Thursday 28 Mar 2024
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This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on March 13 - 19, 2017.

 

Every girl dreams of having a diamond engagement ring. A gesture of love and commitment, a diamond is forever. As much as the male species dreads it, it is almost sacrilegious to propose without a diamond ring. It is a rite of passage that you must undertake if you truly love the woman of your dreams. And that is what De Beers wants you to think. That is the outcome of a century-old marketing campaign. 

The emergence of diamonds as a prized asset could not have started at a worse time. In 1938, as the US was still hungover from the claws of the Great Depression and there were rumblings of war, De Beers hired ad agency N. W. Ayer & Son to boost the sales of diamonds. The key challenge was, how do you get more people to buy diamonds in a bad economy?

The agency came up with a big hairy audacious goal — to create a situation where almost every person pledging marriage feels compelled to acquire a diamond engagement ring. The plan was to inculcate in young men that diamonds were a gift of love. And the larger the diamond, the greater the expression of love. The “Diamonds are forever” slogan was not as complete as the agency’s grand plan of making diamonds forever a measure of your manhood. 

Thus began the plans that would haunt men around the world for generations — the promotion of diamonds as a material object that can subtly reflect a man’s success in life. Movie idols, the icons of romance, were given diamonds to symbolise their unwavering love. Magazines and newspapers stressed the size of diamonds that celebrities presented to their loved ones. Fashion designers spoke about the trend towards diamonds. It was all about people who gave and received diamonds and how happy and loved those diamonds made them feel. Standing where we are today, we know this campaign worked. 

Here is the real magic. Diamonds, unlike gold and silver, hold little to low value. Gold and silver are commodities that can be purchased on the financial markets. They can appreciate and are fungible. Diamonds on the other hand do not function in the same way. Try selling your diamond ring. You will almost certainly agree with me, it is not much of an investment. The slogan “Diamonds are Forever” discouraged people from ever reselling their diamonds and ever discovering their alarmingly low intrinsic value. 

Knowing all that we know now about diamonds, does it make us want them less? Probably not. If we have accepted diamonds as a status symbol, then their lack of intrinsic value does not change our desire to own them. This may puzzle the rational person. 

In the area of wealth management, ask any investor what he wants from his investments and the first thing out of his mouth is “Returns!”. While the answer is obvious, I have learnt that it is not quite that simple. There are three kinds of benefits that we want to derive — utilitarian, expressive and emotional. 

To explain the difference between the three, let me use a Valentine’s Day example. A utilitarian benefit would be to give one’s beloved RM100 as opposed to a bouquet of roses that costs that amount. Why? Roses serve no practical purpose and eventually wither away. A person seeking an emotional benefit will choose to buy a bouquet of roses as it makes him feel good to be able to romance his loved one. One who is seeking an expressive benefit may make a statement about his values by, for example, buying a potted plant because he believes that a living flower should not sacrifice itself in the name of love. 

Diamonds hardly have any utilitarian value, but they do offer emotional and, some might argue, expressive benefits when it comes to clinching the deal in a marriage proposal. Now, I want to point out that there is nothing wrong with seeking emotional or expressive benefits as opposed to utilitarian ones. It is almost easy to assume that all of us invest to make the most returns possible. But there are studies that show otherwise. 

The Asian Wall Street Journal reported that in one survey, Dutch investors tended to agree with statements such as “I invest because I like to analyse problems, look for new constructions and learn” and “I invest because it is a nice free-time activity” more than statements such as “I invest because I want to safeguard my retirement”. 

Similarly, a survey showed that German investors who find investing enjoyable trade twice as much as other investors. And a quarter of American investors bought stocks as a hobby or because it was something they enjoyed. This shows that there are investors who care more about the expressive and emotional benefits of investing than its utilitarian benefits.

In Malaysia, a common example is shariah investing. Working in an organisation that provides both conventional and shariah-compliant solutions, I have come to understand that investors looking for shariah-based solutions do care about the non-utilitarian benefits of their financial products. Investment professionals may be puzzled by the desire of investors to exclude from their portfolios banking or gaming stocks (which are known to closely track economic cycles), but asking these investors to divorce their investment decisions from their values is symptomatic of our industry’s ability to only recognise the utilitarian benefits of investing. 

With some investments, we not only look for returns but the status they confer upon us. Hedge funds have been seen as instruments of the rich. That said, there does not seem to be conclusive proof that high-cost hedge funds have outperformed low-cost index funds. Quite the contrary. But this does not dilute their allure among sophisticated investors as it makes the statement that they are the elite and above the average Joe who invests in normal unit trust funds. 

The lesson here? Recognising what you want above and beyond the utilitarian needs helps you understand the trade-offs you need to make when it comes to investing, be it higher costs or lower returns. Acknowledging this helps you understand the real value you are seeking from your investment decisions. 


Ong Shi Jie (CJ) is head of integrated marketing and analytics at OCBC Bank (M) Bhd

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