The economics of Christmas cheer
Christmas is coming and the goose is getting fat, the children are over-excited, and you are already bored with the Christmas tunes in the shops and on the radio. Christmas is an expensive and fraught time but what can we learn from the market for festive decorations and how can we apply it to our investment portfolios.
People that often complain about how commercialised Christmas has become may be surprised to find that the global market for Christmas decorations is only about $7Bn, although it is incredibly profitable for retailers where mark-ups of 300%-400% are common.
This spending includes ornaments, artificial trees and lights but excludes real trees and alike. Global spending on decorations is surprisingly low because savvy households worldwide re-use their Christmas decorations year after year and have found ways of coping with the storage problem of where to put their unwanted decorations January through to November.
This thriftiness is reinforced by the fact that only 20% of us in the UK intend to buy real Christmas trees, which is surprising given the number of unwanted trees that litter the pavements in January. Some 60% of us go the more economical artificial tree route with the remaining 20% or so not celebrating Christmas.
The biggest exporter of Christmas decorations are the Chinese, which will surprise no one. Somewhat surprisingly, one of the biggest importers of Christmas decorations are the Canadians. I hesitate to guess why, given their natural forests, one would have thought there is no need, but they seem to love their Christmas lights and tinsel. The Europeans are also big importers with the Romanians and the British amongst the leading importers.
The UK’s favourite Christmas dish is reportedly roast potato, followed by turkey and another favourite is inexplicably Yorkshire pudding, a traditional accompaniment to roast beef. Bread sauce is one of our least favourite Christmas things, as well as mulled cider.
Without wishing to be a Grinch, how does all this effect our investment portfolios? Well, we should treat our investment portfolios like our Christmas decorations. We should not follow the crowd but be patient and buy our decorations when they are marked down in the January sales.
Like the thrifty households reusing their decorations year after year, we should buy our investments and hold them for the long term. In the same way we test our Christmas light once a year before we put them up, we should also have an annual review to ensure our investments still meet our needs. I would not say we should put our investments in the attic in January, like we do our decorations, but we should certainly leave them alone to compound quietly.
Finally, we hope you enjoy putting up your Christmas lights, tinsel, holly, ivy and mistletoe. The lead up to Christmas can be fun and we remember Charles Dickens who said in the Christmas Carol that “there is nothing in the world so irresistibly contagious as laughter and good humour”.
Please be aware that the value of investments may go up or down and you may receive back less than you invested originally. Past performance is not a guide to the future.
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