Fingernails & Asteroids

“What’s the difference between investment and speculation?”

For those with some cash to hand and an entrepreneurial streak it seems that nail bars have been a good investment in recent years. With low barriers to entry and relatively low capital requirements they have been thriving during difficult times as budget-conscious women have sought cheaper alternatives for self expression than new clothes and handbags. Their growth has been helped by high street rents falling by up to 40% during this period.

Leonard Lauder, Chairman of Estée Lauder, once coined the term the “lipstick index” for how lipstick sales rise during tough economic times, but nail bars seem to be doing even better. There has been a 16.5% increase in the number of nail salons since 2008. Market leaders Nails Inc, with 58 stores in the UK and Ireland, are expecting sales of £22m this year up from £14.6m last year.

There are good reasons to think that putting money into a nail bar is an investment: the business model is proven and fairly transparent; you can quantify the risk; and returns are predictable. This can’t be said for another business venture in the news today. The Space Adventures Group has just announced that it is planning to mine asteroids using robots to bring precious metals back to earth.

Space Adventures Group has a lot of rich men backing it and you would be hard pushed to say it came close to meeting any of my suggested criteria for what makes an investment above. Rich men can afford high risk and potentially big return trophies in their portfolios, particularly if it helps to better define them and keep them in the public eye. This could even be viewed as somewhat patriotic too: Chinese consumption of precious metals seems to be prompting a new space race.

Asteroid mining is certainly somewhat speculative and speculation can sometimes get out of hand. Speculative bubbles have appeared regularly for hundreds of years but, like many other things, the gaps between them and their lifecycles have shortened somewhat. From the South Sea Bubble to the telecoms “revolution” of the 1990’s these bubbles have made some people richer but many poorer. They have though proved a very effective transfer mechanism of wealth from the naïve and greedy to the canny speculator. Anthony Trollope’s wonderful novel, The Way We Live Now, published in 1875, provides a great insight into the artifice of the speculator.

My test to separate the two, investment and speculation, is simple. Has the business model been proven on any scale? Has anyone paid good money for the product or service? Is the business making money? Clearly the answers are all “yes” for nail bars but I’m inclined to think it may be a little longer before it is true for precious metals from asteroids.

Mark

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