Investment

Investments you can consume – The Hindu

Published

4 years ago

January 10, 2021

Possessing passion assets can help generate both income returns, capital appreciation

There is something about real assets that makes them interesting. We are not referring to only real estate and gold. Consider art, paintings and antiques, collectively referred to as passion assets.

In the last 10 years, mass-affluent investors (middle class if you are an economist) have increased their allocation to these assets. In this article, we discuss why we should consider allocating some proportion of total investments to such assets and the risks associated with such investments.

Value drivers

An investment in an asset can generate two sources of returns — income returns and capital appreciation. For instance, if you invest in equity, you can earn dividend income and then capital appreciation when you sell your investments. Similarly, you can derive value (again, utility if you are an economist) on your investments from two sources — monetary returns and consumption.

Financial assets provide only monetary returns; you cannot consume such assets.

On the other hand, you can derive value from both sources on real assets. That is one reason why real assets are preferred investments for many.

Consider antiques. Suppose you successfully bid for an antique furniture (more than 100 years old) at an auction. You may have bought the furniture because you collect antiques. But you can consider the cost of the furniture as an investment. Why? Typically, the price of such assets increases with age. So, in the event you want to sell the asset, you may be able to generate profits from your investment.

You can consume (derive value by displaying) the asset as long as you have it in your possession. It becomes an investment when you are ready to part with it for a profit. The question is: will you be able to sell such assets?

If you collect antiques, it is natural to buy such assets, but difficult to sell some of your existing collections. Behavioural psychologists refer to this as the endowment effect. Simply put, you are reluctant to part with such assets because you overvalue your possession.

But the endowment effect could diminish with time as the value (ie, the emotional satisfaction) you derive from owning such asset declines over a period. That means if you have a chance to buy, say, a rare eighteenth-century desk, you may be less reluctant to sell your rosewood desk.

That said, investing in passion assets has its issues. For one, such assets require lumpy investments.

For another, buying and maintaining some of those assets could require skill and effort. For instance, antique furniture may not require high maintenance, but keeping your rare painting in pristine condition does. So, you may want to consider the kind of passion assets that you want to invest in.

Importantly, if you are collecting paintings, you have to develop the ability to spot artists whose paintings may sell for higher prices in the future.

‘Investments later in life’

It is best to invest in passion assets after five years into your career. Why? Moving from one job to another is likely to be more frequent during an early career than in the later years. Therefore, your investment portfolio should consist of financial assets during the early part of your career; it is difficult to move physical assets (read passion assets) when you move places.

Finally, it is optimal to allocate not more than 20% to passion assets. Remember, it is not easy to sell such assets. Importantly, the value is based on perception and your ability to find knowledgeable buyers. So, you cannot invest in such assets for your goal-based portfolios.

(The writer offers training programmes for individuals to manage their personal investments)

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

3 days ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

3 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

4 weeks ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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