Monday, November 22, 2010

Economics @ Home © Volume 2 Issue 24

Be Long Term Greedy

Many value investors or people who are interested in value investing would have heard of this term many times. What does it mean? In simple terms, it would mean to focus on getting what you want in the long term. To address this issue, there are two questions that you should be asking.

Why should we be greedy? Is greed good? Morally speaking, and conventionally speaking, it is difficult to view greed as a good thing. How can greed be a good thing? To know that, we must first understand what greed is. It is simply always wanting more than what we have. To never be content. More is simply better. Well, it is indeed greatly unfortunate that human nature drives us to want what we can't have. For those who are able to practice self-restraint, then the act speaks for itself. Self-restraint, which is to deny oneself of one's true nature.

That settled, it is safe to generalize that most of us are greedy. We have a tendency to always want more than what we can chew. Now, there is no way of twisting this to make it sound like a good thing. However, the discussion today is not just about being greedy, but about being long term greedy.

This brings us to the second question. What does the phrase long term add to the issue? For those of you well-read economists, you might quote the great Keynes, who said "In the long run, we are all dead". However, my boss would be very quick to add, "We would rather be dead in the long run, than dead in the short run". Now, back to the question, what does long term greedy really mean?

The quick definition was given to you at the start of this issue. It simply means to focus on obtaining what you want in the long term. Well, the point I am trying to bring up is that, since we are going to be greedy any way, it is better to be greedy in the long term than be greedy in the short term. But why is this better?

As we have all experienced, in our daily lives, new events, new inventions, new fashion and what not keeps cropping up and we always want the next newest thing. Seeing the new arrivals, we tend to set a goal towards obtaining those new goodies and soon before we are able to achieve our goals, new and better goodies are going to pop right out and now, you will have to change your goal to achieve that instead.

If you were to set a long term goal, something which is to be achieved in 20-30 years time, and work towards that, you will be less likely to be distracted from the short-run fluctuations. Set the goal way high up, be very greedy about it. Work towards the long-term goal. That way, we always have our eye on the ball. We would not be distracted by the short run hiccups on and off the road.

As always, these kind of things are easier said than done. It is very difficult to work on, and you will only truly realize the benefits once you have tried it. That is why it is so difficult to grasp the concept. But listen to those who have succeeded. Read about the success stories of those who chose to delay their gratification. Make the short term sacrifices. Focus on your long term wants. It is OK to be greedy. But be long term greedy. Achieving long-term goals is not a sprint event. It is a marathon.

Sunday, November 07, 2010

Economics @ Home © Volume 2 Issue 23

Who Wants to be a Millionaire?

Below is an article from the Star on 9 Aug 2010 about a man who won RM1 million in a lottery.

Monday August 9, 2010
Man torches self after ‘burning’ lottery win
A VEGETABLE farmer who lived a life of luxury after winning almost RM1mil in a lottery five years ago torched himself when his “pot of gold” became empty.
The 63-year-old from Serian, Sarawak, known only as Khoo, was reported to have dug a “grave” at the back of his house before splashing petrol on his body and lighting it, reported Berita Minggu.
The man had won more than RM750,000 five years ago and then reportedly spent up to RM1,800 on a single bet over the years, hoping to strike it big again, the weekly said.
Serian OCPD Deputy Supt Jamali Umi said the police have classified the case as sudden death.
He said the victim’s nephew had found the man dead in the hole.
A relative, who declined to be named, said Khoo, who never married, had stopped cultivating his farm upon winning the lottery and had spent the money on a new house and several vacations.
But with no new winnings, the barrel soon became empty.
Many of us dream of making it big, earning bucketloads of money so that we can buy this or that. Many of us work hard day in and day out, and complain about the stress and what not, in search of the pot of gold that can provide us for the rest of our lives. Do we really want that to be handed to us? Or do we really want to have to work for it.

This is precisely what happened to this man. He was a farmer who won RM1 million in the lottery. He got exactly what he wished for. But it is sad for him because he did not work for his money. Because of that, he did not know how to appreciate the fragility of it. Because of the sudden windfall, he let himself go, lost his discipline.

So, after reading what I said, I am sure that many of you would show a snigger of some sort and think to yourself, "I would never do that". But really? Do we really want to be bestowed upon more money than we can truly imagine and let ourselves go, and then gorge down the luxuries of life like there was no tomorrow?

The sad reality of life is, there will always be tomorrow. As it was aptly described in the article, "...the barrel soon became empty". What would we do if we were given RM1 million? Many of us will say, spend part of it, save the rest. That would then keep you in the state of still having to work and earn a living. So what if you now own a Mercedes instead of a Myvi? You would now have to work twice as hard to maintain your Mercedes. So what if you live in a RM500,000 condominium. You now have to pay the RM1,200 maintenance fee every month, instead of your RM500 rent for your current dwelling.

The moral of the story is, there really is no such thing as a free lunch. In fact, we should try to enjoy the fact that we do have to earn our living. In that process, let us all hope to find some meaning to what we do, because there is just no fun in being given something that we all try to work so hard for. And in some cases, that might just kill you.