Here’s a quick multiple-choice question: What single quality do you look for most in a new car?
A) Top-of-the-range sound-system.
B) The ability to accelerate from 0 to 60mph is under five seconds.
C) Cup-holders for all passengers.
D) The reassurance that you and your passengers have a better than average chance of reaching your destination in one piece.
OK – it is a somewhat facetious question and, on The Value Perspective blog, we would of course presume your answer, like ours, would be the last one. And yet we raise the point because of two recent reviews of car safety – The UK’s safest cars on Carbuyer.co.uk and CBS News’s Top Safety Pick Plus vehicles – which caused us to wonder about the priorities of some drivers.
Take a look at that first list and, among the 10 cars assessed as the safest over the course of 2016, you will see only one that really counts as a luxury car – the Mercedes E-Class saloon. In the second list, meanwhile, which highlights the 48 cars that earned the stringent Top Safety Pick Plus rating last year, there are just five high-end models – three kinds of Audi, the BMW 2 series and, again, the Merc E.
In other words, then, it does not immediately follow that, just because you pay more, you will end up with a safer car. Sure, you may well enjoy the fantastic sound-system and the theoretical prospect of going from 0 to 60mph faster than you will ever realistically need to and maybe even a cup-holder for the family dog but your extra expenditure appears unlikely to have made your journey any safer.
Exciting-sounding business may sound good, but…
And that line of thinking of naturally led us to think about the stock market and how many investors are very happy to shell out for exciting-sounding businesses that sound great in dinner-party conversations.
At the same time, however, these investors would appear to have very little notion of the sort of risks they might be running and equally little idea of how they could introduce a greater margin of safety into their portfolios.
It is entirely possible of course that, for the prices they are paying, drivers of top-of-the-range cars assume top-of-the-range safety comes as standard but assumptions here, as in investing, can be dangerous.
On The Value Perspective, we reject all "luxury-brand" thinking, preferring instead to conduct our own in-depth research and buy unloved businesses that, while sparking little interest at dinner parties, are cheap and thus offer an in-built margin of safety should they run into trouble at some point down the road.
- Simon Adler is an author on The Value Perspective, a blog about value investing. It is a long-term investing approach which focuses on exploiting swings in stock market sentiment, targeting companies which are valued at less than their true worth and waiting for a correction.
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