How to become a value spender
Last week I read The Little Book That Builds Wealth by Pat Dorsey, Director of Research at Morningstar, the investment research company. The book describes strategies of value investing that Warren Buffett and others have used with great success.
I’ve done plenty of research on value investing before, but the book gave a clear, succinct overview of its principles in a way that felt refreshing. After returning the book to my local library, I thought about how I could apply principles of value investing to my spending habits. In short, I resolved to become a value spender.
So what does it mean to be a value spender? To explain it, I’ll quickly summarize value investing. Value investors try to identify companies that have “economic moats,” or long-lasting competitive advantages. No company lasts forever, but value investors only want to buy stock in companies that will remain consistently profitable for as long as possible.
Second, value investors only buy stock in a company when it’s relatively cheap (often when the company is “out of favor” for some reason that doesn’t affect the company’s core business (e.g. a recession, a bad public relations incident, a natural disaster, etc).
So value investors are looking to buy high-quality companies at a relatively low price. High quality + low price = value.
We can apply this same formula to the things we buy in order to save money and reduce clutter. I always try to be thrifty, rather than cheap (OK so I’m cheap sometimes. Guilty as charged). One of the best (but sometimes counter-intuitive) ways to be thrifty is to buy fewer things, but when you do buy something, only buy the best. This philosophy is sometimes referred to as “buy it for life,” as in you should only buy one of each thing at such high quality that it will last your lifetime.
But buying high quality items is often prohibitively expensive! I know I should buy the $150 backpack that will last forever, but there’s a backpack right next to it that costs $40! Who cares if it falls apart next year?
The solution to this problem is to become a value investor by only buying high quality items when they are relatively cheap. And you already know how to do this — you wait for it to go on sale. Value spenders identify high-quality items and then wait for the sales. You want that TV? Wait for Superbowl weekend. You want that sofa? Wait for Labor Day. You want those shoes? Wait for…no, actually you don’t need those shoes.
This is easier than ever with the power of the web. Set up a spam email address and sign up for coupon alerts. Many different websites offer this service. BUT… but but but but but… do not let those coupons become advertising heroin injected directly into your wallet. Identify the items you really need first. Then wait for that item, and only that item, to go on sale. High quality + low price = value.
But seriously, those shoes…