Jane Austen: Investment Advisor

Jane Austen: Investment Advisor

Jane Austen, the inspiration for that wonderful movie starring Keira Knightly, thought about wealth appropriately. Perhaps the British in that time had seen enough speculative bubbles and fortunes disappear that they did not fall into the present day American understanding. An example of her view (and the British view at the time) is found throughout Pride and Prejudice. One such instance is found in Mrs. Bennett’s description of Charles Bingley’s wealth:

“A single man of large fortune; four or five thousand a year. What a fine thing for our girls!”

Mrs. Bennett was interested in the income produced from Bingley's assets annually as she knew those monies paid the bills for her girls. Her talk of a man's passive income being the best yardstick of wealth is rarely heard today. While Bingley’s wealth in pounds may not seem significant, when translated into a present day value and converted to dollars, a nice income number appears.

Today, Forbes magazine looks at total net worth, not income generation as the measuring stick when calculating its famous and influential Forbes 400 list. Water cooler talk about someone’s wealth in 2016 rarely focuses on the income generating ability of assets, but rather the perceived immediate liquidation value of those assets.

To be fair to us present day Americans, British markets in the early 19th century were not as robust as our markets today, which would have made a net worth statement more challenging. They also did not have zillow.com (that I am aware of) to hover over each other’s estates with a cursor and compare Zestimates while sipping whiskey and complaining about the colonies. No, to understand someone’s wealth in that time in the motherland,  one would estimate the income producing power of the assets owned, not the asset’s perceived liquidation value.

The value in this conception of wealth lies in its conservative nature and right view of the role of assets in a family or individual’s portfolio. I coach my clients to think very little of the portfolio value they see when they log into their brokerage account. In fact, I wish it wasn’t there, but had to be found seven pages deep into the site. Rather, the annual income that can be produced from those assets should be the focus, so that the goal is the increase in income producing power, not nominal value. This is overly simplistic of course, but I hope you get the point in the shift in thinking.

This new conception of wealth moves folks from a speculators mindset which asks, “What is the value of my holdings today; I sure hope that number goes up.” , to an investor's mindset which says “What is the income producing power of my assets, and I sure hope these assets get cheaper, so I can buy more, thus expanding my income producing power for years to come.” These two different postures toward wealth will produce entirely different reactions and results when the stock market drops 30% in a month. One will be delighted, the other paralyzed with fear.

Hats off to Miss Austen for moving us toward this superior mindset of investment.

Index funds are boring

Index funds are boring

Masterly Inactivity

Masterly Inactivity