When Porsche Comes to Shove…
…or, more accurately, when it comes to shoving a Porsche.

I have a friend who decided to become a client. Last week she informed me that the amount she was going to hand over to manage had to be reduced by the amount her husband was obliged to hand over the owner of a Porsche he “accidentally” backed into.

Now, being a non-owner of a Porsche myself (for now) I fully understand the urge to “accidentally” plow into one every now and then, but how many of us actually ever stop to consider the investment consequences of such impulses?

In other words, the more you give in to your impulses, the less likely it becomes that, the next time around, you will be the owner of the Porsche that gets backed into.

Of course, there’s much to be said about buying a less expensive car and investing the savings. Both a Porsche and, say, a Ford Taurus, will both get you from point A to point B in about the same time, albeit not with the same measure of style. And, as some image-conscious professional might assert, the journey from point A to point B isn’t necessarily a horizontal one.

Notwithstanding, a penny saved is a penny invested, unless you’re the type to keep your savings in your mattress, in which case your investment decisions are something “you sleep on.”

Economists tell us that to save money is to overcome one’s natural impulse to spend it now, and that in order to be induced to save most of us must be given a more lucrative alternative: more spending power in the future. This propensity to spend is easily seen by looking at (i) the ever increasing levels of personal debt—particularly credit card debt—and the attendant increase in personal bankruptcies, and (ii) the number of people who don’t maximize their RSP contributions.

The difference between our spending power today and that of some point in the future, when adjusted for inflation, is called the real rate of return on our investments. I would suggest that most of us need to get real.

On a related matter…

I tend to read much investment commentary in addition to dispensing it. Some of it is more interesting than useful, some the reverse. You decide on this one:

An article appearing on the Wall Street Journal Online, September 5th, 2007, cites a study which examines what happened to the profitability of 75,000 companies in Denmark following a death in the family of a CEO:

The results:
Loss of
Child: -21.4%.
Spouse:-14.7%
Any family member: -9.4%
Parent: -7.7%
Mother-in-law: +7.0%

Don’t try this at home.

Now, to be fair, the mother-in-law figure is not statistically significant, but had I mentioned this beforehand none of you who aren’t mothers-in-law would be smiling now.

How is this a related matter? Remember the old joke about the good news/new scenario: your mother-in-law driving your new Porsche off a cliff.

The full article, which also examines the relationship between the size of a CEO’s newly-purchased mansion and it’s subsequent share price, if still available, can be found at: http://online.wsj.com/article/SB118839767564312197.html?mod=hpp_us_pageone