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Think Investor: Passionate about passion assets?

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Your urge to acquire such assets continues as you keep spending on them; excessive spending should be moderated

Your urge to acquire such assets continues as you keep spending on them; excessive spending should be moderated

‘Passion assets’ refer to investments in collectibles such as art, paintings and antiques. An issue some individuals face is excessive spending on passion assets. In this article, we shall discuss what drives one to excessive spending on these assets and how to moderate it.

Asset tolerance

Collecting passion assets is a rewarding experience. But as time goes by and you amass a large collection, it is likely that you develop tolerance for passion assets. That is, you stop deriving the same level of pleasure even if you are collecting just as many assets as you did in the previous year. That means you must spend more to gain the same rewarding experience. Why?

Neuroscience can explain this behaviour. Your brain releases a neurotransmitter called dopamine when you have pleasurable experiences.

When you continually spend on passion assets, your brain’s reward centre is overstimulated. This means your brain initially becomes overwhelmed and releases high levels of dopamine. Eventually, the brain controls this issue by decreasing the dopamine production or by reducing the dopamine receptors.

This translates to another issue: buying passion assets will now trigger a weaker response from your brain’s reward centre. But your urge to acquire passion assets continues. So, you buy more to get the same level of experience as before.

How do you ‘know’ that you are overspending? For one, you may be paying more than you normally would to buy an asset.

For instance, you may be overbidding at an auction, or you may have a compulsive urge to buy an otherwise sub-standard asset. For another, your spouse, sibling, or parents may start to believe that you have an addiction! So, how should you moderate this excess spending behaviour?

Coherent spending

It is highly unlikely that your immediate family would have developed tolerance for the same passion assets as you have. So, an optimal strategy would be to consult with your spouse, parents, or sibling before you spend on such assets. Agreed, this may not be always easy, given that your urge to spend on a passion asset may be impulsive.

The second way of moderating excessive spending is to engage in other leisure activities that can be rewarding. You are likely to spend often on passion assets when you are bored or not gainfully engaged in any activity.

Suppose you find gardening somewhat rewarding. Then, allocating more of your leisure to gardening than analysing what passion assets to buy next could moderate excessive spending. You should also maintain a separate bank account to buy passion assets. You can fund this bank account with a predetermined amount every month, thus restricting the amount you can spend on such assets.

Finally, you could replace your passion assets on a continual basis. Just as you buy shares with proceeds from selling another investment, you could buy a passion asset with proceeds from selling one or more assets from your existing collection.

True, parting with passion assets could be painful, as they are touch-and-feel assets.

Often, such pain prompts us to demand more money for selling an asset that we own — a bias that behavioural psychologists call as endowment effect. But endowment effect typically fades the longer you hold an asset.

Conclusion

You can determine the amount you want to spend on passion assets as a percentage of your total investments or after arriving at an absolute amount in consultation with your spouse, sibling or parents.

Note that your excessive spending could be simply a fallout of the pandemic. It is a fact that with limited scope for leisure activity, many have turned their attention to buying passion assets. Perhaps, as we adjust to this virus and as the world limps back to pre-pandemic activity, your brain’s reward centre may revert to regular spending habits. If you continue to suffer from excessive spending, you must moderate the issue.

(The writer offers training programmes for individuals to manage their personal investments)



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