When I lived in Europe, I became a member of a little-known group.
BBB — Business, Beer and Banter.
It met in either Jersey or Monaco. And you had to be invited in.
The format began with a curry lunch. Then we’d all head to a pub or wine bar for the rest of the afternoon. Get to know each other. Talk some business or investment.
I met some interesting people.
There were sort of 3 camps. Professionals — typically in finance, HR or law. Some wealthy business owners. And a few ‘trust-fund kids’ — living off big trust funds domiciled in the jurisdictions.
You learn a lot about money in places awash with it.
One afternoon, after lunch, we retired to the Royal Yacht Club in Jersey. (I’m going to change some names here to protect identities).
Paul is a Jersey resident but owns a substantial aviation company in the US. With the business fully managed, he’s developing another enterprise in the Channel Islands.
He also spends some time flying first class around the world, including to Auckland — where he stays at the Hilton. I guess he’s looking forward to the America’s Cup.
Paul seems to enjoy his life and his wealth. Because he’s generated it himself. And was still enjoying doing so.
We finished a good New Zealand Sav. Paul ordered us another. Enjoying the sunshine as we sat out in the huge courtyard at ‘the Royal’.
Another member at our table was Nick. 30-ish and prosperously chubby. Relaxed in a pink shirt and cream slacks. Sporting a gold Rolex and the sort of tan English people only get by living long periods in Southern Europe.
Conversation with Nick was difficult. He didn’t seem entirely happy or sure of himself. And I struggled to understand what business he was in.
Then, as Paul gently steered the conversation to boating, I realised Nick didn’t do anything for a living. He didn’t need to. He was a trust-fund kid.
Turned out Nick was off to Monaco tomorrow to relax on a yacht. And as he mentioned it, there was little excitement in his voice. For him, basking in the sun on the Cote d’ Azur seemed like just a regular chore. Like going to the supermarket to buy roast chicken.
Two guys with plenty of cash. Two very different approaches to life. Paul, enjoying the fruits of his enterprise. Nick, wallowing in a purposeless haze.
Which brings me to the point of this article…
Money is never naked
What you do with your money — how you spend, save and invest it — depends on where that money came from.
There’s a well-known theory in behavioural finance called ‘House Money Effect’.
You’re far more likely to take irrational risk and be more frivolous with money you inherit, win, discover or gain easily.
When you earn money by the sweat of your brow, you’re much more likely to take care of it.
Of course, this is illogical, right? Half-a-million dollars is half-a-million dollars. It has the same utility whether you won it or slaved 10 years at an accounting firm for it.
But that’s not the way our minds work with money. Money is never naked. Whatever money we have is dressed according to how we obtained it. And we send it into the world on that basis.
So when Janet and I won €50 at the casino in Monte Carlo — and then promptly lost that money on further spins of the wheel — we didn’t mind the loss. Because we were just playing with money we’d won anyway.
But a €50 loss is still €50!
The danger is when investors start making gains in the stock market.
One year, I was up a substantial sum. The picks I’d researched that year had delivered fantastically. There’d been a buyback. Then an unexpected bonus dividend.
‘Ah, time to take a punt on some riskier plays and go for some even bigger gains,’ I reasoned.
Then I stopped myself. This could have been a classic case of the House Money Effect. Using the ready gains, I would have gone outside my strategy. Into businesses I hadn’t fully researched or didn’t understand. And unless you’re lucky, that’s how you lose money.
Money has clothes. And it’s best to keep your money wearing overalls. With a spanner or two in the front pocket.
Hooked on a feeling
One of the best days in my life was buying my first home.
It was the culmination of years of hard work and investing.
Now, it wasn’t much of a home. A tired old bungalow on a very busy Auckland arterial. A bit of a starter dump.
But then I woke up for the first time in that house. And realised nobody could ever ask me to move on again.
It’s those little moments in life that give lasting joy.
Years later, building a share portfolio that delivers income to my family has been another such experience. It takes time and work. Studying businesses, sectors and trends. Coping with good times and bad.
Not all inheritance comes with negative House Money Effect.
Recently I came across a client who inherited some money from his late mother.
In this case, it wasn’t a huge amount of money. But it was ‘fully clothed’. He’d tried a little share and forex trading and lost some of the cash. Now he was afraid of losing anymore. His mother had put aside this money for him. He wanted to use it well. And invest it well.
So one of the best things you can do with your money — no matter how you came by it — is to get it working properly.
One way is dividend stocks with growth upside.
In the throes of Brexit, I recently came across what may be a suitable target. It’s a business supported by property. Yet beaten down in price. Unjustifiably so when you consider the factors.
You can buy it for less than the book value of its real estate assets.
And it pays a dividend above 12%.
Meanwhile, do look at your money in a changed light.
Are you spending and investing it different because of where it came from? And is it wearing work boots or a skirt way too short?