What faux Scottish lordships teach us about investor motivation
During a recent visit to my parents’ home, my mother asked me to go through my boxes of “stuff” and throw out what I no longer wanted. Among the old books, souvenirs, clothing and pictures, I found a framed certificate gifted to me about a decade ago. The certificate detailed my entitlement to one square foot of land on the grounds of a castle in the Scottish Highlands. Tongue-in-cheek as this gift may have been intended, it purportedly endows me with the title of “Lord”…
In the decade that has passed since receiving this gift, it has become my worst performing asset. Well, aside from those steel manufacturer shares I purchased on a whim in my early-20s. It appears these souvenir plots have no practical utility, cost considerably more in sum than the title in its entirety, cannot be resold on a secondary market for profit, do not include a registered title, and in many cases won’t actually bestow the owner with their desired title. So why have these vendors amassed an unknown number of millions of pounds of sales worldwide?
…because buyers of these souvenir plots of land are not driven by financial return.
In our recent paper A piece of the action: innovations in fractional ownership and use of space, we spend some time looking at non-financial motivators at play for a number of asset types. In particular, we focus on governance (or control); use; and vanity. In the case of governance, my co-author Professor Andrew Baum gestures to the example of members of a community pooling funds to take a controlling interest in a local amenity. This was recently illustrated with the reopening of Oxford’s historic Lamb & Flag pub. When it comes to use, an example would be an owner-occupied home which is a notoriously emotional decision made by the homebuyer. Vanity is perhaps best illustrated by the example of the Scottish lordship, but also broadly applies to varying extents across the investment landscape.
To consider financial motivators alongside all three non-financial motivators catalogued in our research, consider the example of somebody buying a share in a second home (also referred to as a holiday home). Holidaymakers who have a preference for a specific area may choose to buy a share in a second home within that market for the following reasons:
1) To put their money toward owning an asset in their desired holiday spot rather than paying the irretrievable cost of lodging each time they visit (financial return)
2) To have a greater influence over the space they’re occupying while holidaying, including a level of choice over the location, layout and internal furnishings (governance)
3) To make scheduled use of the space at their leisure (use)
4) To show off to their friends and family (vanity)
Implications for investment platforms
With all other things equal, greater non-financial returns add value to an asset but are difficult to quantify. In the extreme, it’s very possible that investors will be drawn to assets which underperform financially but deliver value in alternative ways. For this reason, our recent research didn’t simply write off platforms which were unable to prove superior financial performance. We expect to see a growing prevalence of non-financially motivated investment platforms in future, as well as messaging from these platforms oriented toward the non-financial motivators of their target audience.
This article is largely comprised of findings from Pi Labs’ latest white paper A piece of the action: innovations in fractional ownership and use of space. Follow the link in order to receive a complimentary copy to your inbox.
