Your BlackBerry or Your Wife?

Last week, I was traveling when I read an article about a new poll by Sheraton Hotels of 6,500 traveling executives that indicated more than a third of them (35% to be exact) would choose their BlackBerry over their spouse. Initially, this provided me with a good chuckle. While I'm sure there were a number of those polled who chose the BlackBerry option as a light-hearted gesture of how much time they spend on the now-ubiquitous smart phone, nicknamed the CrackBerry. But there were probably a good chunk of those who really, really preferred their PDA over their spouse. Having seen more than a few former colleagues display compulsive and addictive behaviour when it came to responding to their BlackBerry, I can understand the results of the poll. Nevertheless,this is definitely a sad statement on what the world has come to, when the need to be connected with technology has encroached upon the need to connect, develop, and nurture personal relationships. Yet, 75% of those polled also said that their time-saving electronic gadgets gave them more quality time with friends and family and thus helped them enjoy life more. Hmmm .......

Are Your Taste Buds Affected By Price?

I remember watching a blind wine taste on a major US network's morning show where a bottle of Two-Buck Chuck (Charles Shaw) was pitted against two other more expensive bottles of wine. "Chuck" as it is affectionately known, is sold for $1.99 per bottle at Trader Joe's outlets across the US. In the two rounds of tasting, Two-Buck Chuck came first or second, beating out bottles costing more than 20 times its cost. Wine connoisseurs were appalled. Last year its Chardonnay beat hundreds of other wines and won the top prize at the prestigious 2007 California State Fair Commercial Wine Competition. Two-Buck Chuck is not available in Canada, but every time I go to the US, I buy a bottle to drink. It's not a great wine, usually quite young and light in taste, but very drinkable, and hard to go wrong at that price.

What made me think of this was a recent article about an unusual wine tasting experiment conducted at Cal Tech and Stanford University. The scientists provided the wine tasters with identical wines at seemingly wide-ranging price points - from $5 to $90. Although the tasters were told that all the wines were different, the scientists were in fact presenting the same wines at different prices. The subjects consistently deemed the 'more expensive' wines tasted better, even though they were identical to 'cheaper' wines.

What was different with this experiment, was that a scanner was used to allow scientists to observe how the subjects' brains responded to each wine. When told they were being given a more expensive wine, a higher level of activity in a part of the brain known to be involved in our experience of pleasure was observed. What it revealed was the power of expectations. Since we may expect expensive wines to taste better than cheap wine, our brains convince us to literally make it so.

Wine snobs may not have any greater level of refinement when it comes to wine-tasting. They might just be basing their opinions on the price. That's why I always find it hilarious when Two-Buck Chuck beats out its more expensive competition!

So trust your senses and buy what your taste buds like, not what your eyes are telling you. By the way, my favourite daily drinking reds are Mezzomondo Negroamaro Salento at $8.40 per bottle or Zuccardi Fuzion Shiraz/Malbec at $7.45 (both of which are cheap by Canadian price standards).

This Month's Quote

"People don't change when they see the light; they change when they feel the heat"

How true given the recent economic turmoil. The signs and warnings of the credit crunch were raised over a year ago, but no-one did anything about it. Only now that the imminent collapse of the US banking system is a distinct possibility is anyone really willing to make changes to the system.

Can You Profit From This Financial Mess?

Exactly a month ago, I wrote a post about the need for accountability by banks and brokerage houses who were responsible for the current global financial crisis. With the demise of Bear Stearns and Lehman Brothers, the sale of Merill Lynch to Bank of America, the near collapse of AIG and the rumored shopping of Morgan Stanley to anyone who has spare cash, the contagion has spread faster and deeper than anyone could have imagined. At the heart of this mess lies greed and a lack of accountability. Bonuses have long been paid to the creators and promoters of these dodgy financial instruments, and executives and traders will be downgraded from billionaires to only millionaires. But the people left holding the bag will ultimately be taxpayers and shareholders - the average Joe.

The cornerstone of capitalism will surely be tested in the near future, as people ask how the situation could have gotten so bad without the majority of regulators and analysts raising the red flag. Up till the day they declared bankruptcy, most analysts still had a buy or hold recommendation on Lehman. Compensation based on short-term, quarterly results, will be looked at as a key factor with pressure on publicly-listed companies to perform in the short-term, at times to the detriment of building a stronger and longer-term business.

Unravelling the cause of all this pain, is the residential mortgage issue. However, this means trying to value (or sell) sub-prime mortgages and other loans which apparently now has an absence of an active market. How do you determine the value of something that no-one wants to buy? Mark it down so low until someone, anyone, nibbles at it. Barclays PLC bought a portion of Lehman Brothers for $1.75 billion which included physical real estate valued at $1.5 billion, and in the process, snagged the operations side of a leading investment bank for less than 5% of its value just a few months ago. Even though Bank of America paid a premium for Merrill Lynch, they still considered it a once-in-a-lifetime opportunity to buy a leading investment bank at a fraction of their price from a few months ago.

What does this mean for the average person such as myself? If I were extremely brave (and I'm trying to muster up the courage), I would consider selling my home in Toronto which has not (yet) been noticeably affected by price drops, and invest the money in top-quality, dividend-paying stocks in disciplined companies during the peak levels of pessimism (which surely must be close at hand). Why? Because housing prices worldwide are past their peak and will be continuing to head downwards. My friends in the US, UK, Australia and South Africa all report declining property values. Money invested in real estate will be dead money for a number of years and costly (leveraged and likely subject to potentially higher interest rates and stricter lending requirements). On the other hand, stocks will reach historic lows regardless of their performance. Just as the rising tide lifts all ships, the current contagion will hammer all stocks regardless. Look at all major stock exchanges around the globe and they are all down around 20% or more year-to-date. Sifting through the debris and trying to find solid companies will be the key to success. But if you can cobble together a decent portfolio, these will rise to their former levels in a few years, but regardless of how long it takes, you will be paid to wait out the storm. People are still going to drink Coke, clean houses with P&G products, shave with Gillette razors and eat Big Macs. Like I said, this is definitely not for the faint of heart. Any rube can buy a stock when it is going up. But going against the tide - buying when everyone is selling - has been the key to building fortunes. I am pondering ..... and it's a really big ponder.

Using Fame & Fortune For Good

In my hometown, the Toronto International Film Festival is in full gear, with hundreds of movie stars and executives in the city to walk the red carpet and promote their films. At the same time, thousands of movie fans are taking in hundreds of new films and fawning over their favourite celebrities. Such is the frenzy that accompanies North America's largest film fest (and second only to Cannes in prestige) that the city's theatres, posh eateries, hip night clubs and hotels are largely catering only to the film festival.

Which led me to think that while such events are great for the local economy and the Canadian film industry, it does reveal the shallowness of the industry and its followers and fans. Other more important social issues are relegated to secondary news stories by newspapers and television news programs when Brad Pitt arrives on the red carpet. Who's who and wearing whom at whatever party. To be invited to a celebrity party is to be considered to be one of the in-crowd. While the upcoming federal election in Canada may be boring compared to the sight of Jennifer Aniston in a dazzling black evening gown, it nevertheless speaks volumes about where our priorities lay in a materialistic world.

Even some of the movie stars and celebrities could do more. Kudos goes to the likes of Matt Damon who every year, supports the local One X One charity gala, helping not only to raise money but also awareness of grass roots development programs in third world countries. While there are those stars such as Angela Jolie, George Clooney, Brad Pitt, Bono and Wyclef Jean who are tireless advocates of social change, they remain a minority in the industry as others use their fame for their own purposes and not society as a whole. A pity some of the younger stars who exhibit self-destructive behaviour (yes, Lindsay Lohan and Britney Spears, we're talking about you) could find greater happiness if they spent more of their time, money and influence helping others, since spending it on themselves doesn't seem to be bringing them much happiness. Fans themselves could support those philanthropic actors rather than those who are the best-looking and pressure the others to do more with their star power to help the developing world or the environment.

Even those on the fringe of the industry such as Canadian Jeff Skoll (one of the first employees at eBay) whose Skoll Foundation funds films that have a powerful social message. He finances these films, usually not because he expects to have a blockbuster hit, but because he knows that these types of movies would not be made by mainstream film studios and that there is a need to get important social and political messages out to the mainstream public. The film industry should follow the various sports leagues such as the PGA Tour or the NBA with formal programs and funs to actively promote social change and use their influence, as sports stars do, to make the world a better place.

Then, we could truly look at these celebrities as stars.

Is Frugality the New Black?

Let's face it - there will always be rich people. Even during the Great Depression, while millions were starving and destitute, there were those who remained wealthy. As we head into tougher economic times, there will still be those around us who have money and will display their wealth conspicuously. On a global scale, the Arabs, and more recently, the Russians have honed it into a fine art.

While easy credit, affordable imported goods from the Far East and a (previously) buoyant real estate market, gave Joe Average in North America an excuse for conspicuous consumption, the tide may have changed. Not only has the recent financial crisis revealed that wanton spending is unsustainable, but the amount of time and effort needed to work to sustain such a lifestyle has led to higher levels of exhaustion, less family time, obesity and other general health issues, as well as greater levels of unhappiness and depression among North Americans.

But if there is a silver lining on this dark cloud, it is an increasing awareness of what people can live without, and during tough economic times, a return to sensible budgeting and spending. Whereas, keeping up with the Jones, and trying to mimic the lives of the rich and famous, may have been the societal norm (or at least the aspiration towards it), it appears that sensible spending, budgeting and frugality is making a comeback. In short, it may be the new black.
Not only have sales of McMansions, gas-guzzling SUVs and other status-bestowing luxury goods stalled, but even the use of the lowly-regarded coupon is rising. People are starting to get the message, as debt is crushing households, and any cost saving measure is utilized. Manufacturers of economy cars such as the Honda Fit cannot meet demand and smaller residences are becoming the norm. The use of the money-saving coupon, once derided as the tool of the poor and cheap, is growing by leaps and bounds. No more are people who make use of coupons looked down upon. Coupon use typically fluctuates with economic times, and right now, demand, interest and use of coupons is surging. In the US, over 300 billion coupons are offered every year.
If you read "The Millionaire Next Door" by Thomas Stanley and William Danko, you will learn that even millionaire households have long known the value of the use of coupons and frugality and budgeting, are important factors in those millionaires achieving the wealth that they have.

Interestingly enough, the vision of the general public of what a typical millionaire looks like, is very different from the reality. Individuals who live ostentatiously, are quite likely to be heavily in debt, lease their vehicles, live beyond their means and have very little net worth. Superficially, their lifestyle looks terrific, but in substantive terms, their facade is paper-thin.
To me, being frugal means living below your means. So start using coupons, turn it into a habit and use frugality to start on the path to becoming wealthy.