BLOG: When weddings and portfolios focus on the wrong things

0
Written by:
19/11/2014
What do divorce rates and investing have in common? More than you might think, according to Ian Kelly of Schroders.

Diamonds may be forever, but if you want your marriage to be remotely durable, you would do well to keep them out of the equation. That, at least, is the conclusion arrived at by the US economists Andrew Francis and Hugo Mialon in their recent paper ‘A diamond is forever and other fairy tales’.

A big hit on the Social Science Research Network, it uses data from a survey of more than 3,000 US adults to evaluate the association between wedding spending and marriage duration.

The paper appears to show that the more a couple spends on their big day, the worse their outcome – so why might that be? Our theory has its basis in value investing.

We would suggest there is at least a possibility that when people spend large amounts on their wedding day, they may be focusing on more than the fundamental point of wanting to spend the rest of their life with their partner. Be it a great party, a stunning dress or a flock of white doves, it may be that people are buying something other than marriage.

Where this relates to investing is in the theory of ‘Something other than marriage’. Among the myriad of equity fund options facing the modern investor are the themed portfolios that target businesses with big global brands, enjoy high returns on invested capital, possess great technologies or operate in particular industries.

In every one of these circumstances, we believe the portfolios and their managers are looking for the wrong thing. Rather than setting out to own shares in good businesses, which is at best a means to an end, they should be looking for the end itself – in other words an outcome, such as to outperform a benchmark index or to generate a decent return on the capital they themselves have invested.

What these investors are implicitly saying is, if you own a business that has big global brands or whatever, then its shares will do very well – but there is not necessarily a causal relationship between those two statements. Far more important is to focus on the right outcome – essentially the generation of superior returns – and a century of history suggests identifying mispriced securities is an effective way of doing this. Whether you then live happily ever after will continue to be up to you.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

ISAs: your back-to-basics guide for 2018/19

Here’s everything you need to know to make the most of your unused ISA allowance ahead of the 5 April deadli...

A guide to Sharia savings accounts

A number of Sharia savings products have upped their game in recent months, beating more familiar competitors ...

Five ways to get on the property ladder without the Bank of Mum and Dad

A report suggests the Bank of Mum and Dad is running low on funds. Fortunately, there are other options for st...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

  • “Families tend not to talk about money and death. But if we don’t talk about these themes it becomes very hard to m… https://t.co/YsaDJzyClW
  • RT @STEPSociety: UK Ministry of Justice abandons plan to increase EW probate fees, described by STEP’s Emily Deane TEP as a stealth tax on…
  • RT @STEPSociety: UK Ministry of Justice abandons plan to increase EW probate fees, described by STEP’s Emily Deane TEP as a stealth tax on…

Read previous post:
Royal Mail profits down 21% on competition woes

Royal Mail suffered a 21 per cent profit fall in the half year ending 28 September 2014, but beat analysts'...

Close