luxury index

Hedonistic, Eclectic … and Frustrating?

Isaac Mostovicz writes...

Interesting story in the Wall Street Journal today–Wall Street firms including Merrill Lynch and Goldman Sachs are launching indexes that measure the “separate economy” of the rich, tracking some of the most famous brands in the world.

“The common denominator for all the stocks selected in our sample is they benefit from the increasingly hedonistic and eclectic consumption patterns,” says Antoine Colonna, the Paris-based research analyst at Merrill who helped create the company’s ML LifeStyle Index. … Merrill’s index, a group of between 15 stocks and 50 stocks, includes car makers BMW and Porsche; luxury conglomerate LVMH; fashion brands Bulgari, Coach and Burberry; jeweler Tiffany; auctioneer Sotheby’s; and private-banking firm Julius Baer. The index increased 23% in 2005 and 12.5% in 2006 — above the 14% and 7% posted for the Morgan Stanley’s MSCI World Consumer Discretionary Index, a widely used measure for global consumer stocks.

These luxury stocks are outperforming regular consumer stocks; spending on high-end goods has far outpaced the expansion of the overall consumer economy. But the WSJ does warn that this might be a bad sign:

Granted, investing in the upper class could turn out to be a poor strategy. Wall Street is notorious for launching sector funds at the peak of a sector’s growth. (Think health-care funds and tech funds in the 1990s and commodity funds last year.) The launch of the luxury indexes could be seen as the top of this market. In the wake of the latest upscale-buying binge, many luxury stocks have soared and have price tags as rich as their products.

For now though, people continue to spend and the introduction of the indexes is yet another sign that more people are interested in luxury.

But should they be? Today the Dalai Lama, the Tibetan spiritual leader, made a statement urging people to take a step back from the “mindless” pursuit of luxury because of the frustration and tension that such a pursuit can cause:

“In the era of globalisation and modernisation people are forgetting their real goal which is causing frustration and tension in their day-to-day lives… The objective of the people is confined to earning money and power by any means to enjoy luxuries and they are becoming selfish and self-centred in this mad run.”

He instead advocated more dedication to service to humanity.

It probably wouldn’t hurt Wall Street to hear the Dalai Lama’s different perspective. But I think if his advice were to reach them, it would probably fall on deaf ears–well, at least until the next bubble bursts.

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