Vodka, Cocaine and the Real ‘Wealth Effect’


Slap! Markets across the board are copping a pasting right now. It’s certainly one way to perk up when the jet lag kicks in.

Your editor arrived in Australia yesterday. Unfortunately, it was without my bag, which contained a bunch of useful research.

I stood at the baggage carousel yesterday until everyone else had left.

There was a case exactly the same as mine – except for the contents.

‘You know what’s happened, don’t you?’ said the Qantas guy.

After a 30 hour trip across half the world, the conclusion didn’t come quite as fast as he expected.

‘Uh…’ I mumbled. ‘Ah yeah…someone has got my bag and left theirs behind…’

I thought for a moment. I bought a lot of books in America. If the person with my bag decides to keep it, they’ll have plenty to read – and lots of socks to wash.

We’re left with little choice for today’s Profit Watch but to reflect on the current volatility and – this might sound strange – the life of Australian rock star Jimmy Barnes…

Blame Zuckerberg for the market ruction right now

The mainstream news is full of explanations for the weakness in the stocks right now.

We keep being told there’s worry about global growth.

That’s a strange conclusion when US GDP in the last two quarters has been over 3%. That’s the strongest it’s been in a decade.

The recent earnings for the last quarter were fine. No – it was much better than that. They smashed it.

What gives?

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It’s Mark Zuckerberg’s fault, mostly. There’s basically been a one-way trade in the US market for a long time: the FAANGs.

All you had to do was buy these to make money. And that’s what a lot of investors have done. They didn’t even try and do it themselves.

They just bought ETFs chock-full of Amazon, Facebook, etc.

Except the bloom is long gone from the rose. The Facebook and Google brands are now tainted.

People don’t like it so much that they’re valued as nothing more than data to be sold to the highest bidder. That’s killing sentiment toward big US tech.

And giving Wall Street a headache. If you don’t own those stocks – where do you go?

The current gyration happening now is everybody figuring this out.

We gave our best guess; the finance and energy sectors.

We know what Warren Buffett likes – he’s been buying the banks. Smart man, that Buffett. Banking profits were up 29% in the third quarter over the year before.

Oil is looking a little less compelling after the recent rout.

Yet investor expectations and sentiment never rose over the year while it was running hot, so the valuation argument is still there.

And let’s not throw out the whole technology sector. The headline stocks we all know might be weakening. But there’s still prodigious innovation happening in this sector.

Right now, it’s a matter of holding strong and not getting spooked out thinking the world is ending.

That brings us to Jimmy Barnes…

Booze, narcotics and a lesson for the stock market

Last week, we talked about the importance of psychology in the market.

We can apply the same principle to wealth in general. Jimmy Barnes is a case in point.

I just finished his autobiography, Working Class Man. It’s a great read.

He comes across as a really good guy, and humble.

We should be grateful that this great Australian character is still here with us.

Jimmy Barnes spent forty years drinking gallons of vodka and snorting cocaine and getting smashed most nights. How his body coped with it all is a mystery.

Jimmy’s alcoholism and drug abuse stemmed from his childhood demons. It was a traumatic upbringing. The booze and the narcotics were a way of blocking it all out.

What’s this got to do with wealth?

Cold Chisel was a major success. Even after the band broke up, Jimmy Barnes’ solo career took off. He had top-selling albums for another decade into the mid-1990s.

Jimmy Barnes watched millions of dollars roll into his account.

Even so, he found a way to lose his house and end up millions in debt. He had to work to simply pay off his creditors.

We don’t need to guess why. Jimmy tells us throughout the book. His entire life, he has felt worthless.

All his behaviour manifested this inner belief into his actual life.

Millions of fans and dollars did not alleviate this basic belief.

And so, he found ways to nearly lose everything – and take him back to where he believed he belonged.

Think of it as the true ‘wealth effect’.

Wealth is not really a matter of degree. It’s a matter of perception.

We can take a lesson from the life of Jimmy Barnes.

It’s no use making a lot of money unless you feel like you deserve it.

Otherwise, you’ll find a way to make it disappear.

And there are plenty of people in the stock market that’ll gladly take it from you.


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Callum Newman,
Editor, Profit Watch


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