Hitting The Century (XII – The Distressed Consumer)

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ATMs, consumer receivables, correlation, credit checks, debt agreements, discount stores, distressed assets, distressed consumers, distressed investing, European sovereign debt crisis, gold, healthcare, home shopping, life settlements, litigation, marijuana, Mosney, pawn shops, payday loans, pre-paid cards, scratch cards, student loans, sub-prime, trailers, unsecured loans, vice stocks

Continued from here (& here). In this post, we’ll turn our attention to the distressed consumer.

You may just consider this exploitation of the great unwashed – but in reality, they’re often the most expensive customers (pro rata) to acquire & service. (Illegal) immigrants also fall into this category – a fairly unavoidable cost of freight they pay in light of their status. [As US-listed Hispanic plays become increasingly touted & expensive, distressed consumer businesses are a cheap back door play on a sub-set of that population]. Also, the amounts involved with these customers is (inevitably) small. Actually, businesses are really targeting a much bigger & more lucrative opportunity – the democratic exploitation of an enduring human frailty:

Financial stupidity…

The obvious place to start here is with the usual vices – drinking, smoking, gambling, luxury goods… 😉 But these sectors are huge & everybody’s doing ’em – I’m going to skip anything so mainstream (but I’m fascinated how highly rated they are!). I probably should consider drugs too, with marijuana access now increasingly legal & convenient across the US – but the real stupidity here might actually be investing in marijuana stocks!?

While I’m at it, we could make a case for including healthcare – people who make poor financial decisions surely make even worse decisions about their long-term health? [Especially with the communist approach to healthcare in the US & most other developed nations: All good deeds go unrewarded, and the worst 20% consume 80% of the resources… Which simply encourages everybody to race to the bottom (of the ice-cream tub). Look, I’m all for providing a safety net, but not when it’s stuffed with cheese burgers!] Let’s skip healthcare as a whole other mess… In similar vein, a trillion dollars of US student debt could have mutated into the biggest distressed consumer play around – since everybody seems to have now decided they can’t/won’t pay any longer – but that’s underwritten by a suckered population also.

Right, let’s move on – picture you’re an average distressed consumer:

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Hitting The Century (X – Distressed)

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asset allocation, Asta Funding, ATM fees, Colony Financial, corporate-media-retail complex, correlation, credit card debt, debt collectors, distressed assets, distressed consumers, distressed investing, Fortress Investment Group, hire purchase, pawn stores, payday loans, pre-paid debit cards, Rent-A-Center, rent-to-own, Sex and the City, student loans, stupidity, Tetragon Financial Group, unbanked, vice stocks

Continued from here.

Remember this series? Yep, I’m spending an unconscionable amount of time getting through it. FFS, I started last June, promising a closer look at my portfolio construction, allocation & metrics. [‘Hitting The Century‘ as it was my 100th post. And ‘Pretty Panties‘ because I was so bemused by the prior response to the phrase]. Instead, you get a bloody epic – like The Hobbit. Oh well, blog rules…how ’bout I try finish by next June?! 🙂

Honestly, I expected it to turn out like this. But I’m delighted at the great reader response – I guess I’ve been trying (ad nauseam) to pound the message home that portfolio construction/asset allocation is just as important as stock-picking. [Studies suggesting asset allocation accounts for 90% of returns have been debunked, but more recent studies certainly confirm an average/minimum 50% of returns are derived from this source]. Unfortunately, this is forgotten/ignored by a lot of investors, even great stock-pickers… Admittedly, they may (occasionally) practice some kind of ex-post allocation – better than nothing, but an ex-ante approach is vital if you really want to end up with a safer, more diversified & higher return portfolio.

OK, let’s trot on – here’s a familiar pie-chart as a quick reminder (sure, it’s a little out of date – but have you noticed my portfolio turnover?!):