A big hit on the Social Science Research Network, it uses data from a survey of more than 3,000 US adults to evaluate the association between wedding spending and marriage duration. “Controlling for a number of demographic and relationship characteristics,” it notes, “we find evidence that marriage duration is inversely associated with spending on the engagement ring and wedding ceremony” . Francis and Mialon identify a number of interesting trends through the use of a ‘Cox proportional-hazards model’. This is essentially a statistical technique that can be used to indicate the chances of something happening to a particular group of people and, as such, is often used in epidemiology – the study of the patterns, causes and effects of diseases within defined populations.
For their part, Francis and Mialon’s predictions relate the chances of getting divorced to how much a couple’s wedding cost. So, for example, from the sample of women who were surveyed, they conclude the hazard of divorce associated with spending more than $20,000 (£12,735) on a wedding is 3.5 times higher than the hazard of divorce for a couple spending between $5,000 and $10,000.
Indeed, across the piece, the paper appears to show that the more a couple spends on their big day, the worse their outcome – so why might that be? You may not be surprised to learn we have a theory on this or indeed that our theory has its basis in value investing. We will focus on the wedding angle first and then finish with the subject where we feel on surer ground.
We would suggest there is at least a possibility that when people spend large amounts on their wedding day, they may be focusing on more than the fundamental point of wanting to spend the rest of their life with their partner. Be it a great party, a stunning dress, a flock of white doves, saying ‘I do’ on a Caribbean beach or whatever, it may be that people are buying something other than marriage.
Francis and Mialon’s paper did highlight some variables – for example, as other surveys have found, having more guests at a wedding increases the chances of staying married as do a high household income and being more educated. Interestingly, however, in terms of avoiding divorce, it appears that overspending on your wedding effectively undoes all the benefit of being educated to a high level.
If you spent four years at university, the paper says, you are half as likely to get divorced as someone who never went at all – yet you can undo all that and more by spending above $20,000 on your wedding as opposed to less than $5,000. That is a big impact and we do like impacts that are big rather than merely statistically significant.
Nevertheless, we would never pretend this sort of marriage guidance, as it were, is a forte of ours and, should you still feel compelled to follow the recommendations of Bride magazine that couples spend 12 months planning their wedding and work their way through a checklist of no fewer than 44 tasks, then of course that is what you must do.
Where we may be more insistent, however, is with regard to the investment aspect on which we built the above theory of ‘Something other than marriage’. Among the myriad of equity fund options facing the modern investor are the themed portfolios that target businesses with big global brands or that enjoy high returns on invested capital or possess great technologies or operate in particular industries.
In every one of these circumstances, we believe the portfolios and their managers are looking for the wrong thing. Rather than setting out to own shares in good businesses, which is at best a means to an end, they should be looking for the end itself – in other words an outcome, such as to outperform a benchmark index or to generate a decent return on the capital they themselves have invested.
What these investors are implicitly saying is, if you own a business that has big global brands or whatever, then its shares will do very well – but there is not necessarily a causal relationship between those two statements. Far more important is to focus on the right outcome – essentially the generation of superior returns – and a century of history suggests identifying mispriced securities is an effective way of doing this. Whether you then live happily ever after will continue to be up to you.
Ian Kelly (pictured on page 1) is co-manager of the $2.3bn Schroder ISF Global Dividend Maximiser fund and writes on The Value Perspective. The views expressed above are his own.
