Stereotypes about the rich are as misleading as those about any other demographic group. But due to their purchasing power, the impact of these misperceptions can result in misguided strategic business decisions and poor public policy design.
Part of the issue is that the wealthy in Europe and the US and Asia have vastly different cultural affinities and backgrounds. There is not a monolithic global profile - though it is possible that one could emerge as the world's economy becomes ever more inextricably intertwined. In the interim, developing informed, comparable and comprehensive data about purchasing habits and intentions will go a long way toward avoiding poorly informed decisions based on emotion, bias and preconception. JL
Richard Morais reports in Barron's:
So many myths abound about the rich and super rich. Some folk have the impression the well-heeled only shop at Saks Fifth Avenue and Ralph Lauren boutiques. Not so. The rich can be incredibly parsimonious one moment and then profligate the next. It’s hard to predict.
There are 2.7 million very wealthy households in America earning more than $250,000 a year. Their annual household income as a group comes in at around $1.5 trillion, but their collective household net worth is closer to $23.3 trillion. So where these folk go the economy often goes I have a hedge-fund friend who I love hanging out with—until it’s time for him to park the car. This genuinely wealthy guy, who is so generous and fun and freewheeling at a dinner table, flatly refuses to pay $35 for a garage. He will endlessly circle blocks, for an hour if need be, until he finds a public parking spot on the street. It drives me crazy.
Amusing, but there’s a serious point to be made here; if you understand their purchasing patterns, you probably have a leg up when looking for investment ideas. As is the case with my hedge-fund friend, however, it’s not always self-evident what the rich will blow their money on.
Over a third of the seriously wealthy American households – 35%, to be precise – intend to spend more in 2012, sometimes significantly more, than they did twelve months earlier, if the economy continues to improve like it is. (The group is evenly split between optimists and pessimists over the direction of the US economy.) A little further down the pyramid, those who are considered “affluent” (the 58.5 million Americans earning $100,000 or more a year) are slightly more reticent; 27% intend to open up their spending spigots, as 69% stay a steady course. Only 4% intend to actually cut their spending in the coming year.
This intelligence comes from one of the media industry’s favorite sources of information, the 35 year-old Ipsos Mendelsohn Affluent Survey, which provides detailed insights of the wealthy through its seminal “Annual Report” and its monthly pulse-taking “Barometers.” Here is some quirky data on the affluent I found in the Ipsos Mendelsohn studies:
- Only 27% of the 58.5 million “affluent” households in America intend to invest in “stocks/mutual funds” this year. That compares with 44.2 million, or 76%, who intend to take a “cruise or trip/vacation.”
Conclusion: If you are buying equities, consider investing in travel and leisure stocks.
- The housing market might be down, but real estate is still a more attractive place for affluent households to put their money, much more so than the stock market. A full 42% of affluent households, or 24.5 million, intend to “redecorate/remodel/renovate outdoors” their existing homes. They are less enamored of the idea of acquiring more homes, however. Only 8% of the affluent intend to “buy or build” a new home this year.
Conclusion: Home improvement stocks could be better investments than real estate pure plays.
- Here are some of my favorite myth-busting factoids: the vast majority of the super rich and affluent shop at Walmart (74%), Target (73%), and Home Depot (63%). That compares with Brooks Brothers (6%), Tiffany & Co. (5%), DKNY (3%), Burberry (2%), and Luis Vuitton (2%). The wealthy are also big users of coupons; 71% of the affluent use paper coupons every month, with 54% using online coupons every month.
Conclusion: Pick your retail stocks carefully. I am hearing a lot of “common wisdom” at the moment that luxury stocks are the “safest” because the wealthy continue to buy while middle income households are tapped out. That’s partly true but the picture is much more nuanced than that. Yes, the wealthy will spend on beautiful trinkets, but, as these stats suggest, they also don’t like overpaying and are always on the lookout for bargains.
- The wealthy are not always wise investors, contrary to popular opinion. I’ve met some who are brilliantly savvy about financial markets and many others who really do not have a clue. Here’s a bit of truth-telling about the wealthy I found totally believable: only 8% of the affluent know what private equity firms do. A tentative 26% considered themselves to be “somewhat familiar” with private equity. In other words, a full 67% of the affluent are in the dark about how private equity firms make their money acquiring, buffing up, and selling companies.
Conclusion: Stereotypes about the rich are as prevalent as stereotypes about the poor.
Both are rooted in ignorance.
0 comments:
Post a Comment