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Thursday, 20 December 2012

Stop worrying about CPI



Recently, it’s fashionable to talk and fret about the increasing CPI statistic – but what has that got to do with you personally?


Do you understand what and how CPI is measured? (Count me in as those not knowing what talking me if a reporter were to ask me the same question that I’ve asked you!) 


For those interested, you can visit this: Consumer Price Index Education Corner


Remember, it’s just a statistical average.


It’s a world of difference between the below same CPI “average” of 5%:


1)      (4 + 6) / 2 = 5


2)      (-5 + 15) /2 = 5


Yup, the same CPI of 5 can mean totally different to two different individuals – depending on your lifestyle, age, and means.


For example, looking at the IT and electronics sales, I swear it’s a deflation out there! I am amazed that we can get the big screen TV, the super-doper notebook, and a whole plethora of home appliances at prices that were lower (with more bells and whistles thrown in) than 3 years ago… What inflation? 


But if we talk about cars and property, I bet for the buyer-to-be, the inflation pain felt is much much more than the published CPI! What do you mean inflation has slowed from 5% to 4%? 



The Young 20 & 30s


Hey! At your age, you should be enjoying life! Don’t be in a hurry to grow old!


I know. Most of us don’t have “scholarship” and “pension” from mom and dad. So must think and fend for ourselves (hurray!). 


Your worry could be about an increase tuition fees. Looking at CPI won’t offer solutions. 


Some of the smarter ones study hard so they qualify for scholarships and/or bursaries. The practical ones work part-time or give private tuition.  
  

The enlighten “lost” ones may question whether it’s better to work first and come back to school once they have figured what they want to do in life? Hey! Maybe you discover what you like to do don’t need a degree? (I suspect these young ones will make better investors or more likely to strike it out on their own one day)


For the working ones, you may dream of owning a car. Inflation or no inflation, the better question is perhaps how financially literate are you?


Should you buy a new car or a used 2nd hand car (pre-owned is such a rubbish word; just like quantitative easing)?


Or instead of paying off a car loan in 7 years, what if you skip buying a car and after saving for the same 7 years, you now have a “meaningful” capital to start your investing or trading journey? Aren’t you better off than those cynics who “complain” you need money to make money? And that’s after working for 10 odds years…  


Yes, life is about a series of decision points.  


Housing you asked? 


Worry that you can’t afford the place of your own? Come now. You know and I know Singapore is one of those few metropolitan cities where you can afford a place of your own just by working a few years. Note: I say it’s a place of your “own” and not a place of your “dreams”!  


For those of modest means, perhaps you would like to apply the tried and tested 2 bites of the HDB cherry and hop to the private condo route? 


For those with private banking support from mom and dad, you can do whatever you want! Your process is much shorter; but the pleasure is a bit like sex without foreplay. Huh? Ladies out there would understand me. Just ask them. We can’t have everything!


Whether you are single or married, you have 3 broad options:


a)      Live with mom and dad (I better don’t make jokes as I now living with mom)


b)      Rent (You have no chains on your feet but if rent increases...)


c)       Buy (The bank owns you until you pay off your indenture…) 


We won’t know whether this big ticket decision we’ve made is wise until much later in life… 



Retirement 60s


If food and transport prices are a major concern of yours in your 60s, I guess your main concern is more about the ability and opportunity in working after 65.


For those “luckier” ones, I guess your main concern may be the escalating medical costs. If you have left your private medical insurance decision till now, it will cost you for your procrastination…  You didn’t think your generous company’s health and dental benefits will end the day you retire?


Yes, this is the time all the decisions you have or have not made in your past will come flooding back. Please don’t take it out on CPI. 


For those who are asset rich but cash poor, a little bit of inflation does wonders to your net worth. You have more options than your compatriot who is asset light and cash rich – who maybe now sweating hard to find “investments” that can beat inflation. 


It’s not fun to have spent all your working life “saving” and not getting yourself financially literate by getting your hands wet or burnt – now in your 60s, a misstep here can be fatal… 



Mid-life 40s and 50s


No, I’ve not forgotten us. But at this stage of our life, CPI or inflation could be the last of our concerns. 


This is the time where we are more concerned about non-financial stuffs. 


Like whether we should get a divorce? 


It’s the time about affairs and lusts... 


Or whether we should get married and tone down on the focus on career? You are tired…


Some will decide to strike out on their own. If not now, we know we never will!


We question whether we have turned out to be what we envision ourselves when we were young. That’s perhaps why some make mid-life career switches.


We ask is this it?


Are we happy?  



Who cares?


I am not saying inflation or deflation expectations are not important. But empty talk and grousing about CPI will not solve anything.


I repeat: life is about a series of decision points.


It’s what we choose to do or not to do that really counts. 



24 comments:

  1. CPI is somehow an important benchmark indicator for our portfolio return to beat it X times over.

    For retirees, beating CPI is about getting "pay" adjustment. So don't ignore it if we are serious about making money from the Market.



    ReplyDelete
    Replies
    1. CW,

      You brought up an interesting point.

      Year 1 Year 2
      CPI 1% 5%
      ROI 8% 10%

      According to your logic, your investment performance has gone down?

      Pray tell how can you "improve" on something we have no influence over like CPI?

      I rather focus on what I can control and influence ;)

      I could have been happy with my 10% ROI - inflation or no inflation; but if I am seduced by bragging rights to "chase" the extra yields over CPI by increasing my position size, using leverage, taking on more risks, moving into exotic products, etc... Guess what happens if we have a misstep by venturing outside our realm of competence?


      When "retired", if we still constantly have to think about "making money" and "benchmarking" (eh, no boss liao lah!), isn't that jumping from one rat race to a hamster's wheel?

      If I asset rich cash poor at 65, I win if there's moderate inflation.

      If I asset light and cash rich at 65, I win if there's deflation.

      Like I said, the decisions we make now will only be evident much later in life.

      I rather be LUCKY than rely too much on my perceived speculation skills.


      P.S. By the way, the CPI component basket has nothing in common with my lifestyle ;)

      Delete
    2. Strategies to beat inflation???

      Go and read past blog posts on CW88888.

      LOL!

      Delete
    3. Just a tease.

      2008 wasn't a hot year for your inflation beating strategies does it?

      Asset heavy and cash light during a deflationary spiral is like having our big guns pointing out to sea when the japs came from the causeway. Ouch!

      LOL!

      Jokes aside, like a broken clock, all strategies will work sometimes.

      I'm glad you have done well so far, but to expect newbies reading your posts can recreate the same performance as you is stretching the truth a bit.

      Your performance is the result of painful mistakes and detours along the way. Reflections and self-discovery.

      Definitely not something you read and applied ;)

      Delete
    4. Well said SMOL!
      Bro!
      I also subscribe to ur philosophy of embracing uncertainty and self discovery in life. There is no sure theory. Just to live life that we do not regret ourselves ( every individual is different )
      :-)

      Btw just a side qns, which country did u take that profile pic from?

      Delete
    5. SI@SG,

      You're the first to ask me that!

      It's me trying to soar and fly in the fields of Guilin, China.

      It's fun! I rented a bicycle and just roamed around the country side in the day.

      At night, I plant myself at the local pubs at West Street, listening to live music.

      Budget travel and cheap thrills ;)

      Delete
  2. wah so many things to worry about!

    how can be happy?

    ReplyDelete
    Replies
    1. knowledge is not always a good thing in life.

      Delete
    2. coconut,

      Exactly!

      We do what we have to do, in things we understand and love, the rest we leave it to the big guy upstairs.

      I'm not going to live my life according the statistical benchmarking. LOL!

      Delete
    3. but knowing how to play snooker (or pool) is fun, being playing for the past few nights and my neck hearts haha.

      if you can treat life as a game, just like a game of snooker, it will be more fun where losing (and winning) is not too bad after all.

      Delete
    4. my friend will be going back to china again. this time he got crash pretty badly from us, maybe a few hundred bucks and i'm the big winner this time.

      no, its not the money at all, we don't really care, we enjoy the game, we spend all of our winnings on food and others.

      Delete
    5. No wonder never see you at Fat's place.

      Thought you went for vacation.

      Glad you had fun! Life is indeed good to share with friends.

      See? China has it's charm ;)

      Delete
    6. haha, how can i go for vacation? i'm still trading in the day but cos we spend very late night everyday, i'm very tired in the day.

      Delete
    7. i'm still ok and still can nap here and there. but i have another friend who has to work and its the busy time of the year haha.

      we think we are still in our teens i guess.

      Delete
    8. Hi Smol,

      Why people say,
      1)A little knowledge is dangerous?
      2)Curiosity kills the cat?

      If you don't do 1)& 2) you may even die faster(lose your $$$) in the stock markets.
      So what to do? Does really read a lot more helps?

      To me, Statistics and lies, damn lies are only divided by a very thin line. We have to be always very careful if we really understand what the statistics trying to tell us or con us?
      In fact i invest without bothering about benchmarks & statistics. If every year i can make some money to cover some or better if possible all my annual expenses, i am happy man.
      And if i can make more than all my annual expenses. i am doing pretty O. K. i know i won't be running out of moola before i run out of gas.
      Ha! Ha!
      So is this also benchmarking - my own style?
      Shalom.

      Delete
    9. coconut,

      I need my 7 hours of beauty sleep nowadays. If I don't sleep enough, my body and brain will make sure the whole day I suffer the consequences!

      Man! To be young again!

      Delete
    10. only in the heart and mind.

      ever since i can remember, i (and i think many of my friends as well) "suffer" from sleep disorder. we are the "mid-night ghost" haha.

      i don't think it is suffering as long as you don't have a routine to follow everyday, specially work!

      Delete
    11. temperament,

      If I can surpass myself, I'll consider that a great achievement! Many don't live up to our potential...

      I'll worry less about others and focus on my own demons.


      Right on the lies of statistics! I was laughing so hard that US core CPI exclude food and energy prices!?

      I guess that inflation measurement is meant for plants only?

      Most govt statistics are created for political purposes ;)

      Delete
    12. i guess it is a very big part for me in trading, not following routine, although is debatable.

      trading timing are fix, no doubt, so as my system but as far as market and trading activities goes, they are not routine, they don't follow fix rule or pattern. therefore, everyday trading activities are totally different even though my mind does not think so.

      Delete
    13. hey, statistic and numbers don't lie! and they (US) don't owe you explaination as to why they exclude this or that.

      they don't create for political reason, they create for commonisation or common understanding for all.

      anyhow smoke haha.

      Delete
    14. coconut,

      Yes, the fun part of trading is you decide when and how you want to trade. If only there weren't losses...


      Woah! Numbers man, you win! You definitely left brained. Numbers are black and white precision to you.

      I right-brained. Numbers are merely shades of grey depending how I interpret them.

      Hey! The theory of relativity is my friend! (Disclosure, I've never read or studied it. Now I am smoking!)

      LOL!

      Delete
    15. ya, 100 means full mark to you but it means 28 over par (wah) to me haha.

      no, its not the numbers, not the number!!! its the changes (or you can call it relative against something) in them.

      Delete
  3. Well said.

    Blackjack

    ReplyDelete
    Replies
    1. Hey! Welcome back Blackjack!

      By the way, love your "sedikit-sedikit lama-lama jadi bukit" reflection ;)

      Please convey my thanks to Tomato in reminding you to blog again!

      Delete

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