Sense & Cents

MSN status and game theory

2009-03-21T18:59:00.004+08:00

Appearing Offline on MSN/Windows Live Messenger: Game Theory Analysis
May 10th, 2008

A few years ago, Microsoft introduced the ability to “hide” on Appear Offline on MSN Messenger and to keep talking to people. This is quite a useful feature for the anti-social types who really don’t want anybody to talk to them!

I’ve noticed some interesting trends since this feature has been introduced. The people who used to have their status stuck on “away” now use appear offline. This is perhaps frustrating when you then end up calling or texting at extortionate rates your friend instead whilst you’re actually both sitting at your computer!

The reason why people use “appear offline” is so they can be selective about who they talk to. Fair enough. But when other people also use “appear offline”, it doesn’t work. This could be illustrated using a bit of game theory.

Appear Offline

Initially, lets say that both persons A and B gain 2 units of utility from being online in MSN Messenger. This utility could be in many forms: pleasure gained from sharing gossip, money saved in not having to text or time saved. The exact form of the utility isn’t important.

Now lets say Person A decides to “Appear Offline” but Person B is still “Online”. Person A will only talk to Person B when it is beneficial to him. Person A will still gossip with Person B but only in times convenient to himself and when he’s stuck on his particle physics essay, he can still see when Person B is online and get help from him. For this reason, Person A’s utility increases from 2 to 3.

But Person B won’t derive any utility. When he needs somebody to talk to, or has run into a brick wall upgrading to Service Pack 3, he won’t be able to get through to Person A on MSN Messenger. Instead, he might end up calling or find a more sociable person to talk to! Hence Person B derives no utility from this arrangement.

Notice that the payoffs are symmetrical. If Person B decides to “Appear Offline” but Person A doesn’t, Person B will gain 3 units of utility whilst Person A will gain nil.

The fourth possible situation is when both Persons A and B decide to “Appear Offline”. Neither persons derives any utility from this arrangement as they’ll never talk to each another. They might as well actually be offline.

The best arrangement

As we can see, in this analysis the best possible outcome is that both persons A and B are online. They both derive 2 units of utility from this arrangement and 4 units of utility are gained in total.

Person A or person B could seek to increase the utility they gain by appearing offline. This increases their own utility to 3 units. Would they do this in reality? Rationally, probably yes.

If person A decided to stay “online”, person B would gain 2 units of utility from staying online and 3 units from appearing offline. So in this situation, person B should appear offline to maximise their own payoff.

If person A decided to “appear offline”, person B gains no utility either way. So it really doesn’t matter whether person B stays online or appears offline. But they don’t lose any utility by appearing offline.

By considering all the possible outcomes, person B will rationally choose to appear offline to maximise their payoff. As the situation is symmetrical, person A should also rationally choose to appear offline. The outcome? Both persons A and B “appear offline” and nobody gains any utility.

Back to the real world…

In this discussion and game theory model, I’ve abstracted from reality. Of course, it isn’t true that everybody on MSN Messenger appears offline these days. But I will say that amongst my contact list, I know quite a few people do and it has lead to some annoying situations. I’m even guilty of “appearing offline” on many occasions without realising the person I want to talk to is also appearing offline and waiting for me to come online.

This interesting post was found on Cow's blog at http://cow.neondragon.net/ and not written by Sense n cents!

Financial tracker II

2009-01-01T20:35:00.012+08:00

Happy new year all!

New year new updated version of the financial tracker, this time with weekends and holidays(malaysian)!

Available here!

Into its third edition, its been a great help in allowing me to gauge and control my expenses!

Good times bad times, we all should manage our money!

Here's to an awesome year ahead!!!

Related links:
Financial tr5acker 2008
QnA
10 ways to save money

Happy Holidays

2008-12-22T23:57:00.002+08:00

Stocks or Cash?

2008-11-16T19:43:00.007+08:00

This interesting article was written by Mr Ooi Kok Hwa and I am sharing it with you!

I'm sure this would be one vital question all investors or would be investors OR arm chair investors would be contemplating right now...
Especially with the economy in such turmoil.

In these troubled times do you hold stocks or cash?

Wednesday November 5, 2008
OVER the past few weeks, as a result of the sharp plummet on the stock market, some investors regret not selling their stocks early as almost all of their stocks have been incurring huge losses.

However, the market recovery over the past few days caused some investors to again regret — not buying stocks when the market hit the bottom.

The decision to hold more cash or stocks is one of the most difficult decisions to make.

According to a study by Gary P. Brinson, L. Randolph Hood and Gilbert L. Beebower in 1986, 95% of the variance of fund returns was the result of the asset allocation decision.

Hence, the right asset allocation between cash and stocks plays a very important role in determining the returns of a portfolio.

In this article, we will look into two key strategies in asset allocation, namely the constant mix (CM) and the constant proportion portfolio insurance (CPPI) strategy.

The key principle behind the CM strategy is to buy stocks when the market drops and sell them when the market recovers.

As for the CPPI strategy, it is the reverse, which is to sell when the market plunges and buy when it recovers.

We should continue selling stocks until the portfolio drops near our pre-set floor level. Once the market touches our floor level, we will hold all cash and no stocks.

Under normal market conditions, the CM strategy is an excellent tool for rebalancing our portfolio.

This strategy requires us to rebalance our portfolio based on a constant mix, where we set a constant ratio of stocks to total assets.

Assuming we have only two asset classes, namely stocks and cash, we will maintain the desired invested portion in our portfolio regardless of market conditions.

If we have a portfolio value of RM100,000 and intend to maintain a stocks to total asset ratio of 60%, we invest RM60,000 in stocks and hold RM40,000 cash.

If the overall market drops by 10%, our stocks will drop by RM6,000 (10% of RM60,000) to RM54,000. Now, our portfolio will be RM94,000 (RM54,000 + RM40,000 cash)

Our invested portion will drop to 57.5% (RM54,000 of stocks divided by our new portfolio value of RM94,000).

In order to maintain a 60% investment, we need to have an invested portion of RM56,400 (0.6 x RM94,000).

So we will use RM2,400 in cash to buy stocks (RM56,400 - RM54,000).

After this portfolio rebalancing, our new invested portions will be RM56,400 in stocks and RM37,600.in cash.

This will bring the invested portion back to 60% with the total portfolio value of RM94,000.

The CM strategy will cause us to buy more stocks when the market drops. We will be able to acquire a lot of quality stocks at cheap prices.

However, we will continue buying more stocks while the overall market continues to plunge.

During a bear market, we will see our portfolio shrink in value as our earlier purchase price may get cheaper.

Unfortunately, not many investors can tolerate a drop in their portfolio value.

The CPPI strategy is appropriate for use in either a super bull or a super bear market.

It is not suitable for use on normal market periods as we need to sell stocks when the market drops and buy when the market is on the way up.

We may end up buying at high prices and selling them at low.

Under the CPPI strategy, the portion of money in stocks is based on the formula that:

Money in stock = M x (TA - Floor) Where M = stock investment multiplier (proportion), TA = total assets held in the portfolio, Floor = the minimum allowable portfolio value (zero risk level) and TA - Floor = cushion or funds that can be put at risk.

Assuming we have a portfolio value of RM100,000, if we set our minimum allowable value (Floor) = RM70,000 and stock multiplier (M) = 2, we will invest RM60,000 in stocks [2 x (RM100,000 – RM70,000)].

If the overall market drops by 10%, our stocks will drop by RM6,000 (10% of RM60,000) to RM54,000. Our portfolio will be RM94,000 (RM54,000 + RM40,000 cash).

Our invested portion needs to be reduced to RM48,000 as 2 x (RM94,000 – RM70,000).

We need to dispose of RM6,000 worth of stocks (RM54,000 – RM48,000) and bring the cash level to RM46,000.

Following this portfolio rebalancing, the portion invested in stock is RM48,000 with cash of RM46,000.

The total portfolio value is RM94,000.

We will continue to sell stocks and hold more cash as the market drops.

We will stop investing in stocks when our total portfolio hits the floor level (TA – Floor= 0).

The strength of the CPPI strategy is that our lowest portfolio value at any point in time will be RM70,000 whereas the CM strategy may cause our portfolio value to drop much lower if the market crashes further.

In conclusion, the choice of strategy will depend on the overall economic outlook.

Unless we know our economy will not drop into recession, otherwise — based on our current situation, the CPPI strategy has the advantage of protecting our minimum portfolio value at the floor level.

OVER the past few weeks, as a result of the sharp plummet on the stock market, some investors regret not selling their stocks early as almost all of their stocks have been incurring huge losses.

However, the market recovery over the past few days caused some investors to again regret — not buying stocks when the market hit the bottom.

The decision to hold more cash or stocks is one of the most difficult decisions to make.

According to a study by Gary P. Brinson, L. Randolph Hood and Gilbert L. Beebower in 1986, 95% of the variance of fund returns was the result of the asset allocation decision.

Hence, the right asset allocation between cash and stocks plays a very important role in determining the returns of a portfolio.

In this article, we will look into two key strategies in asset allocation, namely the constant mix (CM) and the constant proportion portfolio insurance (CPPI) strategy.

The key principle behind the CM strategy is to buy stocks when the market drops and sell them when the market recovers.

As for the CPPI strategy, it is the reverse, which is to sell when the market plunges and buy when it recovers.

We should continue selling stocks until the portfolio drops near our pre-set floor level. Once the market touches our floor level, we will hold all cash and no stocks.

Under normal market conditions, the CM strategy is an excellent tool for rebalancing our portfolio.

This strategy requires us to rebalance our portfolio based on a constant mix, where we set a constant ratio of stocks to total assets.

Assuming we have only two asset classes, namely stocks and cash, we will maintain the desired invested portion in our portfolio regardless of market conditions.

If we have a portfolio value of RM100,000 and intend to maintain a stocks to total asset ratio of 60%, we invest RM60,000 in stocks and hold RM40,000 cash.

If the overall market drops by 10%, our stocks will drop by RM6,000 (10% of RM60,000) to RM54,000. Now, our portfolio will be RM94,000 (RM54,000 + RM40,000 cash)

Our invested portion will drop to 57.5% (RM54,000 of stocks divided by our new portfolio value of RM94,000).

In order to maintain a 60% investment, we need to have an invested portion of RM56,400 (0.6 x RM94,000).

So we will use RM2,400 in cash to buy stocks (RM56,400 - RM54,000).

After this portfolio rebalancing, our new invested portions will be RM56,400 in stocks and RM37,600.in cash.

This will bring the invested portion back to 60% with the total portfolio value of RM94,000.

The CM strategy will cause us to buy more stocks when the market drops. We will be able to acquire a lot of quality stocks at cheap prices.

However, we will continue buying more stocks while the overall market continues to plunge.

During a bear market, we will see our portfolio shrink in value as our earlier purchase price may get cheaper.

Unfortunately, not many investors can tolerate a drop in their portfolio value.

The CPPI strategy is appropriate for use in either a super bull or a super bear market.

It is not suitable for use on normal market periods as we need to sell stocks when the market drops and buy when the market is on the way up.

We may end up buying at high prices and selling them at low.

Under the CPPI strategy, the portion of money in stocks is based on the formula that:

Money in stock = M x (TA - Floor) Where M = stock investment multiplier (proportion), TA = total assets held in the portfolio, Floor = the minimum allowable portfolio value (zero risk level) and TA - Floor = cushion or funds that can be put at risk.

Assuming we have a portfolio value of RM100,000, if we set our minimum allowable value (Floor) = RM70,000 and stock multiplier (M) = 2, we will invest RM60,000 in stocks [2 x (RM100,000 – RM70,000)].

If the overall market drops by 10%, our stocks will drop by RM6,000 (10% of RM60,000) to RM54,000. Our portfolio will be RM94,000 (RM54,000 + RM40,000 cash).

Our invested portion needs to be reduced to RM48,000 as 2 x (RM94,000 – RM70,000).

We need to dispose of RM6,000 worth of stocks (RM54,000 – RM48,000) and bring the cash level to RM46,000.

Following this portfolio rebalancing, the portion invested in stock is RM48,000 with cash of RM46,000.

The total portfolio value is RM94,000.

We will continue to sell stocks and hold more cash as the market drops.

We will stop investing in stocks when our total portfolio hits the floor level (TA – Floor= 0).

The strength of the CPPI strategy is that our lowest portfolio value at any point in time will be RM70,000 whereas the CM strategy may cause our portfolio value to drop much lower if the market crashes further.

In conclusion, the choice of strategy will depend on the overall economic outlook.

Unless we know our economy will not drop into recession, otherwise — based on our current situation, the CPPI strategy has the advantage of protecting our minimum portfolio value at the floor level.

lottery options

2008-11-03T21:26:00.006+08:00

I have found that the best teachers bring forth the most complex ideas in the most simplest of ways. Today, I learnt a new way of explaining options in layman terms!

In its simplest of forms, an option could be described as a financial lottery ticket.

You pay money(option premium, assuming that your are going long, ie buying an option) for the potential to earn more money(potential upside).

I felt enlightened when i saw it being put forth from such a different angle as it had almost nothing to do with investments or finance!

But as the wise Charles Handy puts it, "when we walk in alien worlds, we see things afresh or see fresh things."

The difference would be that lottery would be along the lines of gambling and based on pure chance while options are TYPICALLY entered because we have formed an informed view regarding the market movements of the underlying financial instrument based on market research/analysis or even 'fish market rumours'.

For in depth info on gambling and investment read here!

And lastly, I would love to share with you an interesting article brought to my attention from Ms Mabel regarding new terms that have cropped up due to the state of the world financial economy.

" This new era on the sharemarket has thrown up a new dictionary with its own set of words. Let's have a look at the important ones and what it means for your portfolio."

Outsaucing

2008-10-30T20:53:00.007+08:00

yada yada yada... economies collapsing and the world crumbling to pieces... you want to know more about that? go google it! However, what I'd like to share about today is something i learnt in the past weeks - power of outsourcing.

Why do companies outsource certain processes out?

For easy visualization purpose:

Why would Coca Cola pay a delivery company to deliver bottles of coke from the factory to the end retail sellor?

Simply AND ideally put:

Coca Cola's main line of business would be to produce and sell Coca Cola, instead of spending their resources in distribution, they can concentrate on churning out more coca cola or come up with better ideas to improve processes, increase uptake or brand equity.

Delivery company comes in as a specialist, with distributions as their main line of service.

In economic theory:

Delivery company has a comparative advantage over Coca Cola, making them more efficient and allowing each party to achieve economies of scale.

So....
How can these be applied to everyday life?
Well, say your brother has to mow the lawn and you to wash the dishes... and you take 15minutes to mow the lawn but take 30 minutes to wash the dishes and vice versa for your brother. So by comparative advantage, it'd make sense for you to switch tasks!

This idea of outsourcing also nicely ties in with an idea from a book i've been reading:
the elephant and the flea by Charles Handy which is about how big corporates, elephants and slowly trimming down and outsourcing to smaller specialists - the fleas which is increasingly becoming a trend in this day and age.

I have yet to finish the whole book, however, from what i've read so far, it's a really insightful and refreshing book!

and why was the earlier part of my post in realy short staccato-ish manner because i wanted to bring twitter your attention!

okay.. i hope i've tied up the simple overview of outsourcing to you in both business overview and in terms of economics and tie in a book reccomendation!

did you also notice that...

when I'm linking out to wikipedia sites
that i am in effect outsourcing?

Three

2008-09-25T11:18:00.005+08:00

In the spirit of the Rule of Three, this week I am recommending three reads from three reputable financial blogs which I find to be highly useful.

28 Gift Ideas that Save Money for the Recipient
[This is a great post, and the title speaks for itself.]

The 12 Biggest Financial Mistakes People Make Over & Over Again
[This blog brings you back to basics to sort out the chinks in your finances.]

The Rule of Three
[And of course, the rule of three. Call me a cheapo if you must but this is essential reading!]

There! 3 quality posts for the time/effort of browsing through 1, no reason why you should not stay glued to this blog!

Next Shock to the Economy

2008-09-19T11:26:00.006+08:00

In light of the recent doom and gloom of the markets, watch this video to see where the next shock is coming from. Federal bailing not included.

Economists Warn Anti-Bush Merchandise Market Close To Collapse

More Sex is Safer Sex

2008-09-14T16:51:00.004+08:00

Read a book by Steven Landsburg called More Sex is Safer Sex, and Other Surprises. It was a really refreshing take on application of economics into everyday life, situations and problems and how having more sex can prevent the spread of AIDS.

The main story which Landsburg wrote was:

Imagine a country where almost all women are monogamous, while all men demand two female partners per year. Under those circumstances, a few prostitutes end up servicing all the men. Before long, the prostitutes are infected; they pass the disease on to the men; the men bring it home to their monogamous wives. But if each of those monogamous wives were willing to take on one extramarital partner, the market for prostitution would die out, and the virus, unable to spread fast enough to maintain itself, might well die out along with it.

More interestingly, as I was surfing around for more information about the book, I found a post by Alex Tabarrok on June 19, 2008 regarding another book which validate's Landsburg's theory:

In The Wisdom of Whores (see also my earlier post) Elizabeth Pisani says that such a country exists, it's Thailand, and the results of more sex were safer sex - exactly as Landsburg argued. Here's Pisani's story:

Thailand used to fit the the classic 'virtuous girls, philandering boys' model. At the start of the 1990s, 57 percent of twenty-one-year-old men in Northern Thailand trooped off to the brothel to do their philandering. More than half the sex workers who soaked up their excess energy were HIV-infected....

Then...the Thai economy boomed. Girls were getting better educations than ever before...Educated girls were waiting longer before getting married, but not before having sex. By the end of the 1990s, 45 percent of girls aged 15-21 in northern Thailand admitted to having sex with boyfriends before marriage, compared to less than a tenth of that in a nationwide survey in 1993.

...So at the end of the decade, we have a lot more premarital sex and not all that much condom use with girlfriends. But now that these young, cash-strapped guys can have sex without paying, they've stopped handing over cash for sex. By the end of the 1990s, only 7 percent of young men were paying for sex, and HIV prevalence in sex workers had come down too.

....In short, more women having premarital sex equals less HIV.

Pisani cites neither Landsburg nor Kremer so I believe her account is independent. Note that Pisani also credits Thailand's successful condom program.

Hence more sex is safer sex! Really quite the interesting read, even for non economically inclined people as it is written in a easy to understand way and the issues discussed are easy to relate to, from sex to pollution and clearing up fallen leaves on your porch.

Besides wanting to share an interesting book in this post, I would also like to share a method to be more financially efficient.

I read the book at the bookstore....

The WHOLE book.

Free(to me).

So in a world where knowledge is power, I gained some knowledge for which I did not have to pay for in money.

But is it really free?

Next up!

I will dissect the costs involved in spending an afternoon at the bookstore readings books!

Stay tuned!

Beware the Old Lady

2008-09-11T23:52:00.001+08:00

I love riding on buses. The humming of the engine, the people-watching and the opportunity for personal reflection is something I've come to enjoy. Not to mention the occasional inspirational event that occurs. This post is about one of those.

I was doing my thing, sitting comfortably and enjoying my music when this old lady boarded the bus. She walked over in my direction, slowly looking around before noticing there were no seats available and began to look down.

At this point in time, I was ready to do what any able-bodied young man should do: give up my seat. Yet in the split second before I did it, I glanced around and noticed every other passenger was looking at me. Then it hit me that I seemed to be the youngest male around hence I was the natural choice to be sacrificed so that the old lady can rest her legs. There was this pressure in the air created by this accumulation of intense eye-power and I could not help but spring to my feet and give up my seat.

The tension in the air was immediately alleviated.

I felt that I had done the right thing yet a nagging thought persists: did I succumb to the mass pressure? Were I to put on the disguise of an old lady, would anyone give up their seat for me? Well, maybe not because everyone can see clearly that I am wearing a wig and do not have a very lady-ish face.

How about in the markets? Can you tell a real old lady from a disguised one?

Which index or model can best predict an accurate rise or fall? Will you be able to time your 'giving up of the seat' perfectly to the real old lady? Or will you give up your seat too readily only to find that you gave up your seat to me?

This habit of timing the markets often results in the investor making lesser than if he had just invested regularly over a period of 5 to 10 years. This episode of the old lady reminded me that I should always filter out the noise, stay invested and invest regularly. This is a much easier method of accumulating wealth than constantly monitoring the markets, looking over your shoulder for the old lady.

In a nutshell, invest regularly with a wolf strategy, and stay invested.

Related Posts:
To Ride a Bus
Fooled by Randomness
Freekonomics

Economics of little monsters and noise

2008-09-09T20:37:00.000+08:00

So a little background story, I'm staying with my uncle and his family... Two bickering kids and lotsa noise. Sometimes its the melodious sound of joyful laughter but at others, the awful screeching of angry screaming.

I found that if i applied a little economics to this situation...
I would be able to affect abit more joyful laughter and lots less awful screeching.

Lets say an eminent fight is on the brink of bubbling out of control...
I can take 2 actions:

1) Do nothing - do nothing.. pretend I am the three monkeys...
Let the house collapse with the earth shattering ground breaking noise.

I'd go hide in the room and so not be any less happier nor sadder, where as the kids will not be any happier or sadder because... they are kids who like to quarrel... and the parents will be unhappier, thus made less well off in term of the economics of happiness, and thus my taking this option of social non-chalance leads to an overall decrease in happiness level.

Assuming my not taking action would lead to a parent taking the kids
to task anyways, so no matter which option I choose, it can be taken that they would be that they would be unhappier(due to a scolding)

2) Shout and be the loudest - Show who's boss. Shout louder and longer and WIN. Survival of the fittest. Primal Rage.

Economically, I would be a little less happier as I would have to go primal and raise my voice a little... to get some peace... the kids... would be a little unhappier(but not much sadder than if i did nothing) but the parents get alittle peace and quiet and are thus better off in the happyness economic pie chart.

Assuming at any one time, there would be only one 'unit' of unhappiness among the adults: only one parent or me would be a little less happy from having to take action whereas the other 2 take the do nothing option, and are no better off.

So by utilitarian rule, I must do the greatest good for the greatest number... So I should take action which would lead to two other ppl being no less worse off.

The looking out for number one rule, states that I should just disappear into the wallpaper and slide up to my bedroom.....

Going by the faithful rule of three, I'm going to come up with a third solution.

3)Diffuse the situation - there are many ways to fight the seeming ineminent fire... Kids are really easy to distract and appease.
try tickling... telling a joke, dispersing them...

yea.. mainly just pulling them apart... and saving the house from collapsing...

who's happyer? me, parents and prob even the kids are a little well off.. assuming that the diffusal was a success....

So.. first point:
there is economics involved in everything! everyday life!

second point:
there are three sides to the coin! it's not always black and white.

third point:
based on economics, what would you do in a burning balloon?

Fooled by Randomness

2008-09-03T22:39:00.000+08:00

Honestly, the title did not appeal to me all that much at a glance. However, what caught my eye was the comment at the corner of the book cover that whispered 'Fortune: Selected as one of the smartest books of all time'. Now if there was any way to prove that I'm smart, it is to read a smart book.

What it is about:
How economists and traders consistently ignore the role of chance and rely on their increasingly unreliable models and charts to 'predict' the market.

Who is it for:
Anyone with a slight interest in the markets should read this! Nassim Nicholas Taleb is very convincing with his arguments though he does come across as quite arrogant at times. He does make occasional references to the role of chance in everyday life but most of it is centered on trading, which is his area of expertise, so I have no qualms with that.

Conclusion:
This book is definitely essential reading, your views on the markets and everything else will be drastically altered. You will find yourself labeling market volatility as 'noise' and be more focused on the things that really matter. Besides, you would definitely want to be seen reading one of the smartest books of all time.

Note: This book was so influential that the author decided to do a chapter by chapter review but at the time of writing, this author cannot find this book anywhere. So much for the smartness proof.

Related Posts:
The Warren Buffett Way
Lessons from Babylon

The Rule of Three

2008-08-28T00:38:00.000+08:00

The Rule of Three is a "principle in English writing that suggests that things that come in threes are inherently funnier, more satisfying, or more effective than other numbers of things." However my very own ROTH (ROT looks a little too crude for my liking) suggests a way to make money.

During a trip to the casino over the weekend, I could not help but notice how all the odds of the games are stacked against the gambler i.e. you and me. However this card game titled Casino War stood out from the crowd. It is loosely based on the children's game of War.

Here's how it goes: One card is dealt to a dealer and to a player. If the player's card is higher he or she wins the amount equal to his bet, if the dealer's card is higher, the player loses his bet.

In the event of a tie, things get a little bit complicated and is not needed in my ROTH but FYI: you either double your bet to play another round or surrender and lose half of the original amount you staked.

Suppose you staked 10 dollars on your card and lost, what would you do if you wanted to recoup your losses? Stake 20 dollars on the next bet? That is what I witnessed at the tables and it did not seem to work for most of the gamblers there. Double up a few more times and you will hit the maximum bet limit before long (if you have the capital). So much for rationality.

ROTH is simple. Place 3 bets on 3 separate cards/players and you will have 3 chances of winning every game compared to the puny single card that the dealer has. Do that consistently for every game and you'll experience how simple probability brings you cash. In my opinion, ties do not occur often enough to alter the odds too much.

Why 3 Bets? Well because its a nice number to manage.

Does it work on other card games? I would think not. For example, you can place 3 bets concurrently in a game of Blackjack but your decisions to hit or pass could significantly alter the chances of winning. Feel free to correct me if you feel otherwise.

Just for the record, this writer tested out the ROTH theory with his own cash and was pleasantly surprised with how things turned out.

Disclaimer: Despite this seemingly being a post about how to beat the casino, I am actually trying to show the irrationality of gamblers (and maybe consumers/investors) thereby advising greater discretion in making decisions that seem to be second nature.
This blog does not, in any way, encourage any form of gambling and if you have a gambling problem, please do not try to test out my ROTH theory.

Option to Park

2008-08-10T20:38:00.000+08:00

Okay... I was going to put out a post about how to spend (compared to how we always go on about how to save), but this topic hit me all of a sudden which I thought is a lighter topic.

So since acquiring my new/old car, I have had to park my car somewhere...
somewhere... anywhere...
while I serve my 9am-6pm sentence...

Initially, being the law abiding new car owner/ma|ays1an around, I would pay RM 3 everyday just for a parking lot behind the LRT station...

But as you can all see, times are bad... with inflation at 7% and overall increased standard of living... this lowly paid fresh grad has to do his very best to cut costs, which means cutting corners here and there so that I can subsidise my "Spiritual expenditure" (read: alchohol).

So one of the ideas that I came upon was to cut costs by the way of parking at alternate parking sites where I would not be charged a levy.(i.e. FREE!!!!!FOC!!!! woohooo...)

So the long and short of it:
The costs of alternative parking(parking by the roadside)
Immediate outflow of money: RM0

Risk of copping a RM500 fine(i think its 500?): from observations - low. because lots of other cars are doing it!
lets put it at 1%?

Estimated value(EV)=0+1%*500=RM5

Compare this to the old way where i parked at the LRT station:
Daily outlay : RM3

EV= RM3

So... a comparative analysis: I should actually choose to pay RM3 everyday, but as with any investment options, its all about balancing risks and returns...

I choose to take on a risk of RM5 for a savings of RM3... ahahha... seems like a really dumb investment to me, but then again, I'm not too sure about the fine and so far there hasnt been any. Not that I'm a firm believer of technical analysis, but that's where my 'so far so good' rationale is taking me! (P/S from a survey, I've gathered that parking summons dun amount to that much! =D in fact alot lesser than my assumed RM500! which makes it a good investment!)

Also in reference to Buffet on making investment decisions on companies requiring sound and solid management, I have faith that the current "management" would most probably leave my car alone too....

So there you have it. Option, to park!

Why the sexy picture? Because sex sells! and cuz i've been readin Malaysianfiance and realises that Salvatore_Dali uses those alot.
But eye candy aside, its an interesting read nonetheless!

I know that I have not been updating regulary of late. But at the same time I feel that doing it out of routine has led me to come up with really lazy and uninspiring/crappier than usual stuff... So I hope that after this couple of weeks break, I would be able to come up with posts that would do Sense-n Cents proud and be able to reach out and relate to people.

Related posts:
Priceless - new/old car
Market efficiency - Is the market truely efficient?
10 ways to save $10 or more

Ticket to Phuket

2008-08-07T12:07:00.001+08:00

Having just came back from a wonderful getaway in Phuket island, Thailand, I thought I should share a few tips how to to maximize your dollar while you are there. These tips might be specific to Phuket but I guess it should apply to most beach resorts in Asia.

1) Rent a Car
The taxis and tuk-tuks there charge exorbitant fees for short rides and nobody ever goes by the meter (neither is there any meter to be found). A return trip to Phuket town from your hotel could set you back by 1000 Baht while renting a car for a day costs the same. You do the math. Roads in Phuket are easy to navigate and car rental is available everywhere so just arm yourself with a map and go.

2) Bargain
Except in your hotel, you can bargain almost anywhere in Phuket. T-shirts can be bought for 150 Baht or less and I got offered a hammock for 1200 Baht of which my relentless girlfriend brought down to only 250 Baht. Island-hopping tours and cabaret tickets can be slashed at the various tour agencies too, more on this later.

3) Tour Agencies
There are tour agencies all over the island offering island-hopping tours (to Phi-Phi Island, James Bond Island, Maya Bay etc.) and cabaret tickets. Almost all of these agencies offer transport to and fro your hotel but some of them are able to offer cheaper prices by giving you an inferior mode of transport (for example, a ferry instead of a speedboat for an island tour). So do check it out before paying for anything.
Point to note: tour agencies in your hotel lobby offer no discounts so do not ever pay for your tours there. I learnt this the hard way by finding out that an agency just across the road from the hotel charged 1000 Baht lesser than what I paid for an island tour.

4) Touts
Taxi touts, suit touts and all sorts of touts are everywhere. Learn to ignore them and your trip will be much more enjoyable.

5) Enjoy.
If this is your first time to Phuket, stay in Patong beach because that is where all the action is. If you just want some quiet time, then Karon beach (where I stayed) is probably a better choice. Indulge yourself by having affordable massages and fine dining by the beach every night. I personally recommend the restaurant at Karon beach resort.
Point to note: having Western food will burn a deep hole in your pocket, stick to Thai cuisine and you would have extra Baht for more cocktails later.

Death of a Great

2008-07-31T11:15:00.000+08:00

Randy Pausch of The Last Lecture fame passed away on the 25th of July 2008.

I had briefly brought up his inspirational lecture almost 3 months ago and shortly after my discovery of this man, he made it to Time magazine's 100 most influential people of the year, alongside people like the Dalai Lama and Barack Obama.

Randy's lecture had motivated me in so many ways that I would not list here because I want you to be motivated in your own way after you listen to his last lecture. If you have not seen it, you can find it here.

More than just making sense of cents, Randy might just help you make sense of your life.

Related Posts:
The Last Post
3 Things to Do Everyday
Cents and the City

MOnty Hall problem (Wiki)

2008-07-26T21:01:00.000+08:00

Monty Hall problem

From Wikipedia, the free encyclopedia

The Monty Hall problem is a probability puzzle loosely based on the American television game show Let's Make a Deal. The name comes from the show's host, Monty Hall. The problem is also called the Monty Hall paradox, as it is a veridical paradox in that the solution is counterintuitive.

A well-known statement of the problem was published in Parade magazine:

Suppose you're on a game show, and you're given the choice of three doors: Behind one door is a car; behind the others, goats. You pick a door, say No. 1, and the host, who knows what's behind the doors, opens another door, say No. 3, which has a goat. He then says to you, "Do you want to pick door No. 2?" Is it to your advantage to switch your choice? (Whitaker 1990)

Because there is no way for the player to know which of the two unopened doors is the winning door, most people assume that each door has an equal probability and conclude that switching does not matter. In fact, in the usual interpretation of the problem the player should switch—doing so doubles the probability of winning the car, from 1/3 to 2/3.

When the problem and the solution appeared in Parade, approximately 10,000 readers, including nearly 1,000 with Ph.D.s, wrote to the magazine claiming the published solution was wrong. Some of the controversy was because the Parade version of the problem is technically ambiguous since it leaves certain aspects of the host's behavior unstated, for example whether the host must open a door and must make the offer to switch. Variants of the problem involving these and other assumptions have been published in the mathematical literature.

The standard Monty Hall problem is mathematically equivalent to the earlier Three Prisoners problem and both are related to the much older Bertrand's box paradox. These and other problems involving unequal distributions of probability are notoriously difficult for people to solve correctly, and have led to numerous psychological studies. Even when given a completely unambiguous statement of the Monty Hall problem, explanations, simulations, and formal mathematical proofs, many people still meet the correct answer with disbelief.

For more reading on this issue.

Priceless

2008-07-06T22:22:00.000+08:00

Okay.. so i bought a new old car recently.. and I'm going to do a price comparism/cost analysis as to changes in costs.

I bought the car for X dollars, which is a SUNK cost, meaning that the cost will not be factored into the decision making process.

So, before I had a car, I had to trouble somoebody to give me a lift to the train station everyday, which does not entail a real cost BUT there is still an intrinsic economic cost to that someone's time and effort; no matter; we can assume this cost to be zero at the moment for simple calculation purposes.

And everyday, I would have to take the taxi from the train station back home. This usually cost me about 7-10 dollars. And there is the problem of waiting time as taxis may not be readily available at certain times of the night, which would translate to a cost - opportunity costs, and the intrinsic value of the waiting time.

To sum it up simply, pre car, the cost of getting to and back from the train station would be 10 dollars sans all the intrinsic costs.

Post car:
Weekly petrol: $50 (mostly used up on the weekends driving around)
I would have to say that getting to and from work would cost about.. 30dollars MaX? which would work out to 6dollars a day for 5 workin days(but i seriously think it is less thant $6).

Parking fees: $3 per day.

Total costs to get to n from the station: 3+6=$9
still one dollar ahead of pre car...

The option to drive all around as and when I want to:
PRICELESS

For everything else in life...

=D

Read also:
Option to ride
Option to ride II
Riding a bus

Wanted!

2008-06-29T13:51:00.001+08:00

I think i just want to share a story that just really stuck to me over the years.. I cant really recall who told me to it already but the idea behind it still amazes me no less.

A rich businessman drives this car right up to the front porch of the banking hall. Walks up to the banker and says:

"Hey, I want to borrow $1000 for 3days."

Well, his banker, knowing how rich he is and all is befuddled by the fact that he wants to borrow $1000 when he has millions in his cash account alone. But doesn't ask anything and proceeds to do the paperwork.

"The customer is always right." he thought.

Rich man goes on to say,
" I want to put my car as collateral for the loan."

Now the banker was really really curious! But being a banker, he had to respect his customer's wishes.

"The customer is always right." he thought.

So the Dodge Viper SRT210 was put down as collateral for the $1000 loan.

Come Monday when the businessman came in to settle his loan,
The banker, who spent the whole weekend trying to make sense of putting down the car as collateral for a $1K loan that he didn't need finally asked him why...

The businessman replied,

"Where else could i park my car for 3 days and not worry about it being stolen? For $15 dollar interest paid over the weekend, I was able to ensure that my car would be safely kept, and not worry about it while i went overseas for my business trip."

"The customer is right."

btw: do catch "Wanted", watched it last night, it was an entertaining movie! And yes, a dodge viper was in it! oooh....
As to why i think this story is amazing is because of the complete turnaround of use of the services provided by a bank!

Notice of Temporary Closure

2008-06-25T12:25:00.001+08:00

Dear Readers,

I will be away to Hong Kong, Shanghai and Seoul for a summer program and might not be able to keep up with my weekly Wednesday postings. However, I will keep you guys updated if I come across anything of interest in these Asian financial hubs.

My regular posts will resume in end July!

Jack

The lemon law

2008-06-21T20:07:00.000+08:00

So shopping for a second car or product? Are you aware of something called the lemon law? Whatt????

A lemon market will be produced by the following:

Asymmetry of information

no buyers can accurately assess the value of a product through examination before sale is made
all sellers can more accurately assess the value of a product prior to sale

This usually applies to second hand products such as used cars where the seller would have a much specialied understanding of the product and its problems compared to the buyer.

Cheating and lack of avenues to disclose them.
An incentive exists for the seller to pass off a low quality product as a higher quality one. Sellers have no credible disclosure technology (sellers with a great car have no way to credibly disclose this to buyers)

A very good example of this would have to be Ebay where shilling occurs and is developing into a market for lemons due the the high level of information asymmetry and current systems of rating sellers that favor sellers instead of buyers.

Deficiency of effective public quality assurances (by reputation or regulation)

Don't have a current example, but an example of this would be the Indian milk market where no one could ascertain the quality of milk and thus there was no market for high quality milk as it was assumed that all milk was of low quality.
Deficiency of effective guarantees / warranties
Without guarantee, there would be less incentive to adhere to a certain level of quality.

In Pop Culture!

In "The Duel", a first season episode of CBS's How I Met Your Mother, Barney comes up with a "lemon law" for blind dates where if you didn't like the person in 5 minutes, you could end the date so no one's feelings would be hurt. It backfired when a woman sat down, and said "I'm sorry, but I'm going to have to lemon law you." Barney being Barney simply regretted not naming the idea "Barney's law."!

btw... How I Met Your Mother is one of the cooooolest shows around... So please do catch it! = D

I wanted to embed a clip of Barney mentioning the lemon law... but I was unable to find one, but still.. the clip's Legend...... DARY!

Cheers,

Tau

Best of the Rest

2008-06-19T12:27:00.000+08:00

The Money Blog Network group is focusing on finances for fresh graduates in the month of June and I have chosen the cream of the crop for your reference.

The tips posted by the renowned bloggers do not only apply to fresh graduates, if you're looking to kick-start your finances on a clean slate, why not take on the mentality of a fresh graduate and put the advice to use?

Here's the Best of the Rest:

A Fully-funded Roth IRA at age 18 could net you 3.5 million dollars
It does not matter if you are not a US citizen and have no idea what a Roth IRA is, the gist is this: save and invest. Start investing $5000 yearly and be a millionaire by age 50. (@ No Credit Needed)

Personal Finance Made Easy: Pay Yourself First
This is actually a tip from the book, Richest Man in Babylon which I reviewed here. Paying yourself first is about setting aside a fixed portion of your income for your emergency or retirement fund. (@ Get Rich Slowly)

Welcome to the Real World
The advice here focuses on the attitude and morals that will ensure a fulfilling life rather than how much to invest or save etc. (@ Wisebread)

If you want to read more on this topic, check out the rest of the posts here. However, as it always is in such situations, many of the tips overlaps hence I only chose 3 bite-sized, easy-to-digest posts.

Any other tips for fresh graduates? Feel free to post your comments.

Related Posts:
Lessons from Babylon
The Last Post
Power of Compounding

what isnt reported

2008-06-15T03:13:00.000+08:00

Hi dear readers, The following post is lifted directly out of an email that I have got, and is purely for your information and is not representative of my view whatsoever. So please do read with a big pinch of salt! =D Some of you may have already gotten it... for those that have not.. here it is...

What isn't mentioned in mainstream media.

Malaysian percapita income USD 5000 Vs. Singaporean percapita income USD 25000

Recently the star has made a comparison of prices in Thailand, Singapore and Indonesia.

For Thailand it is quoted at RM3.90/liter, however are they aware that in Thailand cars are cheaper than Malaysia by RM10,000? They only pay for their driver's license once in their lifetime, no yearly renewals and you can drive from Hadtyai to Bangkok in a six lane highway without paying any TOLLS!Whereas here in Malaysia you have have to pay for yearly renewals of your driving license, roadtax and TOLLS!!!.
For Singapore, it was quoted as RM5.20/liter. Please quote in Singapore dollars because they earn Sing dollars. You might as well say Europeans pay RM10/liter. RM5.20/liter = S$2.20/liter...keeping in mind that Singapore is not a crude oil exporter. Are they saying that you fill up petrol in Singapore by paying ringgit?

In economics, dollar to dollar must be compared like an apple to an apple. Not comparing durians in malaysia to durians in Japan. Of course-lah, Japan is not a durian producer. Comparing Malaysian durians to Thailand durians makes more sense.

For Indonesia, we may say is cheaper at RM2.07/liter but compare that to their level of income!!!

Now, Let us compare the price with OIL PRODUCING countries.

UAE - RM1.19/litre
Egypt - RM1.03/litre
Bahrain - RM0.87/litre
Qatar - RM0.68/litre
Kuwait - RM0.67/litre
Saudi Arabia - RM0.38/litre
Iran - RM0.35/litre
Nigeria - RM0.32/litre
Turkmenistan - RM0.25/litre
Venezuela - RM0.16/litre
MALAYSIA - RM2.70/litre

RM2.70 : The individual perspective.
As of last month a Toyota Vios would cause a damage of about RM89000. In the International Market a Vios is about USD 19000. USD19000 = RM62,700 ( Using USD1=RM3.30). That means Malaysian Owners pay RM26,300 extra. This RM26,300 should be the cost of operation, profits and tax because the transportation costs have been factored in.

RM26,300 / RM625 petrol rebate per year translates to a Vios being used for 42.08 years. I do understand that the RM625 is a rebate given by the government, but it also means that one has to use the Vios for 42.08 years just to make back the amout paid in taxes for the usage of a foreign car. Would anyone use any kind of car for that long?

Now with these numbers in front of us, does that subsidy sound like a subsidy or does it sound like a penalty? This just seems to be a heavy increment in our daily cost of living as we are not only charged with high car taxes but also with a drastic increase in fuel price.

With all the numbers listed out, i urge all Malaysians to join me in analysing the situation further.

Car taxation is government profit, Fuel sales is Petronas (GLC) profit which aslo translates into government profit. The government may ridicule us Malaysians by saying look at the world market and fuel prices worldwide. Please, we are Malaysians, we fought off the British, had an international port in the early centuries, we are home to a racially mixed nation and WE ARE NOT STUPID.!!

We know the international rates are above the USD 130/barrel. We understand the fact that the fuel prices are increasing worldwide and we also know that major scientists are still contemplating on why this phenomenon is happening. Some blame Bush and his plunders around the world and some blame climate change and there are others who say petroleum "wells" are getting scarce.

Again we go backto the numbers to be more straight forward.

1 barrel = 159 litres x RM2.07/litre = RM429 or USD 134
On 1 hand, we are paying the full cost of one barrel of crude oil with RM2.70 per litre but on the other hand the crude oil only produces 46% of fuel.

M'sia sells crude oil per barrel at USD130, buys back fuel per barrel at USD134. And not forgetting, very barrel of fuel is produced with 2 barrels of crude oil.

1 barrel crude oil - produces 46% of fuel
2 barrels crude oil- produces 1 barrel of fuel.
In other words, each time we sell 2 barrels of crude oil we buy back one barrel of fuel.

Financially,
Malaysia sells 2 barrels of crude oil @ USD130 = USD260 = RM858, then
Malaysia will buy back fuel @ USD134/barrel = RM442/barrel. Thus, Malaysia earn net extra USD 126 = RM416 for each 2 barrels of crude oil sold/ exported vs importing 1 barrel of fuel.!!!
(USD260 - 134 =RM416)
So where is this extra USD126/ barrel income channeled to by the M'sian Govt??????

So this is where I got curious. Where is the subsidy if we are paying 46% of the price of a barrel when the production of petrol/barrel of crude oil is still only 46% ?
In actual fact, we are still paying for this as they are charged in the form of fuel surcharge by airlines and road taxes for the building of roads and many more excuses.

As far as i know, only the politicians who live in putrajaya that come for parliament meetings in K.L ( approxiamately 60km) are the ones to gain as they claim their fuel and toll charges from the money of the Rakyat's tax.

It is so disappointing to see this happen time and time again to the Malaysian public, where they are deceived by the propaganda held by the politicians and the controls they have over the press.

Which stupid idiot equates rebates for the rich or poor with the cc of vehicles? And average office clerk may own a second hand proton iswara costing RM7000 ( rebate RM625) while the Datuk's children can own a fleet of 10 new cars all less than 2000cc costing millions and get a rebate of RM625 x 10 - RM6250!

The misleading concept of subsidy
The word "subsidy" has been brandished by the BN govt as if it has so generously helped the rakyat and in doing so incurred losses. This simple example will help explain the fallacy :

Example:
"A" is a fisherman. He sells fish to u at $10 which is below the market price of $15. Let's assume he caught the fish from the abundance of the sea at little or no cost. "A" claims that since the market value of the fish is $15 and he's selling it to u at $10, he has subsidised $5 and therefore made a loss of $5.
Question: Did he really make a profit of $10 or a loss of $5, which he claimed is the subsidy?
Answer: He made a profit of $10 which is the difference between selling price and cost price. There is no subsidy!!!

The BN govt claims that it is a subsidy because the oil is kept and treated as somebody else's property. By right, the oil belongs to all citizens of the country and the govt are the trustee's for the citizens. So as in the above example, the BN govt cannot claim that it has subsidised the citizen!.

ps: awesome comic from... www.philippetastet.com

Preferred Stock

2008-06-12T12:18:00.001+08:00

Although it takes the name of a kind of stock, a preferred stock is widely regarded to be a form of fixed income holding.

What it is:
Preferred stock, like a common stock, pays you dividends and gives you ownership of the company. However, the dividends are usually fixed (hence a form of fixed income) and in the event of bankruptcy, preferred stockholders' claim to the company's assets have higher priority than those of common stockholders (hence 'preferred').

Who is it for:
Like a common stock, as long as you have the capital, you can invest in preferred stocks however there are exceptions. Recently, DBS Bank issued preferred stocks solely to institutional investors. You can still get around this by checking out which investment companies bought the stocks and buy into their respective Fixed Income Fund (where preferred stocks are normally found).

How can I use this knowledge:
Look at the financial pages and beam with pride when you see news of preferred stocks because now you know.

Related Posts:
Definitely Definitive
To Ride A Bus
Getting Hot Around the Collar

freekonomics - flash post

2008-06-04T22:45:00.000+08:00

so how would petrol hike affect the economy?

Well.. an increase in rape and theft cases!

huh? what?

I see an increase in the cost of living from the increase of fuel prices...
because... oil is involved in everything...
from the delivery of food, transport to get people around..
food food prices increase, people are unable to afford the higher standards of living, leading to people and the general economy tightening their belts and slowing spending.

and this vicous cycle would go on n on... and businesses will be unable to sustain and this would lead to lay offs...

and this leads to an increased unemployment rate.

with hungry desperate and disillusioned people roaming around.

Crime rates and rape rate will tend to increase.

true story.

- a flash post. some sense and cents to talk over a coffee and impress your friends about economic insights or just for fun facts.

oil price increase in malaysia!

2008-06-04T22:37:00.000+08:00

Govt of malaysia just announced a price hike of price by 40%:

Malaysia's petrol price will rise 40 percent to 2.70 ringgit (0.84 dollars) a litre from Thursday as controls are removed under a revamped subsidy system, the prime minister said.

read more on the economic times

10 ways to save $10 (or more)

2008-06-04T20:23:00.001+08:00

In light of spiraling food prices, I thought that I would share some tips on how to save money in small little steps. These tips are put together from the various finance blogs I frequent with a tip or two from yours truly.

1) Switch to a LCD monitor
If you're still using the old bulky CRT monitor, you must be at least 65 years old. Well if u need just one more reason to switch to LCD, it is proven to be much more energy saving as well. Assuming you use the computer for six hours a day, a CRT monitor costs $17 a year in electricity while a LCD monitor costs $5.40!
That's savings of at least $10 a year!

2) Pull the Plug
Many people have the habit of leaving their electronic appliances on standby mode but did you know that the standby light consumes a significant amount of power? Studies have shown that standby power is responsible for 13% of a household's power consumption! That equates to a whopping $100 a year!
As a rule, always switch off appliances that have clock/timer functions. For power-intensive devices like your PC, pull the plug out of the socket for maximal savings.

3) Cut down on the Latte
Stop the daily ritual to Starbucks and purchasing over-priced latte. Instead, bring a mug to work and make your own latte in the pantry. This can easily save you $5 a day!

4) A Dollar A Day
Rising costs made you put aside your travel plans? Well fret not, just put a dollar a day into a piggy bank.
365 days down the road and viola! $365 for that short beach getaway that you deserve!

5) Eat Healthy
Notice that meat almost always costs more than salad? Well perhaps this is the best time to eat healthier and detox your body.
Even at 50 cents savings per meal, this is savings of $45 per month!

6) Home Gym
Still holding on to that gym membership that you seldom utilize? Well trash it and start doing home workouts instead. Invest in a skipping rope that's all! For aerobic exercises, you can choose to skip at home or jog around the neighborhood. No weights? Well, doing 100 traditional push-ups and sit-ups a day will definitely help you maintain your shape.

7) Free DVDs and Books
Visit the library and start borrowing instead of buying. If your local library doesn't have DVDs, borrow a Tom Clancy or an Agatha Christie for a suspense-filled weekend.

8) Hold that Up-size
Looking to up-size your meal or to extend the warranty of your latest purchase? Well think about it for a few seconds and chances are you do not need the additions. Though such up-size may cost from a few cents to a few hundred dollars, add them up and you can definitely afford another short getaway.

9) Black or White Sale
How many items have you bought during a sale and have worn them for at least ten times? If you find yourself consistently regretting your sale forays, stick to the black or white rule. Buy only black or white items during sales because these are basic colors that you can wear over and over again to anywhere. Honestly did you really buy that purplish-green cardigan?

10) Say 'No'
Learn to say 'No' to your kids or your drinking buddies and stay in control of your expenses.

Related Posts:
3 Things to Do Everyday
The Last Post
Financial Tracker

Is our market truly efficient?

2008-05-31T22:59:00.000+08:00

One of the more commonly debatable concepts in the modern literature is about market efficiency. Market efficiency is where market is expected to be able to absorb new information instantaneously and in an unbiased manner, and fully reflect it in the security’s prices. So the question is, is the market really capable of doing that? If the market really is able to do that, the investors would not be able to make excess returns because the prices of the securities would be expected to reflect its fundamental value.

The fact is, the market is both a mixture of efficiency and inefficiencies. For a market to be truly inefficient, any inefficiency must give rise to an economically exploitable profit making opportunity. The market is constantly flooded with information which is usually picked up by market analysts and reflected in the prices. That said, there are still many small opportunities that exist and are missed. These however are usually are just too expensive to acted upon because of things like taxes, transaction costs and others. So in that sense, the market may not be economically efficient, but is in actual fact efficient and reflecting all available information.

There is a common misconception that the market is inefficient because of the high volatility. Conversely, this actually indicates that the market is efficient because the prices are constantly affected by the information that is being released. If the rate of information arrival is high and this information implies variations in prices, then it is expected that price changes would be frequent and of varying magnitude. Also, the market does not realign automatically and in fact price levels would remain constant until new information arrives at the market.

Simply put, the issue of efficiency is ultimately a matter of degree, rather than extremes. It is in fact the existence of believers in market inefficiencies that keeps the market efficient. This is because those that seek to exploit these inefficiencies would constantly monitor the market, act on them, and eliminate all inefficiencies.

Kind contribution by Ms Mabel Low = )

related posts:
Internship experience
forex market - money money money
the world village
Finance Fashion

Cents and the City

2008-05-28T23:17:00.001+08:00

You simply cannot avoid it. Flip to the entertainment segment of any paper and chances are that you will see the four females who glamorized middle-aged female sex drive. Sex and the City made a once taboo subject become a trend, for women everywhere to be proud of their sexuality.

Money is like sex in many ways:
1) You can never have too much of it.
2) Earning it is never easy.
and most relevantly,
3) It remains a taboo subject.

Would a drama series of four flirtatious investors who can charm money out of every investment remove this taboo? The fact remains that many people, including families, seldom share money management tips or their financial plans. Children always assume that their parents financial plans in place, only to bear the brunt of it when they find out that their parents do not even have basic health insurance.

Families are not the only ones treating money as taboo. Why is calculus, a subject most of us will never need for the rest of our lives, compulsory while money management is conspicuously absent from all curriculum. A Money 101 module could help many fresh graduates plan for their retirement better but we're often forced to take some other elective module that we will probably not need at all.

So until Cents and the City is made into a movie, work on that taboo today. TALK about money management, do not be afraid to ask for help especially from your affluent friends or relatives. By asking for help, I do not mean taking loans from them! I mean to get valuable advice and tips to improve your financial situation. Take control of your finances today and you will feel the difference.

Look out for the casting auditions to Cents and the City.

Related Posts:
Power of Compounding
3 Things to Do Everyday
The Last Post

Financing a car

2008-05-24T17:47:00.003+08:00

Financing a car depends on many factors. Your current assets(your house, cash, stocks, unit trusts etc), you liabilities( existing loans, girlfriend/s!(haha... joking!)), your monthly income VS your monthly expenditure; so in essence, your liquidity and available funds. And also to a large extent how much would you be willing to pay a month to service the loan for the car should you choose to take out a loan.

For me I think it boils down to being able to pay for it without over committing myself such that servicing the monthly repayments would leave me with very little cash for other essential expenses, such as Johny walker's or Chivas fund and all... If you are over-commited, you might not be able to pay it should any short term unforeseen expenses that may crop up, which would lead to default and a rollover of interest(think sub prime crisis).

A good idea learnt from many financial speakers is to have a crisis fund to take care of any unexpected things that happen in life to hedge the impact of such event occurrence .

Of course, the most important thing would be the choice of car itself would'nt it? Is it suitable for what you'd be using it for? Do you need a car of that size? Is the PRICE right?

Well, when you have decided what car to get, you have to decide if you want to pay in full or get a loan. Few points to consider, compare the interest rates of the loan versus comparable investment vehicles of similiar type. Such as would it be better to pay more upfront versus taking the loan and letting your money sit in the bank at a 0.05%? interest rate? or more if you put it into a FD or Unit Trust or some other investment.

Then it'd come down to what kind of financing you'd like, a hire purchase of a flexi-term loan kinda arrangement.
Would your capital gains offset your interest payments?
How would that affect your monthly cash position?
Are you comfortable with that level of liquidity?

From my point of view, as a new entrant to the workforce, I would be seeking to reduce my monthly repayment to a minimum and to be liquid as I am just starting out with work and would not have substantial savings to fall back upon should something unexpected occur.

So my parting words would be to...
live within your means = D

Exotic currency: Investopedia term of the day

2008-05-21T21:27:00.000+08:00

TERM OF THE DAY - MAY 21, 2008

Exotic Currency

What Does it Mean?
A foreign exchange term for a thinly traded currency. Exotic currencies are illiquid, lack market depth and trade at low volumes. Trading an exotic currency can be expensive, as the bid-ask spread is usually large.

Investopedia Says...
Exotics are not considered major currencies because they are not easily traded in a standard brokerage account. Major currencies include the U.S. dollar, Euro, Canadian dollar and Swiss franc. Examples of exotic currencies include the Thai baht, Uruguay peso or Iraqi dinari...Read more.

The Warren Buffett Way

2008-05-21T15:49:00.000+08:00

This is not an auto-biography but an in-depth look into how Warren Buffett chose his investments via his methods and philosophy.

What it taught me:
1) Ignore stock market fluctuations;
2) Buy shares as if you were buying businesses;
3) If you are too lazy to do your homework, buy an index fund instead.

Should you read it?:
The analysis of the different companies that Buffett has invested in is pretty detailed and is full of statistics. This is definitely heavy reading and not recommended for those who hate data analysis. Moreover, each investment of Buffett is scrutinized by the author in every chapter and it can get pretty tedious.
You can gain the most out of it if you have some prior knowledge of equities and bonds.
However, you can gain a pretty good understanding of the Buffett way by reading the first 2 chapters (which gives you some background information on the man) and the last 2 chapters (which summarizes the key methods that Buffett employs).
The Afterword is not to be missed as it shows how the Buffett way can be employed in the modern economy.

Favourite Quote:
'All we want is to be in businesses that we understand, run by people whom we like, and priced attractively relative to their future prospects'

Related Posts:
roller coaster
Lessons from Babylon

roller coaster

2008-05-17T23:17:00.000+08:00

In quiet times, the forex market would be like a kiddy world roller coaster. but in times of economic change and volatility, it would be more like the superman roller coaster at Movie world(really high, really scary, really exhilarating!).

When you go to a foreign exchange counter, you'd see two numbers, the bid(buy) and ask(sell) price, and if in doubt as to which applies to you, follow common sense that states that from a business point of view, we buy low sell high.

Thus if you want to buy USD, and the bid-spread is 1.78/1.83 (totally fictional prices) then by intuition, the higher price of 1.83 would apply to you! And vice versa if you were to sell...

So why is there a spread(difference between the bid and ask)? That's where they make the profits, spreads also depend on the overall demand and supply of the underlying currencies, the lesser the demand, the lesser the chance that it will be traded out again, thus it would command a higher premium.

There are many reasons why people/companies go into forex deals, because they need money in a different currency to pay for a deal, or because their kid is going overseas and they are making provisions for them, etc. Hedges are used, usually, to hedge against the risk of losing money when there is change in the rates between different currencies and to lock in the profit on the companies balance sheet.

Hedges that increase exposure to forex fluctuations should be called speculation, and has lead to big loses, even Buffet has had his share.

The forex market has been really active in Malaysia in the past year and because of that, big losses and big gains were made.

Well, I hope this gave you some insight into the world of forex!

related articles:
Money money money
Third party ink
time value of money

Animal Talk

2008-05-15T00:13:00.001+08:00

The 2 most popularly used words in the financial world are undoubtedly bull and bear. They also happen to be 2 of the most misleading terms for a layman.

When I flipped to the finance or business columns while I was a teenager, I could never figure out what is meant by a bull market or a bear run. It makes no sense to see animals in the stock markets. Take those terms literally and you could have some pretty interesting visuals.

For starters, almost everyone knows that a bull market signals good times and rising stock prices while a bear market reflects bad times and downward spiraling stock prices. However, I guess not many of you know why those animals were chosen.

My innocent mind once thought that perhaps bulls signified good luck because they mated with the cows and the cows will have more milk; while bears were bad luck because they eat people. Well, it turns out that there is a whole lot more philosophy than that.

The explanation is actually pretty intuitive.

Bulls attack by thrusting their horns up (stocks go up).

Bears attack by swiping their paws down (stocks go down).

Bet you didn't know that.

Related Posts:
Bear Sale
We are Wolves

Imagine

2008-05-10T21:24:00.000+08:00

We live in a world village. I've discussed about how important it is to save money and how to be cultivate a 'rich man's habit'. As much as I like to share with you, dear reader, about basics of finance and money, I would like to show you the flipside of capitalism and consumerism.

I'd like to discuss the issue of third world debt. The following articles give a good background to what it is:
1) www.globalissues.org
2) WIKi ( everything can be wikied!)

I'll leave you to read it up. But in summary its about how "debt relief" to 3rd world countries is becoming a dead weight to their development and catching up to other developed countries with "$13 on debt repayment for every $1 it receives in grants."( global issues.org)

In caricature, it's like a playground bully scene, where the big guy squeezes the little kids neck and takes away his lunch money! And who are these big boys? well, go read and go figure! I assure you, you'd be surprised by what you read in global issues.org.

Why am I not giving a balanced argument? because you already know the flipside of the flipside, and this IS the untold side to it.

Why am I highlighting this issue? because I believe in a balanced view. The good, the bad, the ugly.

So.. While I feel it is important to get ahead and achieve financial freedom, however at the same time, I would like to create an awareness of people who have no chance to do so and hope that wherever possible, we do our part to help, in every little way, the less fortunate.

In an ever shrinking world where everyone is just six degrees apart,
Have you done your bit for the world?

" You might say that I'm a dreamer, but I'm not the only one, I hope someday you'd join us, and the world will be as one." Imagine, John Lennon.

Related links:
power of compounding
If the world were a village of a hundred people
The last post
3 things to do everyday

The Last Post

2008-05-07T14:47:00.001+08:00

The recent YouTube phenomenon: The Last Lecture by Randy Pausch has spawned a book, countless childhood dreams and inspired over 6 million viewers. This left me thinking, what if I only had one last post to blog about, what will I tell you?

If I were to die tomorrow, what is the one piece of financial tidbit that must be passed on?

Well I thought of blogging about all the investment basics, or all the insurance 101 or even how to get the best discounts but the answer was much simpler than all of that. If this were my last post, it would only consist of one word: SAVE.

It is the worst kept secret on getting rich. SAVE. It does not matter how much you earn or how good you are at investing, if you do not save you will NEVER be rich.

As my partner-in-blog has emphasized in a previous post, savings is about paying yourself first before you pay Sony for that new HD-ready LCD.

Most self-help books talk about saving 20% of your income and NEVER touch it except to invest it. Then set aside another 20% to splurge and reward yourself so that you feel good and will not go on uncontrolled spending sprees. I personally feel that this is an awesome piece of advice, one Investment account and one Indulgence account will guarantee that you get richer and richer.

That being said, The Last Lecture is very inspiring and I urge all of you to watch it and dare to dream.

PS. You haven't seen the last of me yet.

Related Posts:
Power of Compounding
3 Things to Do Everyday

Rio Hedge: Excerpt from Investopedia.com

2008-05-05T21:43:00.000+08:00

TERM OF THE DAY - MAY 05, 2008

Rio Hedge

What Does it Mean?
A situation where a trader who is facing financial or legal troubles hedges his or her position in an investment with a ticket to a tropical location. The idea behind the Rio hedge is that if the investment goes bad (either legally or through financial loss) the investor will use the ticket to escape.

Investopedia Says...
The Rio hedge is a joke in the investment community regarding the risks involved in trading. A traditional hedge will protect against potential financial risks associated with an investment. The Rio hedge pokes fun at protecting against risks, such as getting caught by the authorities, lenders, or owners of the funds under management.

Haha.. was reading through the daily email from investopiedia.com and found this really funny term of the day... And since I'm an options and derivatives person, i thought I'd post it here and have a laugh together!

Well, in this current economic situation, I'm sure that many a fund manager would really love to go for a Rio Hedge! hahahaa.....

Related Posts:
Option to ride
Option to ride II
Getting hot around the collar
To ride a bus

Power of Compounding

2008-05-03T13:05:00.001+08:00

Today, I will teach you how to be a millionaire. And you're going to realise that being rich has alot more to do with mentality and attitude rather than just having a long line of zeros in your bank account. I will highlight to you the power of compounding...

To show you the power of compounding, I'd share with you a story about golf betting . Ah kao was playing golf with Ah beng and was playing for one dollar a hole. Ah kao won on the first hole, Ah beng then wanted to double the bet at each passing hole to make the game more exciting, because he said 'one dorrar per hole onry, where got fun! I also bored to play seriously!' So they'd double the bet of $1 with every hole. So a golf course has 18 holes, so the first hole would be a small bet of $1, and the second would be $2 and $4 and $8 and so on... small amount isn't it?

Wrong. By the tenth hole, it'd be $512, by the 14th it'd be a whopping $8192! $131072 by the 18th hole! In the end Ah beng still lost, he blamed his stick and ranted in colorful hokkien at his caddy and sweared and cursed in 'french' about the weather and the wind affecting his ball. But no worries, Ah beng was able to pay Ah kao the money because he has his own money management company(loansharks!). The lesson here, dun take doubling bets unless you have to cash to lose!

Put a a dollar into your piggy bank everyday, and in one year you'd have accumulated $365(or $366 in a leap year)! The very basic habit of saving that our parents tried to instill in us in our greener years is the very basis of using the power of compounding to be a millionaire!

So... principle one of being a millionaire, save/invest your money to harvest the power of compounding. 'Save' and 'invest' are used in the same breath here because I believe that saving money in a bank is also a form of investment because you still get interest on capital albeit a much lower return with much lower risks.

Save Save Save! The reason why Asian countries are going on buying sprees in recent times is primary due to the fact that they are net savers(high savings rate as a country) and thus have the cash to acquire falling US companies at dirt cheap prices with the onset of the US recession.

So.... How do we go about saving? Well, as I said at the start that being rich is more about attitude and mindset. The difference between two exact same persons with the same pay would be how they spend their money on payday. The 'rich' would save it and already have a plan on what they want to do with it in the short, medium and long term; the 'poor' would just splurge it on whatever takes their fancy and maybe even stretch their credit, so come the next payday, they'd already be running a deficit from their credit card. Thus the 'rich' would become richer and the 'poor', poorer.

Granted, different people have different circumstances, having said that, I feel that the habit of saving should start somewhere, no matter how small or little. Gurus like Antony Robbins and Robert kyosaki would say, PAY yourself first. Forget about bills, loans, debts, on payday, pay YOURSELF first, take out a certain %, say about 10% and put that into a savings account for investment/savings purposes.

Robbins goes on to explain about the 3 buckets theory where you divide your assets into low risk investments, high risks and your happy bucket where you can use income from investments to buy your wants(which could take a whole posts, and I am meandering off topic!)

So yes, start today! The earlier the better, to let your 1dollar compound into a million!

Diverging the post into other forms of investments.. You know how you get investment brochures saying that their previous returns of 20%, 30%, 50%(saw this in a brochure today)! Well...

Number one thing you learn in finance, past performance is not a good indicator of future returns! (technical analysts may beg to differ, however, there IS a general consensus)

Number two, higher risk=higher returns, i.e. higher returns are MOST definitely likely accompanied with higher risk. Other investment with lower returns may seem less attractive; however taking into account the power of compounding, and ability to achieve consistent returns on account of being less risky means that it would still yield attractive returns over the long run.

Read more:
Time value of money
Forex - Money money money
20000 BC
To ride a bus

Keeping up with Financial Fashion

2008-04-30T13:15:00.001+08:00

Every few years, there will be a financial term that takes the world by storm and is spouted by at least a few billion people on a daily basis. In the 1930s, it was The Great Depression; fast forward to 1997 and you hear Asian Crisis; in the early millennium years it was Dot-Coms.

Now we have Sub-Prime. It is the single most over-used and least understood financial term in recent years. Hence I shall venture into treacherous territory where few emerged unscathed. My breakdown of 'sub-prime' may irk the financial purists out there but my purpose, as always, is to tell the story as simple and as pretty as happily-ever-after-possible.

Let me tell the story of Sub-Prime in 5 abridged, non-fictional and moving chapters.

Chapter 1: US Property Boom
Property prices escalate, leading to a buying frenzy, with everyone wanting a piece of the pie, hoping that prices will continue to shoot and they can sell it off for a hefty profit within months, if not years. So good old Jack buys a very handsome mansion for a $1.25 million bucks.
The Problem: Few people, in fact almost none, buy property with cash. So good old Jack pays a down payment of 20% and takes out a 20-year mortgage loan of $1 million dollars.

Chapter 2: Banks Trade with Banks
Banks love to re-package loans and sell it off to other banks to generate some cash flow. Banks also love to buy packaged mortgaged loans as they promise long term regular payments. Mortgage loans are usually given safe ratings like 'AAA'.
The Problem: With the property boom in Chapter 1, banks are easier with mortgage loan applications and people with bad credit or people with unstable incomes will not find it too hard to secure a sub-prime loan which charges a higher interest rate than normal. The default risk of the loans are significantly higher yet are still labeled 'AAA'.

Chapter 3: Bubble Bursts
Property prices stop escalating and even starts to drop. People find themselves stuck with a piece of property they have no use for and some choose to default on their loans (especially those stuck with sub-prime interest rates, hence the term). Banks take over the defaulted piece of property.
The Problem: The valuation of property has dropped and banks make hefty losses. Poor old Jack's mansion is only worth $600,000 now and were he to default on the $1 million loan, the bank will make a loss of $400,000. Multiply this by the number of people defaulting and you get the idea.

Chapter 4: Infecting other Banks
Banks who have given out loans or bought the packaged loans from the aforementioned banks suffer losses and have to write off billions of bad debt.
The Problem: Institutions like Bear Stearns are too much in the red and are susceptible to takeovers. Perhaps it could have avoided its fate had they named in Bull Stearns.

Chapter 5: Where Next?
Most analysts speculate that we're witnessing the worst recession in the US for decades but the fundamentals in Asia are fine and should be spared from the worst.
The Problem: We never know what will happen for sure, not even good old Jack.

There. Now you can walk out of your house proud because you too, can tell the story of Sub-Prime in 5 chapters.
Extra comments by Tau: Well, in local context, you would also like to know that the Sub Prime crisis probably would not happen in Malaysia or at least not in the same form as it is in the US mainly because there is no rollover and re-resecuritization(repackaging of loans) of mortgages. Mortgages are only securitized once in Malaysia, whereas for the US, the loans would be sold off to one bank/financial institution, who would then RE-sell it off to another bank/FI, who would RE-re-sell it on, thus when real estate prices declined and borrowers defaulted, it started off a chain reaction that affected many FIs in with a knock on effect, sending the investment banking industry spiraling out of control.

Another factor was that mortgages were long term based loans causing assets to be tied up long term, whereas FIs needed money in the short term to run the day to day business and settle operational costs and short term debts, this caused a mismatch in payouts leading to liquidity issues in a market that is already unwilling to create any credit, thus putting the nail into the coffin.

3 Things To Do Everyday

2008-04-27T14:31:00.000+08:00

If you laugh, you think, and you cry, that’s a full day. That’s a heck of a day. You do that seven days a week, you’re going to have something special.

I chanced upon this post at one of my favorite blogs and I must say I was deeply moved. While we are in the midst of advancing our education, careers and bank accounts, we tend to take the most precious things for granted.

Take a look at this video of Jim Valvano, a man diagnosed with cancer and urging everyone else to live their lives.

Laugh and think, that's easy but crying everyday? Now that's a tall order. If that proves to be too hard to do, how about trying to indulge in a little bit of sadness or nostalgia. Something that will bring a little bit of moisture to your eyes (good for those of you who spend way too much time in air-conditioned rooms) should do the trick.

Don't feel silly when you are trying it out, I will be doing it too.

Gettin hot around the collar!

2008-04-27T00:00:00.000+08:00

Dear readers,

As promised, here is more information and a picture of how a collar actually looks like, hope you find it informative and allows you to better understand the previous post, and not make you all hot around the collar wondering what's going on!

Basically, a collar is an exotic derivative based on 2 different types of options, to hedge against the risk of unlimited loss but at the same time, place a cap on the maximum gains possible, creating a ceiling and floor for possible payouts, which reduces risk...

Alright! Take good care! I'll be headed out station for the next 5 days! =D

note: As with all my other posts, my aim is to provide a very VERY basic background information about various finance theories in a light hearted and palatable way so as to provide you with substance for "coffee table discussions" should the topic turn to finance. Never is any of the posts in Sense & Cents meant as investment advice, nor will it ever be!

Collar

From: optiontradingtips.com

Components

Long underlying stock/future
Short OTM call option
Long OTM put option

Risk / Reward

Maximum Loss: Limited to the difference between the two strikes less the net premium paid or received less the loss on the stock leg.

Maximum Gain: Limited to the difference between the two strikes plus the net premium paid or received plus the gain on the stock leg.

If the net premium is a credit, i.e. you received money for the option legs, then your maximum gain is the difference between the strikes plus this amount (and then plus the profit from the stock leg). If the net premium was a payment then it is subtracted from the strike differential.

Characteristics

As you can see from the above payoff chart, a collar behaves just like a long call spread.

It is suited to investors who already own the stock and are looking to:

increase their return by writing call options
minimize their downside risk by writing put options

Covered calls are becoming very popular strategy for investors who already own stock. They sell out-of-the-money call options at a price that they are happy to sell the stock at in return for receiving some premium upfront. If the stock doesn't trade above this level, the investor keeps the premium.

The problem with covered calls is that they have unlimited downside risk.

The solution to this is to protect the downside by buying an out-of-the-money put.

This increases the cost as you will have to outlay more to purchase the put and hence lowers your overall return.

Lessons from Babylon

2008-04-23T15:31:00.000+08:00

I have developed 2 major weaknesses over the course of my life. Bring me to a wine fair and I will walk away with a bottle or two. Slap '20% Off!' stickers onto books and I will be left with a dollar or two.

The book I am reviewing today was one of those books with one of those stickers.

'The Richest Man In Babylon' by George S. Clason is a really old book and some of you probably would have read it before. However, it is one of those rare gems that deserves another read from time to time.

What is it about:
Short stories of Babylonians, each with a financial lesson to learn. The stories are wonderfully narrated and are told from the perspectives of all Babylonians, from slaves to royalties.

Who is it for:
I personally feel that this book is best for those who are in debt. It not only offers a very simple and effective solution(i.e. set aside 20% of your monthly income to settle your debts), the stories have a feel-good effect as well.
Basically this book is good for everyone because we need to be constantly reminded of the simple financial principles that will guide us to financial freedom.

My favorite quote:
Money is plentiful for those who understand the simple laws which govern its acquisition.

Conclusion:
The stories basically convey similar messages repeatedly, however this reinforces the simple principles of wealth management.
If you are clueless about finances, then this is a very good starting point.
For those who are more adept with wealth management, the parables are still good entertainment though you most probably will not learn anything new.

Written in simple language and being barely over a hundred pages long, it won't hurt to give it a look.
You never know what you might get.

Option to ride II

2008-04-19T11:27:00.000+08:00

I wouldn't call it a problem, but I had a potential issue. I had to fork out a premium of RM$0.10 for the option to ride. To some "investors" (or LRT riders... haha..) it may seem like an okay deal because there is potential savings to be made for a 10cents initial payout. For more demanding 'investors' like me(Aka poor working man with no money!), well, I was always looking for a way to address this "issue". HAHA...

Okay... so the solution may have been obvious to many who have had experience living in Kuala Lumpur, but for me, it was the perfect solution in everyways! =D I discovered the wonders of.... Touch 'N Go! Huh what?

Well, in a nutshell, Touch 'N Go is a prepaid card system that can be used to take the train, pay highway toll, more recently, buy doughnuts from some donut place, very much like the EZ link card system in Singapore or cashcard system in many other countries.

Well, okay, no AHA moment there... but still, I was pretty happy to have found out about the Touch 'N Go system, saving me time and hassle, as I do not need to join the queues to buy a ticket nor suffer machine malfunction where your 10 dollar bill will get eaten up and you can't get a refund because the station staff 'do not' have access, and well of course because I don't have to fork out an extra 10cents should I not need to head down to Taman Paramount.

Of course, if you would want to discuss the time value of money of pre-paying money versus forking out the 10 cents at a later date. Well, I could and probably would put everything down on a timeline and give a detailed analysis on a later date, however, I can safely say that, the benefits would outweigh the initial outlay, and besides, the initial outlay is up to you as you can choose to top up your card with any amount above 5RM, so time value of money is not a big factor.

In every "investment", and when I say investment i refer to anything in life really, you not only have to weigh the pros n cons financially, but also the amount of work and time and effort you are willing to put in or save in order to achieve your goals.

So, my life example is all nice and good, but how could such a no cost option actually exist in the investment world?! Well... Actually... there is! hehheh... It's called a zero cost collar. Well it basically is a exotic derivative based upon a "the purchase of a put option and the sale of a call option with a lower strike price." (investopedia.com) Whats all this mumbo jumbo?! I think I'll have to go into them in another post... If not I have to write a realllly HUGE post. But basically, its a combination of two options to come up with a derivative that protects you from losses but also caps your earnings potential, basically a hedging tool.

So there you have it... Finance is every where in our daily lives! I hope you gleaned another piece of sense n cents from this... As follow up, I will do up an analysis of the payouts, talk more in depth about the different types of options, and update this post soon with collar options diagrams when I get back to my own laptop! And of course... I WILL do the hot air balloon soon! =D

Definitely Definitive

2008-04-16T17:27:00.000+08:00

As promised in my earlier post, here's an informative post on an even Wednesday!

There is a Invest segment in the Sunday edition of my local paper (The Straits Times) and recently they added a new column to decipher financial jargons which is very much the essence of what we do here at Sense & Cents.

Last Sunday, the subject jargon was 'Reversionary Bonus' (RB). As defined very clearly by Lorna Tan, RB is part of Life Insurance Policies and it is a bonus that insurers pay out every year to increase the cash value of your policy. Such bonuses are subject to the investment returns of insurers.

However some details were left out and I will elaborate more on RBs.

1) Not ALL life insurance policies come with RBs, you should confirm this with your financial services consultant or call your insurers directly to be sure.

2) Most life insurance policies come with a lock-in period (usually 20 years) and should you surrender the policy before the lock-in period, early termination charges apply and your RBs will be deducted accordingly as well.

3) RBs are accumulated over and above your premiums paid so you are actually able to cash out your RBs without surrendering your life insurance policy. However there is a catch here.....

The Catch: Should you wish you cash out your RBs during the lock-in period without surrendering your policy, you will only get a fraction amount and stand to lose most of the accumulated RBs.

Example: I have a life insurance policy that insures my life for $25,000. I have been paying the premiums for 15 years. The accumulated RB over these 15 years over and above the cash value of the policy is $3800. Feeling extremely excited and thinking that I just got a windfall, I call up my financial services consultant to cash out my RB while retaining my life policy. However since I have not passed the lock-in period, I am only able to cash out $500.

So what happens to the remaining $3300? Sadly, there is no happy ending and the remaining $3300 is forfeited as an 'early cash-out charge'. Therefore it definitely does not pay to cash out your RBs during the lock-in period. However once you pass the 20-year mark, you are free to cash it out fully.

What then is the use of having this partial cash-out function? Well, it offers the flexibility of getting some cash while retaining your coverage. If you happen to be one of those people who have policies that have been in force for more than 20 years and feel tempted to surrender the policy but you still need the coverage (your kids are still young, your parents need your income, your spouse is not working etc.), then you should consider cashing out your RB to provide better cash flow.

I have brought you through some pretty dry stuff but I hope you learnt something new about
your insurance policies, look out for next Wednesday's reflective post! I will do my inaugural book review.

Keeping it real

2008-04-13T21:57:00.001+08:00

Dear Loyal Sense and Cents Readers, Since Mr Jack has gotten the ball rolling with cleaning out closets...I guess I'd have a chat post too... haha...

Well, Mr Jack forgot to intro about what we do!

Mr Jack is an entrepreneurial( I can never get the spelling of the word right!) and enterprising businessman dealing with financial services in Singapore and future economist! Always full of ideas and creativity regarding money and many other things... Always setting the bar higher and making me work harder!( Now I'm obliged to come up with two posts a week too! TT)

And well me, I just graduated with a degree in Commerce(Finance) and have just started work this week at some financial institution in Malaysia =D My business role models/heroes would be Sir Richard Branson and Anthony Robbins, because of soooooooooo many reasons, but mainly because besides being successful financially, they are also successful in other aspects of life and believe in giving back to the community.

Well well, so this site came to fruition about 5 weeks ago because
-research about and souping up my resume and going for interviews was boring and tedious
-I've always had a passion for teaching and sharing my experience
-we wanted people to see the importance of financial planning and create financial awareness and hopefully "savvy-ness".
-we wanted to do this in a fun and interesting way that people could relate
-Mr Jack writes posts that are both engaging and easy to relate to

So yes, Mr Jack and I have been quietly building up this corner of the Blogosphere to achieve a certain quality and quantity of posts in the hopes that it'd be well accepted and gain a loyal following!

Unlike Mr Jack, I don't like following a set formula! haha... oh well.. We'll probably have a chat on that... Creating posts on Sense & Cents has become a part of my life, and I'd always be on the look out for things to put in here with a fun finance perspective!

So... I have quite a many topics coming your way from 'the power of compounding', 'the power of networking'(very Anthony Robbins inspired), my experiences at work, more newspaper cuttings, how i got around the option to ride problem, and of course a post about the hot air balloon for Mr Jack's fan, which I hope will turn he/she into my fan too! So keep in tune and tell your friends about us!

Oh yea... I have high hopes in making this blog a huge success, but I believe in taking things a small step at a time! But hopefully, it'll become as succesful as Bransons' and garner advertising revenue for charities! Big dreams, little baby steps.

" A journey of a thousand steps starts with one"

Okay... This post is getting a bit too big.. but i still have so much to ramble on about... haha.... Well all in all, running this blog with Mr Jack has been a wonderful experience thus far, I've learnt alot about blogging/work/finance, how to get people to contribute posts, learn how to see things from newer perspectives and how to coordinate with people who are not on the same continent with you.

So yes, We're definitely here for the long haul, and we always welcome contributors, in whatever way! Just like how Ms Mabel, Ms Arumugum and Ms Sarah Lim have helped out! And of course, a big thank you to our loyal readers thus far! We've reached 1300 page views without any hardsell and seeing the site visit stats every Sunday makes me feel its worth it! =D

Well, so, please stay with us as we gain more insight and experience in finance/business/economics and sharing our many many ideas and grow with us!

Cheers,
Tau

Credit goes to Ms Sarah Lim for the above banner too! She created a whole series to choose from!

Cleaning Out My Closet

2008-04-13T18:26:00.001+08:00

This is not a post about Eminem's song, its about the song I will be singing from now on.

For the discerning reader, you would probably have noticed 3 things:
1) That this blog is maintained mainly by 2 main men: Tau and Mr Jack.
2) That Mr Jack is yours truly.
3) That Mr Jack is seriously in need of some organization.
If you have not noticed any of the above, you probably should spend more time reading our posts.

I did a quick run through of my posts so far and I noticed 3 things:
1) That I tend to make analogies that barely 'analogolise'
2) That my humor is only very funny very infrequently.
3) That there is no semblance of any linkage between my posts.
Initially I wanted things to flow naturally and not to restrict myself but it seems like the au naturel way is perhaps not the best way.

This is the post to set things right, if there's anything to read this lazy Sunday, it is this post.

In order to make this post value-for-minute, I will stick to a formula I've conjured after mixing and matching around. There will be 2 types of posts from now on, namely: Reflective and Informative.

Reflective posts will take place on odd Wednesdays (i.e. Wednesdays with odd numerical dates on the calendar like 1st, 15th etc.) and I will either do
1) Personal experience or interpretation of Finance;
2) Review of a Book or Movie that contains insightful financial information.

Informative posts will take place on even Wednesdays (i.e. Wednesdays with even numerical dates on the calendar like 8th, 14th etc.) and I will either do
1) Commentary on recent financial developments in the markets based on me scrutinizing the major news sources including
i)The Straits Times (My local newspaper)
ii) Time Magazine (Print Edition)
iii) Financial Times (Print Edition)
iv) The Economist (Online Edition)
v) International Herald Tribune (Online Edition)
2) Defining jargons that 'jarg' your world

There! My newly formulated blogging method with a fixed structure yet retaining a certain random element to keep me excited enough to keep blogging. Here's a summary of how you will benefit by adding this blog to your Favorites:
1) Humorous musings of my financial experiences;
2) Reviews of useful books and movies so that you can save the trouble of actually reading or watching them;
3) Commentary of major newspapers and magazines around the globe so that you do not have to read them too!
4) Defining jargons to help you make sense of cents!

Most importantly, all of this is absolutely free! Unless you want to include the electricity and broadband fees you incur in which case I would be incurring more of those charges since I need time to plan, edit and draft the posts so essentially... I am indirectly paying you to read this blog! Now you may ask what's in it for me? The kicks of knowing that my writing is being read by another person!

My Closet is Cleaned, stick around for this coming even Wednesday! Why Wednesdays? I just thought most people would be lazing around in the office on Wednesdays looking for blog posts to read and Wednesday fits into my schedule really well. If you really have a problem with me posting on Wednesdays, drop me a message.

I'm told I make a pretty good counselor as well.

Banner!

2008-04-10T23:05:00.001+08:00

Dear Readers,

Noticed our new swanky banner?
Credit goes to Ms Sarah Lim for giving time-n-effort for its creation!
Sense-n-Cents would like to graciously offer BIG BIG appreciation to our dear banner creator! =D

Interested in her works, or would like her to create something for you?
Just drop a shout or comment and I'll lead you to her!

Cheers~
Tau n Mr Jack

We are Wolves

2008-04-10T01:23:00.000+08:00

Once upon a Saturday morning, I heard a slightly muffled 'bang' and the muffled screeching of tires followed by a very muffled pained cry. Startled, I looked out of my window and saw the back of a 7-seater Honda sticking out of my void deck (which is the ground floor area of a high-rise residential building).

The first thought that came to my mind was: Is the driver hurt? Did anyone call the ambulance? Afraid of jamming the ambulance lines, I looked around the accident scene and at the opposite apartment block to see if anyone was making a call. Then I witnessed something I could never quite forget.

Windows of the opposite block started opening up and everyone was armed with it. Some carried big ones, some small. Others held it with one hand while the shakier ones held it with both hands. It came in SLRs, mobile phones and compact digital. Everyone had a camera.

I looked at my own block and I saw this man, 4 levels below me, armed with a SLR leaning over his window ledge trying to get a clear shot of the Honda. He looked like he was going to topple over anytime. I reeled with disgust at this typical Singaporean behavior but I decided to indulge in my national identity and joined in the photo fracas. I even went one step further by going downstairs to take a close-up picture (which cannot be posted here because it captured the license plate of the vehicle and the driver's anguished look).

Now I must admit this is a poorly taken picture but I was under pressure (with all 500 residents of the opposite block looking at me) but the moral here is that we behave like wolves. Wolves hunt in packs to trap deer and we click in packs to trap unfortunate drivers.

The recent volatility in the markets has led many to believe that the US is in recession and to claim that it is a bad time for investors. The sub-prime incident was bad news and if there's anything worse than bad news, it is uncertainty. Uncertainty keeps investors away and stoke the fears of recession further.

What then would be a good investment strategy for this period of uncertainty?

Wolves would split into groups to surround a herd of deer. Each group would take turns to charge at the deer, driving it to a group that is already in wait. Hence a wolf strategy involves complex planning at minimal expense. A deer strategy is blindly following the crowd without any planning.

Many propose that it would be good to invest in bonds and fixed income securities for the time being but with the vast majority going into the fixed income market, driving prices of bonds up, would that be a wolf strategy or a deer strategy?

A wolf strategy in this period is to stay invested and stay diversified. Taking the Straits Times Index (STI) as an example, after the 1997 Asian crisis it dropped from a record high of 2493 to barely over 900 points. Fast forward 10 years, the STI index hit another record high of 3800 in 2007.

Do not be mistaken. I am not encouraging you to dump your money into index funds for a 400% return. However index funds are one of the most diversified assets and I would strongly encourage such investments. Ho

Do not be put off by the volatility and pull out of the market. Remember this: We are Wolves.

Forex- money money money

2008-04-06T21:13:00.000+08:00

Don't these graphs just scare you? Well... I think they are pretty scary to me... Because you never know when its going to go up or down! BEARish or BULLish... Well, anyhows, I managed to make BIG BIG money today in a forex transaction today! HAHAHA...

The above graph represents the exchange rate movement between the Malaysian Ringgit and the Aussie Dollar for the past 120 days.For those of you who do not know what the term forex refers to, well, it is an amalgamation of the words foreign exchange aka FX! Bet most of you knew it already! The relevant segments of the graph are from January 1st 2008 when I first entered the market till April 4th 2008 when I made an exit.

The lowest market rate was 2.836RM to 1AUD and today, the rate was 2.941 (the closing rate on 4th Apr). This translates into a 3.702% return in the span of 3 months (Jan-Mar) which is equivalent to an annualised rate of 13%.

WOW? Impressed? Don't be. It was speculation. The stuff that brings giants to their feets, like Mr Jerome and Societe Generale bank in France. It was a totally risk exposed position where I would have lost everything( or a significant amount) had the market not turned in my favour. View the article about third part ink for a better insight regarding risks and returns.

No doubt I had garnered an 13% return, but risks of the returns was not factored in! No doubt, the upside potential was huge! But so was the downside! And everytime the rate took a dive, my heart rate would increase, which reminds me of the relationship between interest rates and inflation!

So... My forex transaction... Why did i left it unhedged/fully exposed to market movements? Well mainly because I was taking a wait and see approach and was being bullish about the rates, thus not locking in my position early on! Secondly, because I could afford to take up the risk.

Or was it because it was a small over the counter transaction at the corner shop with Muthu's Money Exchange, where a guy was trying to get his aussie dollars changed to local currency? Definitely maybe.

So yes! A 13% annualised return. Well... I made a big gain amounting to a great grand total of a whopping..... wait for it.... hundred and five ringit malaysia! RM105! Small change for you, but I'm still laughing all the way to the bank~

Having such a personal experience with forex allowed me to better understand about exchange rates, market conditions which affect them and also about the international economy in general. I hope that from this post, you can pick up my enthusiasm for finance too!

Related readings:
Third Party Ink
Bear-sale!
Time value of Money

The Apple Men

2008-04-03T00:03:00.000+08:00

I caught the second run of The Pillowman by the Singapore Repertory Theatre at the DBS Arts Centre last night and it was LE-GEN-DA-RY! Here's a piece of advice of all of you, anywhere in the world, if The Pillowman is playing at your local theatre, catch it! If you do not enjoy it, you will never ever get a full refund from me but you can always come back here and vent your anger on me =)

The Apple Men is one of the many short stories told in the play (I will not reveal its content here, watch the play yourself!) and the story reminded me of how my economics professor loved to use apples for his economic analogies. He used apples to explain most macroeconomic theories and predictably used apples in his assignments as well. As one of his apple-fied students, I will apply my apples to illustrate the omni-present Inflation.
It goes by more names than one (or two). Some call it the 'time value of money', others call it 'erosion of savings' or just how 'things get more and more expensive as the days go by' (that makes it three and a really long third name).

The recent price hikes of oil, gold and rice have kept inflation in the news for a prolonged period and yet some people still do not adequately grasp the essence of it. Allow me to take you to Apple World to stare inflation in the eye and walk away the winner.

Imagine a world without money and people buy and sell with apples (red or green doesn't matter but if you insist, I would prefer you to imagine pink apples). Suppose you earned 1 apple today and decided to save it instead of buying a jug of Beer (which costs 1 apple).

Come next year, you lose your job and you take out your apple to drink your blues away. However, by this time your apple is half rotten and a jug of Beer costs 2 apples now.

Back in our world (where apples become half rotten in less than a week and beer costs more than any number of apples), our money 'rots' and the amount of Beer each dollar can purchase gets lesser and lesser. Not to mention the fact that prices will go up (this is worthy of another lengthy discussion but a slight increase of prices is actually healthy for the economy). Now I am not encouraging you to spend all your money before it 'rots' but to take into account which investments can give you a return that is over and above the prevailing 'rotting' rate or more commonly known as the inflation rate.

This would differ from country to country but here in Singapore, any return less than 3-4% is definitely below the inflation rate. That is to say that your money will rot faster than your investment earns. The lesson to learn from this is to pick the right investments to let your money work harder instead of letting it rot away.

For fresh graduates who are still amassing your savings, use the money to watch The Pillowman before it rots away.

Read more:
Third Party Ink
Inflation and interest rates
We are wolves

Bear sale!

2008-04-02T23:47:00.001+08:00

Mr Jack commented to me that Bear Stearns might have had a chance had they changed their name to Bull Stearns~ (Bear Bull? huh? read here)
This is an article from the Star business section dated 19 March 2008, regarding the fire sale of Bear Stearns to JP morgan (Lol! I know you can read, I'm just rehashing..)

Well for me this is a big SHOCK! Why? because from my humble point of view, this is like a major nail in the coffin that is US' economy.

The US market, from my observation:

is bearish(i.e. there is a general sentiment that the markets will be on the decline.),
has a rising inflation rate(prices of essentials increase more than income),
US dollar weakening(which would lead to a whole myriad of effects, which I need a whole other post to discuss!
Campaigning for new president ongoing, not knowing how the transition of leadership would be...

The run on effect from the collapse of such a major institution would have an adverse impact on other banks which would lead to a credit crunch as can be seen by "interbank lending halted".

This would affect the market as credit would not be created and spending will ground to a stand still which would lead to a stagnation of the economy and which will go round and round in a vicious cycle.

In terms of socio-economic-political stability, the US is not looking too good on its feet at the moment.... For years Mr Warren Buffet has been predicting that the US bubble would burst and come crumbling down as it was way too much in debt, and while the problem was not really caused by debt, but instead of bad leveraging of bad underlying securities and giving out bad credit, this has had a run on effect on everything else.

So... What's my point?! Hmm... with the current weak USD, I'd say... Go on a holiday to new york! LA! Hollywood! Disneyland! And grab a few pairs of Levi's and Fossil watches for arbitrage profit! =D

Inflation and Interest Rates

2008-03-30T15:06:00.000+08:00

Think of a balloon. A hot air balloon. Rise in inflation causes it to ascend, and to keep it in check, interest rates have to be increased to cool things down and to bring back the balloon(economy) into a "safe" altitude. This is the very basic relationship between inflation and interest rates.

So what causes the rate of inflation to increase? Truth is, I could spend a page and a half discussing it from the point of view of classical or Keynesian viewpoints of economics and still not finish. But i think I'd just put a general summary found on wiki for you:

Demand-pull inflation: caused by increases in aggregate demand due to increased private and government spending, etc.
Cost-push inflation: AKA "supply shock inflation," caused by drops in aggregate supply due to increased prices of inputs, E.g, a sudden decrease in the supply of oil, which would increase oil prices. Producers for whom oil is a part of their costs could then pass this on to consumers in the form of increased prices.
Built-in inflation: induced by adaptive expectations, often linked to the "price/wage spiral" as it involves workers trying to keep their wages up with prices and then employers passing higher costs on to consumers as higher prices as part of a "vicious circle." Built-in inflation reflects events in the past, and so might be seen as hangover inflation.
In general, I would say that an increase in the rate of inflation would be due to more than one of the above mention factors.
So how do governments deal with inflation? There are basically two methods, a Fiscal policy and Monetary policy.

Fiscal is about injecting money into the economy and creating demand for consumption by way of handouts and tax rebates, by printing more money or borrowing from the people.

Monetary policy is about controlling the amount of money in the market. Buying back government bonds causes an increase the money supply leading to lower interest whereas bond issues decrease money supply which increases the interest rate.

Okay.. I think I've covered the very bare minimum of inflation and interest rates. Though it seems really boring, I feel that it is a post that has to be written before I go on to write more in depth stuff.

So to reiterate the hot air balloon imagery... if the balloon goes too high, the bubble will burst! And it will come spiralling down.

Brain teaser which I had to think about recently:
The hot air balloon you are in has a hole and is sinking fast towards shark infested waters. There are ten people in a hot air balloon:
A policeman with a gun with live bullets
A couple with a 10mth old baby
A pregnant lady
A pilot
An engineer
A businessman with $100m cash
An artifacts dealer with a painting worth $5m

One person has to jump so as to ensure the survival of the rest. Who would you pick? why?

20,000 BC

2008-03-23T21:30:00.002+08:00

The past 2 weeks have been frantic as I scrambled around Singapore getting my clients to invest their Central Provident Fund (CPF) before the 20,000 BC rule kicks in on April 1st. Once the 20,000 Be Cashed-into-government-coffers rule starts, one may not invest the first $20,000 of both the Ordinary Account and the Special Account.

Now I should probably mention that this post concerns Singaporeans and Permanent Residents of our wonderful republic and you should probably give it a miss if you have never heard of CPF (alternatively you can stay around and be amazed at the intricacy of the CPF scheme).

I will not go into the specifics and details and other boring stuff that I usually steer clear of but you can access them here: http://mycpf.cpf.gov.sg/
Instead this post is about what and how you stand to lose out after this rule kicks in or better known as opportunity costs.

Now what are the implications of 20,000 BC? For a fresh graduate, it could take 3 years or more to amass $20,000 in a single account before the spillover can be invested (assuming an annual income of $30,000).
The key to note is that the interest rates paid out by the CPF Board hardly hedges against inflation. The current rules in place already restrict investors to investments that charge minimal management fees and are generally less risky. At American International Assurance (AIA), funds labeled 'Adventurous' are mostly not allowed under the CPF Investment Scheme (CPFIS).

Yes, there are risks in investing but as a young graduate with more than 30 years of investment time horizon (before I reach 55), I am definitely missing out the chance to maximize my returns once my funds are locked in. The annualized yield of the AIA investment funds of the past 5 years averages at about 20%.

Alas the 1st of April draws nigh. If you have not invested your CPF yet, its probably too late to do it anyway (if you have less than $20,000 in your Ordinary Account or Special Account). The lesson to learn from this is that we should always be on the lookout for changes to investment regulations and financial tools to help us minimize our opportunity costs and maximize our returns.

This post reflects the author's views and is in no way representative of AIA or the CPF Board.

Financial Tracker

2008-03-23T21:14:00.001+08:00

A year ago, I was shoring around the internet looking for a program to allow me to keep track of my finances in a simple elegant and easy way... I downloaded several freeware software, but I just didn't find one I liked... So I decided to plop down and make up my own simple one using excel and put in a few simple macros and i was in business ...

I'm putting it up here to share with you all and hope you find it useful in keeping track of your finances... and feel free to give your comments on how to improve it and all... Get it >here!< It's free for all... but if you want to host it somewhere else or something.. Just drop me a line and we'll talk about it...Here's a screenshot to give you an idea how it looks like when numbers have been filled in... There are 5 sheets that contribute to the pie charts... food, transport, entertainment, misc and rent. of course you can rename anything you want if that isn't a part of your expenditure that you want to actively track...

The first sheet and total sheet are summary sheets for the 5 other data sheets and are locked as you arent suppose to input numbers in them... you need to input your numbers into the 5 other sheets in numerical form that follows excel's basic rules.

i.e, if there's more than one item and you don't want to add them up your self, you have to input: =12+24 for excel to sum it up to 36. just numbers pls, excel adds the $ sign by itself... There is a final spreadsheet for input of pay and tax, however tax must be calculated manually as it is different from country to country...

Below the numerical input segment is a NOTES segment which can be also accessible from the notes button on each page, where you can input what the expense was for with a simple description.

On the Cumulative Overview page, the first pie chart is a cumulative one which reflects all that has been spent so far and the one at the bottom reflects the spending of the month, you can view each month by clicking on the month.

With some diligence on your part, you can easily track where your money is going and plan how to manage your finances. I did, I used it to keep track of my spending which helped me save up for my trip to Korea, maintain a car and still have substantial savings!

So you can download it here at : http://www.sendspace.com/file/3y84xl

If you have questions, feel free to consult the Q&A page regarding the programme. Cheers~

Disclaimer: While the author really hopes you find the program useful, he does not give guarantee that it will be 100% error free and that the numbers should be used as an approximate and not for legal purposes and shall not be held responsible for any errors, failures or other grievances.

Q&A for Financial Tracker

2008-03-23T21:00:00.001+08:00

I got a few queries regarding the Financial Tracker which I posted a week ago....

Can I rename the tabs?
Yes, of course! All you need to do is double click the bottom of the sheet, eg 'transport' and change it to whatever you want it to be. You also have to change it in the title box, below the box 'Expenditure sheet 2008'(i.e. 'Transport' to whatever) which will then automatically be reflected in all the other boxes on the cumulative overview screen!

How do I enable Macros?
Basically, in Excel, go to Tools>Macros>Security and turn your security level to medium, which would lead to a prompt screen appearing each time u open the file, and click enable so that the pie charts and buttons will work.

If you need a better detailed instruction, you can find a really well written one here, with pictures and all!

What is macros? Would it work if it is not enabled?
Macros is just an automated action that has been preprogrammed to do various things. Like switching from month to month using the drop down menu to look at individual month expenses and the buttons that get you from sheet to sheet.

The financial planner would still work, however, the cool stuff like the short cut buttons and filters wouldn't work.

Why do I get error boxes in my tables?
A few reasons... firstly, you probably did not enter the numbers in a way that excel understands. i.e just numerical, no symbols $/USD/SG/RM, and when adding individual numbers in a box, you have to type "=2+3+4"
Another reason would be clearing a box of its value after inputting a number leading to "#DIV/0!", easily resolved by setting the value to '0'.

What do the notes button and other buttons do?
They direct you to the respective sections. Notes is a section where you can write down a description of you particular expenditure so that you can have a reference when you want to decide how to cut back and plan your expenditure.

Acknowledgment: Many thanks to Ms Elisa Arumugam for her kind feedback and testing of the spreadsheet.

To Ride a Bus

2008-03-20T00:00:00.000+08:00

The Bus (yes the one you pay a fare to get a ride, that one) is my passport to adventure. Once I plonk my ass down on the seat and play my music, I'm transported from a participant to an spectator. It detaches me from life and I seem to be watching other life stories roll past as I look out the bus window (assuming I get the window seat). It gives me a chance to reflect on the simple things in life, admiring the fluffy clouds or the hot babe that just sashayed past me (mostly admiring the babe) and it was on one such trip that I realized I've ignored the simple things of Sense n Cents.

In my previous post I blabbered on and on, thinking that I was on a roll, without caring to explain any of the financial jargons I've used. So this time, let us strip (woohoo!) to the basics. Sticking to the essence of this blog, I will neither attempt to go into details, nor will I be politically correct.

In the crazy financial markets, there are often many terms that refer to the same thing, its almost like they (crazy people working in financial markets) want to prevent anyone from understanding anything they say. To me, a bus is a bus is a bus.

Unit Trusts / Mutual Funds. There is actually a slight difference between these 2 but when most financial professionals use them interchangeably, the difference is probably not that different. Well, here's how they work. They get many money from many people in many countries. Then they buy many stocks in many companies in many countries thereby forming a fund. Finally, they put someone in charge of monitoring the fund and call him the Fund Manager.
So it achieves 2 goals for the investor (that's you). Firstly, risk is diversified (by buying so much in so many). Secondly, costs are kept low (compared to you buying that many stocks in that many countries individually). Incidentally, it also achieves 2 goals for the Fund Manager. Firstly, he gets a job. Secondly, he gets paid. Very well. Hence, mutual funds are mutually beneficial.

Stocks/ Equities/ Shares. Once again, a bus is a bus is a bus. My guess is everyone knows what stocks are, so everyone knows what equities are and so everyone knows what shares are. For the lesser-informed, buying a share of a company is buying a share of it and you get to share its profits!

There it is, stripped to its core and allow me to explain the key term of this post: The Bus. A form of transport for some, an enjoyable ride for others but when stripped to its core,

“A bus is a vehicle that runs twice as fast when you are after it as when you are in it”

Related Posts:
Option to ride
Option to ride II
Getting hot around the collar

Standing out at an interview

2008-03-19T15:03:00.000+08:00

Been to quite a few interviews lately... thought I'd share my experience of what I think is a good way to stand out amongst the many many fresh graduates that a HR manager has to face in grueling back to back sessions in a day.

Firstly, to show pizazz you'd have had to achieve the basics of a successful interview first. To briefly recap... Assuming that you have googled and read through a heap of them by now...

1) Always turn up EARLY!
2) Dress to Impress
3) Speak out (they can't assess you unless you give them something...)
4)Never speak bad of anything(As a wise man once told me, only say good things about others, otherwise shutup.)
5)Be polite and humble
6)Wait for the interviewer to invite you to take a seat
7)Don't be nervous! They want you, that's why you have been invited!
8) Bring an updated copy of your resume and maybe an even more convincing cover letter stating why you are the person for the job.

Anyhoos. back to the topic... =D So.. How'd you stand out among a bunch of fresh graduate applicants? Especially if your interview session was at the end of day, I thought that the HR manager would just be so sick of facing another freshie rattling on about why they are suitable for the job; or worst, appear so tense and nervous that nothing comes up!

Well, this was in my thought but I went in with nothing to dazzle our interviewer beside the usual arsenal.

Darn. Last interviewee of the day and you've got nothing to differentiate yourself. I'm DOOMED....

I went to the interview location a good 45 minutes early, as is my habit, so that you have time to calm down n relax and breathe and just take in the situation and place.

I saw a crooked painting!

Epiphany! Fireworks going through my head!

AHA! Our interviewer wouldn't want another "scripted speech" with cut and dry replies. I gave him a STORY based on my observations in the waiting room that portrays how my skills and abilities:

I saw a crooked painting and wondered why no one had adjusted it. While wanting to go adjust the painting, I was also aware of the fact the painting might drop. I went ahead to survey the painting before trying to shift it; and found that it'd slide back askew, which made me realise that some other person may have already had a go at it.

Awhile later I saw two people discussing a problem and heard "I didnt know" and " I thought" which are taboo words for me, because I have a CAN DO spirit and make sure that I confirm things and be aware of my work. But i really admired the person when he admitted his error. Admitting to mistakes and contemplating and correcting on them is a principle that I live by.

I told a few more points... but this post is kinda getting huge.

My last point was about another interview that went badly because the lady was too nervous to speak up despite being an experienced hire. To that I highlighted my ability to speak out in confidence and my enthusiasm for meeting new people.

Well of course, after the story, the interviewer had to go on and ask his 20 questions, however, I think I made enough of a positive impact on him that the interview become more of a receptive chat session rather than a boring drawl.

Granted, now that its all written down it doesn't seem so impressive. But I think the idea was to stand out in a positive way so that I'd be invited to the final round of interview.

To sum up, I think there's not set way to impress your interviewer, you don't have to go out of your way to 'stand out'; always evaluate your plan so as not to make yourself look stupid and give a negative impression.

Well... All said and done, I just got the email inviting me down to their final interview! =D

How does this remotely tie to finance? To frame it up nicely, I was went in with a junk bond status but came out with at least a BBB, an investment grade rating. Meaning that the company thinks that its worth investing their time and money to train me up!

Option to Ride

2008-03-13T23:29:00.000+08:00

I had a couple of interviews today.. which meant that I had to rely on the subway to get around. My aunt or uncle would usually drop me off at Taman Paramount(TP) where I'd take the train to KL. On the way back, I would stop at TP if I can hitch a ride from my kind relatives; otherwise, I would alight 2 stops earlier at Taman Jaya(TJ) where there is always a ready supply of taxis(mostof the time!).

A trip to TJ from KL costs $2.00 while TP costs $2.10. so... That's a 10 cent difference if i bought the ticket from KL. However a ticket from TJ to TP would cost about $1.50. I wont know if i will get a ride home from the relatives until I call them as I'm reaching the station. Taxi ride home costs an average $5.80.

This data is summarised on the pay OUT diagram on your left...(all should be negative!) where ride means a ride from my relatives and taxi means... you get the drift.. Well, you might notice that I put the price of taxi as $0.00, well because in the valuation of this option(SURPRISE! THIS IS AN OPTION!) the cost of the taxi would be a future 'sunk cost' because I will have to get home one way or the other.

Investopedia.com says: Options are financial instruments that convey the right, but not the obligation, to engage in a future transaction on some underlying security, or in a futures contract

The underlying transaction here would be to not pay $1.50 to get to TP.

ASSUMING, a risk neutral world(i.e everything has equal chance of occurence), the inherent value of not paying 10 cents more at KL would be $0.75 ( 1.50*5o%+0*50%). Which means that we WOULD be willing to pay anything under $0.75 to hedge against paying $1.50 to go from TJ to TP. Thus with a $0.10 initial outlay for an option valued at $0.75, the future risk managing director in me shouted out BUY recommendations.

So i did...

However.. I ended up taking the cab anyhows... ...

Third Party Ink

2008-03-09T00:19:00.000+08:00

The time was midnight and the task was installing my third party ink (TPI) from Ink Station. This was no ordinary TPI, it came in a bottle and all I had to do was to draw out the ink with a syringe(provided by Ink Station) and refill my ink cartridge. Piece of cheesecake, or so I thought.

Some information for the lesser informed: such bottles cost $10 each and they give you up to 10 refills which makes it a dollar per refill!!!! Compare that to $20 per cartridge of authentic ink which translates to over 95% savings per cartridge and you'll be in tears of joy.

I carefully drew out a syringe of that yummy yellow ink and thought (in a sing-song tone): cheap cheap cheap cheap cheap. Now came the insertion, which I did expertly though somewhat excruciatingly. Now for the pump so I pressed the syringe. Emptiness flooded the cartridge. I pressed again, this time harder. Emptiness remained. My fingers are so weak, I thought and I pressed again. My world turned yellow.

The ink squirted over my face, walls, floor and ink cartridge (but not a drop went in the ink cartridge). Horrified and yellow-faced, I let out the a death-defying silent shriek (for fear of waking my sleeping folks) and half limped, Mas Selamat style, to grab a mop (for fear of staining the floor with my yellow feet).

Now you say, what on earth has this got to do with finances other than a wasted $10? Well it is hell more than that. It is Risk.
I took a Risk by buying TPI hoping to capture the savings of 95% and ended up incurring a dead weight loss of 50% ($10 is half of $20). This is not unlike how people risk buying stocks instead of going for the good old boringly stale mutual funds. Mutual funds, like original ink, come with a price. The price you pay to the fund managers for managing the portfolio. Stocks or shares seem so much more exciting and mutual funds are for wussies.

People always complain about the 'hidden costs' that come along with mutual funds but you seldom hear about people complaining about the 'hidden risks' in stocks! In my opinion, its a pretty simple situation. You park your money in mutual funds (preferably index funds which follow the movement of indices) and that's pretty much the end of your homework, no more scanning of financial news, research of company accounts, waiting for insider information etc.

The most important 'hidden cost' of any mutual fund or unit trust is whether it is a front-end load or a back-end load fund. Front-end loading simply means a sales charge incurred at the point of purchase of the fund. Back-end loading correspondingly means an 'exit' fee when you sell the fund. Not exactly rocket science.

There are so many reasons why I find mutual funds seductive and in time to come, I will cover them all. Meanwhile it is recommended by most financial experts not to have more than 30% of your portfolio in stocks.

It is also recommended by most printing experts not to buy TPI because it will spoil your printer-head and spray your walls yellow.

Not convinced by me? Well go ahead and buy all the stocks you want.

Just be careful not to end up yellow-faced.

Time value of money

2008-03-06T09:20:00.000+08:00

To try to explain how financial instruments/institutions work, we have to cover one of the cornerstone of finance, Time value of money! Ever recalled how your parents nagged at you about how precious time was? Well, that basic principle applies here to investment and business... Warren Buffet fundamental investment relies on this too!

When you invest your money and gain dividends/interest payouts, risk factor aside, essentially these financial institutions are paying you for the time value of your money, ie, the lost opportunity of not being able to spend your money today.

The principal behind Time value is that one dollar received today is not the same as one dollar received some time in the future. A simple example would be putting your money in a bank for one month at an interest rate of 5%, if it is compounded monthly, your dollar savings would grow to a $1.05!

So the present value of that $1.05 future value, based on a 5% monthly interest would be $1.00. Assuming that is the only rate of interest in the market, and if someone were to offer to pay you back $1.04 in a month's time or $1 now, you would choose to have $1 today because you can put it into the bank and invest it at 5%.

You must be thinking.. "Ha! captain Obvious! This guy is nuts, anyone knows that!" How true! But putting some theory behind intuition, this very basic idea is the rationale behind all investments. Stocks valued using the dividend discount model and even options pricing model all require analyst to find the present value of all future forecasted dividends to perpetuity or the risk neutral value of options; which we will save for another discussion...

So for Mr Warren Buffet,a high powered investing mogul, he has a high opportunity cost because at any one time he would have lots of investment options to choose from and choosing one means having to forgo the next best.

Acknowledgement: image courtesy of Ernest von Rosen, www.amgmedia.com

Internship at CIMB Investment Bank

2008-03-05T23:34:00.000+08:00

Just over a month ago, I walked out the doors of CIMB Investment Bank with a sense accomplishment.

Like many university students, I was crazy enough to give up two months of my precious summer break to spend over 10 hours a day, five days a week, getting paid minimal salary to soak up the once in a lifetime experience to work with a team of dedicated investment bankers.

I never used to believe in internships, because I know that if you had a taste of what’s in stall for you when you graduate (LONG working hours, a social life the size of a pea, crazy morning traffic while having breakfast in the car…), you will NEVER go back to the job that you once idolized and work so hard to get into.

Don’t get me wrong, I liked finance, I just wasn’t sure we were meant to be. Hence the internship was supposed to tip my scale between accounts or finance, whichever it was going to be.

So on that faithful first week of December, my internship begun with CIMB. I will not bore you with details of my work, but for all you potential internship seekers, take solace in the fact that I did NOT spend everyday photocopying, making coffee/tea for superiors (they had tea ladies for a reason), running errands, and other miniscule administrative work.

In fact, there were days where I actually offered to do photocopying just to get away from my desk. In many ways I believe that the people you work with, especially your colleagues and your immediate bosses, were the ones that truly made the difference in your whole experience.

I was very fortunate to be put into a team of very accommodating and understanding people. At the risk of sounding like a complete bimbo, I would admit that there were times, the financial jargons and their expectation of our knowledge was so overwhelming that I had to annoy them with continuous questions that seem so simple and mindless. But even in their crazy and hectic schedules, they always had an encouraging tone and found time to go through, part by part, and explain every nook and cranny until it all made sense.

That annoying saying of “the best lessons are learnt outside class” haunted me everyday of work and now looking back, well, there wasn’t a part of my experience that could have proved that statement wrong.

To many, working in an internship was a wake up call. For the other intern working with me, she knew from that experience that she would never be able to survive an office job that required to be seated there the whole day. She actually worked at her desk standing up everyday.

I on the other hand, did not experience that slap of obviousness. I knew for sure that I didn’t want to go back to the hustle of the crazy morning traffic but there was something about that place that made it to the list of possible places I wanted to work when I graduate. And in case you were wondering, I never managed to decide between accounting and finance. I’m still working on it : )

Kind contribution by Ms Mabel Low who is currently pursuing a Bachelor in Commerce with a double Major of Acounting & Finance at the University of Queensland.

Prologue: sense-n-cents.blogspot.com

2008-03-05T12:41:00.002+08:00

Ever flipped through the finance segment of a newspaper and found yourself scratching your head in vain trying to make sense of all the technical jargon found in it?

Well, you are not alone. Even with a degree in Finance, I find myself having to read through some reports several times to make sense of it.

There are COUNTLESS other blogs out there who provide good, unbiased reports of the financial world and we're not seeking to barge into their territory, instead, we want to complement their services by helping you better understand their reports.

The purpose of this blog is not to sell financial advise or tell you which financial instrument(investment) will earn you the most money; instead it aims to educate readers about finance and communicate it in layman's terms that everyone can understand, in other words we're trying to make 'sense of cents'.