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Friday, 14 February 2014

The trouble with long lead-times

Once upon a time, I used to work in Supply Chain (self-taught through learn by doing).

And one of the lessons learned is that shorter lead-times are preferred over longer lead-times, all things being equal.


In a way, it's true.

Take for example a factory for DRAM memory chips or LCD panels. Demand good with high prices, what do  you do? Increase capacity by investing in a new plant of course!

If only we can add a new factory in one month instead of 1 to 2 years...

By the time the new factory is ready, DRAM and LCD prices may have tanked. All thanks to your competitors having the same bright idea as you; everyone built new capacities. You smart; others not stupid.

And to add salt to your wounds, now must contend with competiting technologies like in Flash memory or LED panels... 


It's much easier as a transport operator if you are planning for new capacities as in buying new taxis or buses. But if you are a shipping carrier... Perhaps that's why the share price is quite stable for one sector while the other is quite cyclical with roller-coaster rides up and down.


For those young adults who pick fields of study in tertiary institutions based on the latest starting pay surveys, you may one to keep the above scenarios in mind as there's a 3 to 4 years lead-time. What's hot today may not be so when you graduate. Unless of course you are great at forecasting!


Now comes the dilemma. 

Is it easier to predict the weather for the next hour or for the next day?

OK, now combine your answer with your own view on long lead-times.

How?

Makes you pause and think about long term investing and short term trading right? 




22 comments:

  1. That is exactly where is the problem in wealth building.

    All want short lead time!

    Get rich fast by listening to "bullshit" that one only need to spend less than 15 mins a day.


    ReplyDelete
    Replies
    1. CW,

      It's amazing how some of the young have goals to be financially free by age 30?

      I would have thought age 40 is a fair enough threshold. But age 30?

      I guess they want to be like the founders of Facebook or Google. That would also mean they should stop buying shares and start their own companies so they can SELL shares to the public ;)

      Delete
  2. Another interesting post! The difference between short time and long time is the cost of funds.

    ReplyDelete
    Replies
    1. Thanks L Young ;)

      There's also the opportunity cost of time.

      Short lead-times; quicker feedback.

      It can be very frustrating to know after 30 years that long term strategy or plan turned out to be lemons.

      There are only so many 30 years in our lives...

      Delete
  3. SMOL sir,
    What a mind-blowing post! In the end, it pays to be a contrarian yea? I remember when I went to school, the trend was IT. Everyone say I am very smart to choose IT-related study... who knows shortly after dot-com crash so hard to find a job. Too many monkeys and not enough bananas. Sighhh...

    ReplyDelete
    Replies
    1. ckw-I99,

      During my time in the 80s, I heard electronic engineering was the hot hot choice in the polytechnics. Those who can't get into it have to "settle" for mechanical or marine engineering...

      Fast forward 30 years later, with the boom in the oil and gas sector, I guess some middle aged professionals (in their late 40s) in the now increasingly "outsourced" IT industry may be wishing they had chosen mechanical or marine engineering...

      No. It's not really about being a contrarian. It's more about choosing something you like, and leave the rest to luck.

      Flowers don't bloom all the time.

      If screwed, might as well be doing something you like?


      By the way, please don't sir me. Got snipers around ;)

      I only ikan-biilis lance-corporal during NS.

      Delete
  4. Build rig or build sampan?

    :-( or :-)

    ReplyDelete
  5. Life Is a Marathon Not a Sprint.

    ReplyDelete
    Replies
    1. temperament,

      Indeed. Just like chess, it's how we finish the end game that counts.

      Any idiot can memorize all the chess opening moves (just like 10 year series?); it's during the middle and end game where exam smarts and real smarts diverge...

      Pace ourselves.

      Delete
    2. chess, yes, i remenber i was at one time pretty good at it, and out of the blue, from love to hate.

      the first move is always pond to king4 !! the opponent will also follow pond to king 4.

      Delete
    3. coconut,

      Ah! Ruy Lopez ;)

      I love playing Kings Indian Defence against pawn to K4 openings.

      I long time never play chess liao.

      Played a lot at Robinsons. We had a big Alabaster chess set at my "Looking Glass" dept and I played against my colleague across the aisle at the dining ware dept ;)

      Delete
    4. CW,

      Eh? You more chee-na than england?

      Chinese chess got cannons but in real life, we sadly got out-gunned by ang-moh cannons when we were the ones who invented gunpowder and cannons!?

      Yes, I've out-grown some relationships too. We change, they change, people change.

      Delete
    5. sorry, i only know bobby fisher haha.

      Delete
    6. influence i guess, my brother was quite a accomplish chess player, won many competitions le. i guess i was "force" into it initially.

      Delete
    7. come to think of it, trading is like chess game, except with no opponent and never ending.

      Delete
    8. coconut,

      Ah! Sparring partner for your brother ;)

      The market is the "opponent" or "friend".

      It's our friend if we are trend followers (until the trend turns).

      It's our opponent for those who like to fade market moves.

      I not smart. I stick with trend following for my swing trades :(



      Delete
    9. i'm not that crazy like CW, chess is a boring game with a fix opponent and limited moves, there come a time people will give up, including bobby fisher haha.

      trading (i'm not sure about investing) on the other hand, has no opponent, unlimited moves, everyday is different, and everytime it never really turns out what you been expecting.

      i'm always looking forward to another trading days, there is only 2 ways to stop trading, 1 is bankrupt, 2 is disability or death!



      Delete
    10. which ever comes first haha...

      Delete
    11. coconut,

      You die! You call qian bei CW crazy!

      Wait he come hammer you with his powerpoint then you know!!!


      You remind me of the story of the bird with no legs. The bird must fly all the time, and will only stop flying the day it dies.

      No wonder I very mediocre....

      I trade to make some kopi money to pass time.

      I invest so I can maintain my current lifestyle.

      The trouble is I now too old to be toy boy.... It would be nice to have sugar mummy and don't work at all. Who wants to invest and trade if I can help it?

      Do facial, shopping, and to the gym. Have high tea, or play mahjong with other tai-tais.

      I am a dreamer :)

      Delete
    12. is there a different between the bird with no legs and us?

      no different my friend!

      we need to eat, to sleep, to think, to play, to do what we are doing to survive, non stop until we die.

      Delete

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