Comfort eating has become part of the vernacular, but is there such a thing as comfort investing?
That’s the cheeky theory put forward in today’s Rear Window column in the Australian Financial Review, written by my old colleague John Stensholt.
The story goes that every time Clive Palmer’s plans to float his Resourcehouse empire fail – and that’s happened four times now – Clive rushes out to buy an asset of some description.
In 2009 when two float attempts were unsuccessful Palmer bought a $1 million soccer player for his Gold Coast United A-League club and a $5 million super yacht for his daughter. When a float attempt failed in 2010 he bought the $11.5 million Avica resort on the Gold Coast.
After the pulling of his float last month Palmer yesterday spent about $40 million on the Hyatt Regency Coolum Resort on the Sunshine Coast.
Does Clive indulge in comfort investing? There is clearly something of a pattern but it could be a big coincidence and I wonder if Clive’s purchase is more about ensuring he keeps some cash-producing assets in his portfolio.
The bulk of Palmer’s wealth, like that of Newcastle coal baron Nathan Tinkler, is based on resources still in the ground.
Palmer owns the rights to mine vast deposits of iron ore and coal but for the moment that stuff lies deep under the surface and is not producing cash.
To get their hands on ready money mining billionaires have two choices – borrow against their mining assets or diversify into cash-producing assets.
Generating cash isn’t always easy and last month Tinkler was forced to extend a deadline to take over the Newcastle Knights rugby league club when he could not meet a deadline to provide a $20 million bank guarantee.
Tinkler expects to get the deal done in coming weeks but some commentators have pointed out that he has few cash-generating assets – his biggest asset is his take in Aston Resources, which is developing a coal mine that is some years away from starting production.
Yesterday Palmer was bullish about prospects for the Hyatt Regency and for tourism in general.
He’s buying close to the bottom of the cycle in the sector so he will be hoping that with some investment in refurbishment the value will increase.
Like all good investors Palmer appears to be taking the approach that a diverse portfolio is a good one and that some cash-generating assets are always important.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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