Economics @ Home © Volume 2 Issue 3

Methods of Madness - Part 3 (Final Part)

In the previous two parts of Methods of Madness, we discussed the main purpose behind Economics @ Home. We also mentioned that Economics @ Home is one of the parts of a grand scheme of things in my project towards sharing a greater good.

In this third and final instalment of Methods of Madness, we shall discuss the many simultaneous projects that are ongoing which are currently being managed by the Lean and Mean Machine. But first, let me first explain the choice of the name, the Lean and Mean Machine. As cliched as it sounds, the name is a constant reminder of the company's purpose of being. This is discussed in Volume 1 Issue 2 of Economics @ Home. To recap, the company is built on a minimalist approach. It aims to be the most profitable business by minimizing costs to a necessary level.

But how do we achieve the greater good by attempting to maximize profits? Isn't this a little contradictory? To answer this question, we must first understand the projects that are currently under the Lean and Mean Machine. First, I would like to stress that costs are minimized to the necessary level, which is to say, the money will be spent in all ways necessary to achieve the goals of the company, and that is to share the greater good.

So, the second function of the Lean and Mean Machine is to become a fund manager. Currently, without a license, it is illegal for the company to accept deposits to manage your funds for you. You may be disappointed to know that currently, the company does not fulfill all the requirements needed by the Securities Commission to become a fund manager. Nonetheless, I am collecting experience in managing the profits of the company with the goal of growing the currently meagre pool of funds via capital accumulation. There are two purposes for becoming a successful fund manager. First, the Lean and Mean Machine wishes to provide an equal opportunity for everyone to enhance the growth their wealth. Second, part of the proceeds of the investment gains will be used to fund the other projects of the Lean and Mean Machine.

The third function coincides with the third goal of Economics @ Home:

[3] to maximize the potential of everyone through the sharing of experiences and knowledge.

The Lean and Mean Machine aims to start a university, and more specifically, a university of life. While typical universities offers degrees for students in a specific field of study, the goal of this university of life is simply to maximize the potential of its students. The university will prioritize the cultivation of skills and experiences that will prepare them the best to face life's challenges. As the wise Benjamin Graham said, "Luck is when preparation meets opportunity". This is definitely a longer term plan but I am proud to announce that the baby steps are in place. In every institution of knowledge, one of key resources is without a doubt, knowledge itself.

A few months ago, I started a self-help library that contains books that are mainly targeted towards self improvement. I am currently accepting donations for all kinds of self-help books that you don't need and once I have a considerable collection, I will open the library for public consumption for a minimal fee to preserve the quality of the books in the library, and hopefully to add on to the growing collection.

So the start of the university is at its library, which is still yet to be named. If you feel the need to express some of that pent-up creativity, please do not hesitate in sharing some of your ideas. I am willing to consider all ideas seriously.

The fourth project, which is also at its infancy stage is the Inspirational Doses blog. It's address is inspirational-doses.blogspot.com. The main purpose of the blog is for everyone to share inspirational experiences in hopes of guiding the hungry and the foolish among us towards greater heights. As the name suggests, the blog is meant to provide doses of inspiration. It is not meant to be frequented regularly because one simply can't be too inspired. Inspiration is meant to be taken in small doses when we feel down or lost or simply when we need to be jolted from a lack of motivation.

These four projects will form the backbone for the purpose of being of the Lean and Mean Machine. Some may consider the greater good as ideals that are placed above the clouds but a wise person once told me that if we aim for the stars, perhaps one day, we might end up among the clouds. In many ways, the goals of this company are probably a dream of a madman. Nonetheless, even madmen have methods. It is my wish to see you among the clouds.

Economics @ Home © Volume 1 Issue 15

Methods of Madness – Part 1

I owe all you faithful readers a proper explanation for my lapse in regularity in publishing a supposedly weekly newsletter. While creating a timeline in our planning is important to help us prioritize, it is of even more immense necessity that we keep to the timeline.

Publishing a newsletter is a serious issue, and I assure you that I have never taken this lightly. It is with very deep regret that I have fallen behind and failed to keep my promises. Every week that I fail to publish Economics @ Home is a broken promise to myself and more importantly, to all my readers.

One of the obvious reasons or excuses that I can give you is because of the lack of time. Nonetheless, it is a common fact that everyone has 24 hours in a day (a very good approximation). So, how can I say I lack time when I have just as much time as everyone else on this planet? My failure was in my inability to use that time effectively towards publishing. While I had intense work commitments, I am fairly certain that there could have been circumstances that I could squeeze out a few hours to do my publishing.

So for that, I regret, but will stop short of an apology. The reason is that I believe apologies mean nothing when there is no actual remorse. It is not the case that I have no remorse. I strongly believe in walking the talk and thus, I will end this folly with my sincere expression of regret and move on to strive my hardest in making it up to all you readers.

I first start by explaining the role of the Lean and Mean Machine so that you can perhaps understand why this newsletter exists in the first place and why I will take it extremely seriously. The Lean and Mean Machine Pte Ltd was set up a few months ago with three main roles. The first and most prominent role, as of today, is to publish a newsletter that is fit for public consumption. The goals of the newsletter are:

[1] to create an awareness regarding the importance of economics in our everyday lives;
[2] to analyze everyday happenings from an economics standpoint to provide what are hopefully better solutions;
[3] to maximize the potential of everyone through the sharing of experiences and knowledge.

Then the next obvious question would be, why these goals? The first role of the Lean and Mean Machine is just a part of a grand scheme of objectives. The ultimate goal of the Lean and Mean Machine is to establish an educational institution that enables and assists people who are willing to try, to maximize their potential. You could call it, a university of life. This idea stems from my experience as an Asian student. This experience has led me through an educational journey that was focused heavily on academic concentration that was meant to help me find a comfortable, high-paying job, with good benefits.

While these are noble and well-meaning objectives, it is probably more relevant for societies of the past, when knowledge and information transfers at a much slower rate. In our world today, because information, knowledge and experience can be passed on rapidly, more opportunities are available for people to be successful. Because of the abundance of opportunities, people are less restricted by their social origin to be all they can be. Imagine, the social constrictions for a peasant in the 800 BC who wanted to be a court official. With limited access to books, internet and everything else that even a seven year-old has access to these days, how does one move up the social and economic ladder? Thus, with so many obstacles, obtaining a high-paying job with benefits would be like a dream come true.

However, that does not apply in the world today. Social and economic mobility is commonplace. We hear more and more rags to riches stories these days. Thus, it is the goal of the Lean and Mean Machine to perhaps be a tiny pebble in people’s building blocks in their path towards greatness. The great ambition of the Lean and Mean Machine is to start a university that inspires people towards maximizing their potential as human beings as opposed to your typical university that awards you a shiny piece of paper that certifies your specialty in the field of Arts, Sciences or whatever you trained yourself to be good at.

Thus, Economics @ Home is a a means to an end, rather, a modest vehicle at the starting point of a long journey of aspirations. Economics @ Home should be seen as a well of knowledge and experience for all students of life, hoping to contribute their part in making this world a better place.

This concludes Part 1 of the Lean and Mean Machines Methods of Madness. I will elaborate further on the other roles and functions as well as projects of the Lean and Mean Machine towards achieving this grand scheme.

The Lean and Mean Machine Pte Ltd Monthly Income Statement September 2009

The second monthly income statement comes as a shock even to myself. As I monitor it almost daily, even I wondered if the Lean and Mean Machine could manage to scrape through with a profit for this month and fortunately it has.

I have made additional investments as you can see from the investment fees. Next month, when I disclose the quarterly balance sheet, you will have a better idea of what the company's portfolio size is as well as its rough performance.

Compared to the previous month, the food expenditure increased from RM582 to RM697. This is totally unacceptable as it exceeds the monthly budgeted amount of RM160 per week, which translates to RM686 for the 30 days of this month. More discipline is definitely needed to curb this excessive dining spree.

Fuel expenditure has maintained within the region of RM160, but this is still on the high side. Hopefully fuel expenditure can be reduced in coming months to push the cost down further.

You will see several new items in this month's income statement. First, the water bill is at RM27, the handphone bill is at a whopping RM170. This is because it includes the previous month's handphone bill.

Because of all these excessive unrecorded expenditure from the previous month, the net profit margin has tumbled to a meagre 2.83%. Thus, the NAV per share still managed inch up slightly.

The Lean and Mean Machine Pte Ltd Copyright © 2009

Income Statement	September 2009
	Total
Interest Income	-
Dividend Income	-
Net gain on quoted disposal of investments	-
Revenue	2,215.70
Less: Operating Expenses
Food	697.18
House rent	330.00
Fuel	158.73
Parking	148.00
Books	174.70
Electricity Bill	61.50
Handphone Bill	170.00
Internet Bill	55.00
Water Bill	27.00
Futsal	10.00
Investment Fees	14.54
Others	306.35
Profit before tax	62.70
Income tax expense	-
Profit after tax	62.70
Net Income	62.70
Basic Earnings Per Share	0.0078
Net Profit Margin	2.83%
Return on Equity	0.73%
NAV	1.0169

The Lean and Mean Machine Pte Ltd Monthly Income Statement August 2009

Below is the first monthly income statement for my company, The Lean and Mean Machine Pte Ltd. I would like to highlight several conventions of my income statement. This is not your typical income statement because the company makes equity investments and I chose not to record this in the income statement because it makes little sense as it will make my company appear to make losses via relatively large investment expenses.

The income statement will recognize capital gains as revenue and not the revenue from the sale of shares.

Needless to say, in August, the company made several investments in equities and that is not reflected in its income statement. It will be reflected in a special quarterly balance sheet that shows both the cost of my investments as well as their market value.

Revenue for this month is slightly higher than expected due to unexpected revenue from a chess tournament victory during the Merdeka Rapid Tournament. This, however, is offset by the much higher than expected expenditure on food. While it is still below budget, the company believes that there is a possible further cut in food expenditure in the near future to maximize profits.

Fuel expenditure is also higher than expected due to extra transportation services provided to friends in need. Fuel prices are expected to increase in September and the company will reassess the situation at the end of September.

Net profit margin is at 25%, which is satisfactory at this point. The company hopes to increase the NPM further by minimizing costs.

Net asset value (NAV) per share reflects the total shareholder's equity per share at market value as at 31 August 2009. This means at equity investments are valued at market price as at 31 August 2009

The Lean and Mean Machine Pte Ltd Copyright © 2009 Income Statement	August 2009
	Total
Interest Income	-
Dividend Income	-
Net gain on quoted disposal of investments	-
Revenue	2,273.28
Less: Operating Expenses
Food	582.15
House rent	330.00
Fuel	156.38
Parking	156.00
Electricity Bill	55.40
Internet Bill	55.00
Futsal	27.00
Investment Fees	44.69
Others	295.60
Profit before tax	571.06
Income tax expense	-
Profit after tax	571.06
Net Income	571.06
Basic Earnings Per Share	0.0714
Net Profit Margin	25.12%
Return on Equity	6.66%
NAV per share	1.0122

The Lean and Mean Machine Pte Ltd

So as promised, I am bringing you the projected cashflow and paid-up capital of my new company.

I have chosen to startup with a nice and easy round number, RM8000 for my paid-up capital with RM1 per share (RM6000 cash and RM2000 in Unit Trust).

As of today, I still have outstanding payables:

House rent: RM330

Electricity Bill: RM 55

Internet Bill: RM 55

Total: RM440

I also have receivables of RM2300 which is my monthly revenue. RM2300 is just the portion of my monthly salary that I choose to pay to my company for its services. The company functions as my financial advisor and wealth manager.

I am also currently invested in a unit trust. I purchased 7586.53 units at the cost of RM2000.

I will provide a proper balance sheet at the end of this month. I am just giving a brief preview of what I have for the time being. Here is the highlight of the day, my cashflow projection:

Income:

Revenue: RM2300

Expenditure:

House rent: RM330

Electric Bill: RMRM65

Internet Bill: RM55

Handphone Bill: RM55 (RM50 postpaid plan + tax)

Food: RM640 (RM160 per week)

Fuel: RM120

Parking: RM120

Car Instalment: RM300

Miscellaneous: RM200

Total Expenditure: RM1985

Expected Profits: RM415

That seems like very little profits for now. My net profit margin (profit divided by revenue) is about 18%, which isn't too bad. However, I will provide a much more detailed financial statements either at the end of each month or quarter. Furthermore, I will try my best to produce a weekly estimated cashflow statement.

Hopefully this project will be able to encourage further cost saving measures as well as other revenue seeking prospects. I will explain my income and expenditure as they change if necessary. It is vital that I maintain integrity and transparency for this project. Hopefully it will bear fruit at some point.

Once again, the goal of The Lean and Mean Machine is to maximize profits through cost minimization.