What to Do When Consumption Goes out of Fashion

Dear Reader,

So much of what we do is based on price.

Where you do your weekly grocery shop, buy a pair of jeans, or stop for petrol on the way home.

With Christmas quickly bearing down upon us, price will likely determine what and where you’ll buy all those presents. Whether that be a bike, or the latest games console for your kids and grandkids.

It’s an instinctive thing. Once you know what you want, you automatically search for the best available price.

Price works its way into just about every endeavour we do. When you purchase any goods and services, price is always front of mind. Likewise, when you buy a home or investment property. Price also reflects how much you value (and charge) for your labour.

Of course, with the markets, price stands above all else. We determine whether a trade is successful by the percentage lost or gained.

And that’s fair enough. The difference between your entry and exit point plays the biggest part in how your trades perform.

However, by concentrating solely on price, you forget about something else that is also important…time.

If we judge a trades success by the percentage return, we also need to account for how long it takes to generate that return.

Without using time as a reference or basis point, we can’t truly judge the full success (or otherwise) of a trade.

By referencing time, it also helps make the best use of your capital — something all of us have in limited supply.

Squeezing more out of your capital becomes even more important when interest rates are at rock bottom lows, as they are now.

Despite the RBA cutting the cash rate three times in just a little over six months, the economy is still only shuffling along.

Consumption hasn’t really happened at all…

Each month brings further underwhelming retail figures. And almost every month or so, it seems as though another retail chain goes out of business.

Although the employment rate remains steady, wage growth remains non-existent.

Add in personal tax cuts, which have also failed to ignite consumers, and the RBA has been left scratching its head.

The hope for increase in consumption hasn’t really happened at all. Consumers have decided instead that they will sit on their wallets and purses.

Even the once booming new car sales market has run out of steam. Get ready for yet more discount lending rates and bonus offers in the new year.

And forget trying to pick the next big trend. Many retail chains have been left to ponder whether consumption itself might actually have gone out of fashion.

Perhaps consumers have decided that they’re all good thanks. Yep, they’ve got enough stuff. They know that no matter what they think they need, most of it will eventually end up in the tip.

You also have to wonder, if the same mindset will find its way into how we manage and perceive our own capital as well.

Drive past any train station on a weekday, and you will see hundreds of cars sitting dormant. Each one used for little more than the daily trip to the station. At other times, it will likely sit idle.

Quietly burning a hole in your pocket, the rego, insurance, service, tyres and other maintenance costs all stack up. And when you go to trade it in, you cop it squarely in the neck.

However, trading it in is more palatable than trying to sell it yourself. Posting ads, hoping for a miracle…waiting for some bloke who never turns up.

While you need transport to the station, you have to wonder if owning an expensive and depreciating asset is the way to go. What a waste of your capital.

Could someone hire your car for a few hours to help alleviate some of the running costs? Or might there be an easier way to car-pool?

Millions of dollars’ worth of cars sitting idle at the station every day, collecting nothing but dust and bird droppings.

Even the aforementioned humble old bike. Millions of bikes are produced every year — some of which cost as much as a car. If the bike sits there unused, even underutilised, it too is burning up your limited capital.

And what of a holiday house that is only used sporadically. Or a fund manager taking too big a clip out of your superannuation. There are countless ways your capital can be squandered away right under your nose.

And so too it is with the markets.

Take a look at your share portfolio. Are all those shares and cash in term deposits making the best use of your capital?

Perhaps there is a stock or two lost forever in nowhere land. The only reason you keep it (or them) is that you fear the moment you sell, it might rocket higher. Surely that money could be put to better use elsewhere.

Even with the shares you own that are matching, and hopefully beating, the index. Are you really getting the maximum return out of them too? Perhaps there are other ways you can help enhance your returns…to put that limited capital you have to full use.

That is why time is so important. Every day you don’t put the full potential of your capital to use, is yet another day squandered.

And what better than a new year — the arrival of 2020 — to judicially put all of your capital to use.

All the best,

Matt Hibbard,
Editor, The Rum Rebellion

The Rum Rebellion