'd just sold her Toronto house for a big gain.
"We're at the top of the housing market," was her reasoning and she refused to fill up the place with "stuff." She now rents a condo as her research proved there was a large glut. No rush to buy.
These two situations are very different, but so were the respective approaches. The caller didn't seem to realize that with a house and children, he had already made two large "investments" for the future. And despite middle-class assumptions -- both are non-obligatory. A house sucks cash flow for mortgage payments, taxes, insurance and maintenance. Historically, buying a house has generally delivered a decent return on capital, but a lot depends on entry points, interest rates and location -- in short, there is no guarantee of a large positive return over time. But if one can afford it, there are large intangible returns from creating an enjoyable living space of one's own.
As for children, the returns are virtually all intangible. And make no mistake, they are expensive.
On the flip side of the coin, remaining childfree is also a perfectly acceptable choice. Organizations like No Kidding and Population Connection provide balance to the biological imperative when considering the idea of adding to an already overcrowded planet.
As for the minimalist professional, she likes to live below her means. In this day and age, that is a strong contrarian principle, no matter what level of income. Author David Chilton has sold two million copies of The Wealthy Barber, a folksy manual on personal savings that contains what once passed for common sense.
It seems that Mr. Chilton is paddling upstream. Savings rates are subterranean, while personal debt climbs to historic highs. Much of the frivolity comes from conspicuous consumption of "positional goods" -- scarce luxuries that are valued because few can enjoy them. Mind you, vanity and insecurity can generate fat margins for retailers. Tiffany & Co. offers sparkly baubles, and a 10-year total return of 481 per cent on its stock. Investors have recognized that as society becomes more stratified, high-end retail can do very well. For a contrarian, price is what you pay and value is what you get. The best attribute of money is that it can buy freedom -- another intangible. You generate no liens when you're happy living below your means.
Benj Gallander and Ben Stadelmann are co-editors of Contra the Heard Investment Letter. This column first appeared on GlobeinvestorGOLD.com.