THE RISK OF LOVING YOUR INVESTMENTS

Is Alienation the Answer?

Capitalism makes it possible to exchange anything for virtually anything else.  All objects become commodities with cash values.  But people get attached to things.

Caring more about the personal meaning of their possessions – or their beauty or uniqueness — investors easily lose the flexibility they need to safeguard their monetary value.  One can argue that such possessions enhance their lives, make them happy, engage them or help them feel fulfilled.  But they don’t necessarily make them richer if they cease being thought about as commodities.

Barclays just published a report on the dilemma of “treasures” as investments.  According to Mindful Money,  Dr. Greg B. Davies at the bank “says that this growing focus on treasure is just one example of a ‘familiarity bias’ that has become more pronounced since the financial crisis – meaning we search for assets we understand.”

MM adds: “For most people, it is the emotional aspect of owning ‘treasure’ that provides the most satisfying returns – but the potential for profit shouldn’t be underestimated for the shrewd investor.” (See, “Alternative Investments for Profit and Pleasure.”)

Paul Sullivan, the financial columnist for The New York Times, commenting on the same report, noted that it confirmed what he suspected:  “if you think people make bad decisions when it comes to investing in securities, they make worse ones when it comes to something tangible.” (See, “In Investments, as in Life, Passion Can Cloud Judgment.”)

For investors concerned about getting the best possible return for their money from the objects they love, “treasures” can all too easily become “liabilities.”

But perhaps this is exactly the wrong way to think about our possessions.  If everything can be converted into cash, does that mean we need to think about them that way?  Has the modern world so alienated us from our emotional and spiritual selves that something we buy automatically becomes “a bad decision” if it does not increase in value?

Modern tax laws make it seem so.  When all that is left of you is your estate, the only thing that matters to the tax collector is the cash value of the things you leave behind.  Sullivan cited a lawyer in a wealth planning practice who noted that collectors and other “passion investors” typically made two mistakes when it came to estate planning.  “They do not tell their adviser the extent of the collection, which throws off calculations, and they cannot conceive that their heirs will not want to take over what they have collected or invested in when they’re gone.”

Perhaps they deny the inevitable as a way to protect themselves from the contradiction of owning things for pleasure yet wanting them to turn a profit.  We all know that you can’t take it with you, but we seldom stop to think through what that actually means.

We can try to be “shrewd” as Mindful Money suggests or calculating as Sullivan implies, but perhaps the truth of the matter is that we end up fooling no one but ourselves.