Mike Kayes, CFA

Investing in Basic Needs: Hedging Your Expenses

The idea that one can hedge against the expenses related to basic needs is idiotic. I am resigned to the fact that I have to buy toothpaste every once in a while. To think I can somehow hedge this expense by buying shares in Procter and Gamble (as I prefer Crest toothpaste) and that somehow if I brush my teeth a lot, then my investment in PG will pay for my expenses makes absolutely no sense. Same applies to buying shares in XOM to hege the fact I have to fill up my car with gasoline once a week. There are many variables which affect stock prices, but my personal consumption is not one of them, nor should it play a meaningful role in any investment decision process. The author's basis for thinking that personal preferences should be correlated to investment decisions is based on his mistaken belief that everyone can become their own financial advisor. Even if I asked my entire home town how much they floss, this does not make me a dentist. A prudent, value-added financial advisor understands that there is a lot more invovled in the investment decision process than intuition and anecdotal evidence. A knowlege of accounting, economics, competitive position analysis, and years of valuation experience, to name a few. If 2008 has taught us anything, it is that investing is a risky business and that relying upon a true professional, one that employs a time-tested disciplined process to make investment decisions, is the most prudent strategy. One last point - the author also seems to believe that if we watch the masses then we can know how to invest. Following the heard is only a good thing to do from an investment perspective when the heard is moving in the right direction. Often it is not. Conversely, being a contrarion doesn't work all the time either. Keep this thought from Ralph Waldo Emerson in mind when you approach investing and you'll at least have a fighting change -"It is easy in the world to live after the world's opinion; it is easy in solitude to live after our own; but the great man is he who in the midst of the crowd keeps with perfect sweetness the independence of solitude."