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Sunday, Jan 02, 2011 - 22:38 SGT
Posted By: Gilbert

Some Reflections

My uncle passed away on Thursday morning. This is the first time it has happened to a relative I actually knew, even if in the most perfunctory of manners, and it felt... surreal.

The strongest memory I had of him was when I visited many years ago, and he was in the process of selecting which of his paintings to preserve. I remember being asked to give an opinion of what I felt to be a quite gorgeous rendering of a vase of flowers (and I said so). He replied that it really wasn't very good, and tore it up. I didn't understand at that time. I likely still don't.

I also remember being asked to have a go at painting a fish with his Chinese brush. I came up with something like this, probably worse (hey, I was probably ten, and the ink was drippy), while he was probably expecting something closer to this. He might have been disappointed.

One of the things I had filed away in my to-do list deep in my mind was to ask him to teach me the ways of painting and Chinese calligraphy, someday. I guess that won't happen now. This might be a reminder to start doing whatever one wants, now. Yes, right now.

His weight was likely a contributing factor, and I briefly wondered if I could have done anything about it; but it was clearly not my place to say so.


On Quants

I signed up for an EnergyOne gym membership together with my cousin (two years, at twenty-odd dollars a month, promotional rate - I figured I should be making better use of my flexible graduate student hours). The ambience at the SAFRA Jurong branch is nice, and it appears underpopulated, especially at the free weights section, which is good. I expect a usage spike with the annual migration of New Year resolutioners, though. Hopefully I won't be part of the gym flight after a few months.

More pertinent to the topic which I'm going to bring up is however the book sale at the SAFRA clubhouse. The spread was composed of a wide selection of financial, self-help and relationship books, which the mostly young-and-middle-aged adult male clientele of the clubhouse might be reasonably expected to be interested in.

Having a bit of waiting to do anyhow, I engaged myself in some browsing, and availed myself of how, among other things, how The Art of War and The Book of Five Rings is relevant to today's executives. It may, perhaps uncharitably, be noted that a lot of strategy consists of "do the right thing, at the right time".

This takes me back to a recent post, where I may have given the general impression that much of economics is bulls**t. If so, I apologize, somewhat. Depending on what one uses economics for, it can be useful, and maybe even - gasp - sufficiently predictive. However, it remains that at least some of economics is assuredly bulls**t, with practitioners claiming to be "sure" or "near-certain" a glaring red flag; the tricky part is knowing which part in which the poo resides.

My best explanation, which I believe to be true for now, rests in these basic points:

  • Economics, especially macroeconomics, is best understood as a competitive multi-player game, and not as a "static" system, however complex
  • Macroeconomics in particular cannot be separated from politics and international relations, and still remain coherent
  • This is not to say that conventional models of the economy are completely worthless, but they will be subordinate to what actually happens, especially if they do not take extra-economical considerations into account
  • When evaluating a model, constantly and always return to the root: cui bono; who benefits?

Just one example: In a purely academic debate about, say, whether to operate a free trade area, much of the evaluation might focus on the possible overall benefits - what treaty, system and regulations would garner the maximal collective profit for all?

However, let's consider the possible interests of the people actually taking part in the deal.

Workers who would likely be adversely hit, by being introduced to competition, would howl. Workers who would stand to gain, as new markets open to their exportable goods, would applaud. Both sides would, if smart, hire lobbyists to whom self-interest always conveniently aligns itself with the Greater Good (how could it be otherwise?).

Directly affected politicians would lobby for their constituents (the voting ones, at least), while other politicians would lend a ear, at the very least, to whoever contributes.

The bureaucrats in the ministry handling the negotiations might well be more concerned about whether they have been seen to be productive - contributing to a ratified treaty probably looks good in the next annual review, when the next round of promotions rolls around (failing that, one doesn't often go wrong with keeping one's head down in a bureaucracy).

Other bureaucrats could however be against it, if only because it potentially reduces their power - the customs service, for one, if there would be no further need for goods to be inspected and valued.

In one sentence: Economics presupposes that humans are selfish and rational - but gingerly sidesteps exactly how selfish they can get, because it sounds real bad, and downplays the scope and frequency of irrationality, because that undermines its own existence.

So... it isn't that all financial experts are spouting nonsense. Think of them as poker players. A few are brilliant and lucky and win the World Series, some are decent and do alright, most get by on a few good hands, and others lose their shirts. As to what actually makes the successful ones win... well, studying the mathematical strategy helps, but it only goes so far. I repeat: Practical economics is a game.


On Personal Finances

Most people wouldn't care about the macro side too much if they're doing well on the micro (how many lottery winners lose sleep over a tanking economy?), and the books that I have read on this topic do not deviate much:

  1. Save.
  2. Invest (wisely).
  3. Profit.

Popular bestseller Rich Dad Poor Dad [RDPD] (not without its many criticisms) was on sale, as was the 1920s classic, The Richest Man in Babylon [TRMiB], and they basically say much the same thing (under a liberal reading) despite being separated by most of a century.

The "Save" part isn't too complicated - TRMiB suggests ten percent ("Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family").

RDPD doesn't state this explicitly, but try starting a business without some capital; then again, given the general feel of RDPD, the author doesn't seem like he would be against borrowing for this purpose - note that the Gold Lender of Babylon would however wisely refrain from lending to someone without steady income or ready collateral!

As for the "Invest" part, which is more complicated - TRMiB suggests only to invest with people who know they thing they are investing in (one of Buffett's maxims). RDPD recommends real estate and stocks, which is good if the reader actually knows something, or is willing to start learning a lot, about those things. (Interestingly, TRMiB encourages its readers to own their own homes, but more for psychological than investment purposes)

And... that's it.

Really, that's it.

Yes, there are sections like "Guard thy treasures from loss", but it's not as if many people go out of their way to throw money away. But wait, that chapter says "Guard thy treasure from loss by investing only where thy (1) principal is safe, where it may be (2) reclaimed if desirable, and where thou will (3) not fail to collect a fair rental."

Nowadays, to satisfy (1) + (2), about the best one can do is a savings account. Have fun trying to beat inflation with that.

Letting go of (2) gives better options - bonds and fixed deposits give slightly higher interest rates, and with a long enough time horizon, a stock index fund has usually done the trick and achieved (3).

Is that enough? To be frank, a person who faithfully follows TRMiB down to the letter is hardly guaranteed to be the richest guy in his HDB block, let alone country, but "A Financially Independent Man in Babylon" doesn't have quite the same ring to it, does it?


On Fairness

Both RDPD and TRMiB, and indeed many financial self-help books, emphasize making your money work for yourself ("Acquire assets, not liabilities"/"Every gold piece you save is a slave to work for you. Every copper it earns is its child that also can earn for you..."). In this landscape, one can hardly shift one's gaze and avert it from the words: passive income.

Which is, from another point of view, shorthand for "setting things up so that I can make money in return for doing nothing in future".

This is not in itself wrong - a good composer should be entitled to royalties from his song for many years to come, and building up a substantial stream of passive income is far from easy.

However, with foreseeable technology, it is hard to see how a society where the majority of people can comfortably live off passive income can exist. The basic advice in financial self-help books is sound, but implicitly depends on others not following their advice, and being forced to toil for a living.

But it's their own fault, right? Right?

Well, some trust-fund kids are multi-millionaires before their umbilical cord is even cut. Deal with it.




On Perspectives

To put oneself in another's shoes is a common exhortation. To be content with one's lot is another. However, if one can tell oneself to be satisfied at a given level of achievement, why not just concentrate on the art of being satisfied? Why strive at all?

The trouble with having many valid perspectives, is that it is often more convenient to shift the point of view, than to change the reality. But is that bad?


On Contradictions

Seeming illogicality swamps me whereever I look. Why are so many outraged at a bunny being crushed, or a puppy being tossed, very possibly while enjoying a quite unnecessary fried chicken snack, with the chicken in question likely having been imprisoned in fear and darkness its entire life, and perhaps gutted and scalded whilst still alive?

Perhaps it is far more important to appear good, than to be good (or consistent). It is extremely painful to both think and be honest. One or the other usually has to give.


On Sincerity

How to Win Friends and Influence People was on the table too.

Dale Carnegie is at odds with the introductionary philosophy class I took some years ago, when he advises people to avoid ever arguing or pointing out that others are wrong. However, his advice appears often practically sound. Even fairly open teachers who encourage questions often end up turning defensive. Truly candid exchanges may not generally be conducive to the formation of cohesive groups.


(Source: Dilbert.com)


Still, sincerity is indeed the key; as George Burns once said, "Sincerity is everything. If you can fake that, you've got it made.". Personally, true sincerity is often extremely hard to bring out. I'm working on it.


On Dreams

What do I want?

If beauty pageants are any indicator, world peace is at the top the lists of most pretty young things, and frankly despite it being so well-worn, it remains one of the few universally-acceptable answers. Doing well by family, most commonly a self-sacrificing mother, is another faultless response.

So consider world peace. Is it achievable?

Would that not be a planet where every human being is content, or if discontent, resolved never to employ violence to become so?

Sadly, this seems unlikely to happen, unless the world passes into the realm of fantasy. I suspect that most don't quite mind wars and suffering - as long as it happens far away, and they don't lose out from it. This is a conclusion drawn from the relatively extremely low frequency of anti-war protests and monetary contributions to the same, as compared to consumer spending. I know I don't. Who am I fooling?

It is, however, expected for a person to be sensitive to the wanton loss of life. But a person who sincerely feels for the dead would be unable to operate, stricken by their sheer numbers.

Quick - am I writing all this to appear good/intelligent?

And what about that last sentence itself?

Leaders profess to fight only "just" wars - but it is amazing how naturally wars (or "conflicts", or even "incidents") can be branded as just. God is often said to demand peace too, but when matters come to a head, Knight Templars and Buddhist warrior-monks can bash skulls in with the best of them.

We are killer monkeys, after all. Worse, self-deluding killer monkeys. Maybe the worst sort of all.



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