First, the ‘Oracle of Omaha’ threw cash at Harley Davidson.
Next, billions at Swiss Re.
Folks are asking if he’s lost his touch.
While others say look at the chart.
First blush would say it’s all value plays, but I’m wondering what others think.
I was recently involved in a somewhat petty, but nonetheless interesting and evolving debate. While out with a friend for an afternoon of lunch and gadget browsing, we decided to run into BestBuy. An hour later, after perusing big screen plasmas and stereo systems the size of lunch boxes, my companion decided to buy a new alarm clock. You know, one of those GE models with the big buttons on the top, and the huge red LED dsplay.
Well first I asked why they needed that? The reply was that the old one just didn’t work quite right after the last storm. It seems not so recent electrical activity had knocked out the power, and that the clock had not awakened the owner as it should. I soon uncovered that despite these instruments being battery powered (in backup), the owner sometimes failed to change said batteries, so the outage reset the clock time. I then asked why not use your cell phone alarm to wake – it is kept by the bed at night, as the land line is in another room? A Nokia phone is my alarm clock of choice, on the road, and at home. Well, I would just forget to set it. But you have to set the alarm every night anyway, heh? Well, yea, but alarm clock is so much easier. I see.
The user forgets to replace a battery, and blames the device. Another device sits in the quiver, perfectly capable of performing the task, but that is simply not convenient enough. So, we buy an item to replace one which likely works perfectly well. Nevermind the fact that we now leave the old item for the landfill.
Too often, we look at a purchase as solving a problem, a need. We justify that purchase in our heads, back and forth, to buy or not to buy. Most often, we buy. A new “this” to solve “that” problem. I am as guilty as anyone. My latest idea is an Apple notebook to solve a big problem I have….not being able to type this entry while lying in the comfort of my bed. How ridiculous.
Now, many say “Well buying stimulates the economy!” Sure it does. “You sit there denoucing spending, so you must be a socialist, or worse, a communist.” Not so. In fact, I am as capitalist as they come. I invest in private ventures that create new jobs. My retirement account is full of growth stocks. I speculate in the equity, debt and commodities markets, which provides liquidity, albeit small, to those markets. But no, I do not give in to the hype.
What hype, you ask? The hype is that consumer spending accounts for 2/3rds of our economy, and that participation benefits us all, so we must participate. “We must buy products, because that creates jobs! Who cares where the jobs are, your spending helps a lot of people out!” Sounds a little socialist to me. I’d rather buy some distressed corporate bonds, put my faith in management to turn the situation around, and reap the benefits. “But I am not a financial genius”, you say. “I don’t have time to invest.” What you aren’t then, is a thinker, and what you don’t have time for, is thinking.
No, saving and investing is not clipping coupons. It is entirely more difficult to invest, even if just on gut instinct, than to buy a new television and decide that is you contribution to our economy. You certainly will reconsider, when that newfangled electronic gizmo is obsolete or on sale at half price a week later. And that brings me to my final point.
The wealthy in the US invest in financial assets – they provide capital. That capital provides the means for production, and the contribution appreciates in value. The wealthy become wealthier. Meanwhile, the tiers below continue to purchase assets that are not only unncecessary, but often useless. Those assets depreciate in value. In the case of that new TV or laptop computer, obsolete in a few years. Worse yet, that new car, worth 70% of its purchase price the moment it pulls out of the dealer. The rich often (more often than you might think) live modestly, and get richer. The rest of us live frivolously, and get poorer.
Sounds like a zero sum game to me.