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Rebalancing the team!

Over the summer Tottenham Hotpsur sold its star player, Gareth Bale, to Real Madrid for a world-record 100m Euros. Even in the profligate world of elite football, that's a staggering sum of money. Just how much is illustrated by Tottenham buying seven players, for about the same amount of money, to replace him. Although Bale was outstanding last season, Spurs knew that the talent of one player is fragile. So despite watching their best player depart, many of the club's fans are pleased with the club's transfer activity.

There are parallels  in investing.

Three years ago Gareth Bale was a useful and promising squad member with a specific and well-considered role in the team. His manager might have been delighted with his improvement as a player but worried that the team was becoming too reliant on his individual performances.

In the same way, each asset in a portfolio should have a well-considered role and, just as White Hart Lane held its breath every time Bale rolled around clutching his shin, investors should worry when an asset does well and begins to dominate the overall performance.

How Tottenham handled the sale of its top player is rather like how a good advisers manage the changing values of the investments in their clients' accounts. They make a cool-headed decision about the right balance of assets for their clients and, when the rising and falling of the funds alters that balance, periodically bring it back to the point they think is right.

A football club's chairman makes a difficult decision to release a player that is performing brilliantly, just as advisers make counter-intuitive decisions to sell assets that are performing well.

Spurs fans are optimistic because their club's activity in the transfer market rebalances the team and might increase the chances of reaching the club's goals at the end of the season. The periodic rebalancing of clients' portfolios is intended to do the same, albeit with a longer time horizon.


I've been thinking a lot about the concept of 'enough' recently. To an extent, defining 'enough' is the aim of good financial planning, but as author Alain de Botton notes in his book 'Status Anxiety', what's enough for one person may be mere subsistence for another, or riches beyond imagination to the next. In other words we tend to reference our concept of 'enough' to our immediate peer group, and not necessarily to our own genuine definition of what satisfies our needs and desires. And hence our frequent anxieties, according to the author. It's a good read, if really only a rather clever-clever cut-and- paste of a quite narrow filament of Western thought.

Amongst it all de Botton tells an amusing story about a fisherman, living contentedly in a shack on a beach, catching more than sufficient fish to feed his family and to sell in the local market. He's approached by a foreign businessman on holiday who quizzes him about why he doesn't expand, take on staff, buy more boats, invest in fish-catching technology and put the rest of the local guys out of business. The fisherman asks why on earth he would want to do that. The businessman explains that with that grand success behind him he could eventually retire to a shack on the beach and do a spot of fishing. 'But sir', says the fisherman, 'I have all that already!'

Of course, it fails to mention that after a lifetime of hard labour at sea the poor guy is likely to die relatively young or encounter death in his prime by drowning in a freak wave. Nor has he probably been able to put much away for the future security of his family. So the notion that we should all just duck out of the rat race and return to an 'idyllic' pre-capitalist subsistence model, whilst rather popular at present, is a little simplistic to say the least.

Indeed, in a rather more scholarly book, 'The Economy of Enough', economist Diane Coyle refers to research by Stevenson and Wolfers (2008), in which they conclude that


"There appears to be a very strong relationship between subjective well-being and income, which holds for both rich and poor countries, falsifying earlier claims of a satiation point above which higher GDP per capita is not associated with higher well-being".


Yet she tempers this by noting that


''richer societies are not automatically happier. For example, mental illnesses such as clinical depression, illegal drug use, alcohol abuse, and suicide have increased over time in some rich countries"(Layard, 2005, Wilkinson, 2007),


pointing to the paradox of


'Why do some indicators of unhappiness  rise at the same time as the average general level of happiness is rising too?" 


While de Botton takes us on a readable romp through, inter alia, literature, philosophy, religion, politics and bohemianism, there's little in the way of a real answer to our worries about our place in the world and our relationship with 'stuff' (i.e. material possessions).

From my point of view, it's certainly not a case of money being the 'root of all evil'. Indeed,  there's a verse in the most widely esteemed Buddhist text (the Dhammapada) that says - and I paraphrase mightily here - ’You have two choices when you're young. Either become a monk and live a holy life, or go out and make a load of money. If you do neither you'll end up like a sad old heron standing in a pond with no fish in it'. A refreshing view of life from an ancient philosopher who realised that neither living the life of Reilly nor starving himself to near death as an ascetic really did the trick. Both, in Buddhist parlance, are examples of 'clinging', which the philosopher identified as the main cause of unhappiness.

Perhaps to define 'enough' we need to decouple it from our reference group of peers, stop clinging to the idea that keeping up with the Joneses is going to make us contented, stop judging ourselves and others, if indeed we do, and identify our personal definition of what's sufficient.   Buying more and more 'stuff' rarely leads to permanent happiness, and it all breaks, goes wrong and falls apart in time, in any case. But I for one love a bit of retail therapy so let's not get all holier than thou on that one, either. Indeed, the research in Coyle's book seems to confirm that striving, earning and consuming are - within reason - good for us. Perhaps the trick is not to cling to it too desperately - because it's all merely money and 'stuff', when all's said and done.


Andrew Brixey-Williams


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