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Friday, 12 June 2015

I rather think in negative sum, thank you very much!


Zero Sum

Let's start with the easy one - zero sum game.

If you have a "friendly" round of poker or mahjong with your friends or colleagues, that's zero sum.

That means the money the winners won has to come from the losers. It's my pocket to your pocket that sort of thing.

Only feeble brained players believe in this friendly poker advice, "Careful boys, let's play well tonight so we can ALL go home as winners!"


Win-Win (Non zero sum)

Don't laugh. In real life, there are many vested parties who use that poker joke on their non suspecting customers.

Often used in the field of properties and equities.

A buys a stock at $1, sells it to B at $2, and B sells to C at $3, and so on...

Everyone is a winner! Win-win! 

Another spin is that you are not a "speculator". By owning a fractal share of a company you've invested in, you are a "business owner" (woo....) who profits along with the future growth of the company. Win-win!

Tell that to "fractal business owners" in NOL who bought at $5, and those long term thinking "investors" who bought Creative at $20 plus....

Mind you, NOL and Creative were once upon a time component stocks in the STI. They are not penny stocks or S-chips. In fact, you can call them "smurf chips". 

But that was then... Now is now. How's win-win working out for you?

In Singapore, I've not lived through a 50% property bear market... Thank goodness! If you interested what it feels like, try talking to friends or colleagues in US or Japan.

A plain vanilla 20% property correction we have gone through a few times. Just consult your parents, older siblings, etc. 

It's no longer fun when C has to sell to D at $2.50 :(

Tip: Always ask, "Will you make me whole again if things do not pan out as you've describe?"

Have fun watching the snake squirm and slither under a rock and reach out for that long list of disclaimers in small print. Well, so much for strong conviction advice...


Negative sum

Some of you may be wondering why I did not put futures, CFDs, spot forex or options into zero sum?

Because they are not.

There's exchange fees, GST, brokerage commissions, bid-offer spreads, financing costs, etc.

Just look at the financing charges for shorts and longs - the broker even makes on this financing spread!

When you win, you win less than what the person who took the opposite side of the trade has lost.

It's a bit like protection money. Win must pay; lose also must pay!


Seeing things for what they are

It's never about being cynical or skeptical. That's too dismal a perspective.

It's more about our ability to see through the smoke and mirrors and look out for our own interests.

That newsletter from the exchange, that ad from a broker, that blog post from a vested interest who uses social media as a means of reaching out - would they be doing what they do if they don't benefit from this negative sum game?

Nothing is for free. OK, maybe with the exception of well meaning advice from bleeding hearts!

Negative sum is not scary. Its just a business cost that I'll have to manage - like all other expenses in life.

By the way, while you are at it, you might want to add in your broadband subscription, depreciation on computers, investing/trading newsletters, seminars/courses paid for, etc. 

Unless you want someone to poke you on your SMART goals but have fuzzy accounting on costs and expenses...





10 comments:

  1. Hi SMOL,

    I think everything is negative then. Esp when you include time, our most precious resource. Things that are seemingly free will cost you a lot when you include your time.

    Recently, I had to return a tv set back to the telco station. It was given to me free of charge for 2 yrs. In fact, before this two years, I also had a free tv set. I used it maybe less than 5 times in 2 yrs. Then I returned it. After waiting for 1 hour+ just to return it, I swore it off. Then, after being offered FREE again, plus FREE DELIVERY to my home, I took the bait again. This time, I used it for 0 times in 2 yrs.

    I just recently returned it and swore it off again. I hope I don't make the same mistake again. Waste of my time! These days even when it's FREE, i'll be inclined to refuse it...there's always a cost somewhere, even if it's just my time.

    Esp when it's just my time.

    ReplyDelete
    Replies
    1. Where got free?

      Free thing can only come from your parents, spouses, friends, or relatives and if from anybody else the cost is inclusive as "free". :-)

      Delete
  2. LP,

    That's why every 2 years when I renew my mobile contract, I always tell them to delete all those temporary "freebies".

    They are banging on inertia of customers.

    Where got time to remember when these "freebies" have expired and if you don't EXPRESSLY cancel them, well, "free" becomes consent for charging you things you never wanted ;)


    And if one buys investment or insurance products because of the "free" gifts, that simply means you don't know you can get the same products at a much lower commission with an on-line distributor ;)

    ReplyDelete
  3. CW,

    That's why business owners want to be a monopoly - to be the "house".

    But consumers want to have competition.

    Just look at fibre broadband. Prices have come down because a much smaller competitor outside the big 3 has thrown down the gauntlet.

    Imagine what will happen if a new meaner and hungrier competitor can come into the smart phone market and offer 10G free data mobile plans?

    Competition and liberalisation have brought down the transaction costs for buying and selling equities. Good for us; but it has wreaked havoc to the remisier profession...

    Every move has its consequences; no free lunch.

    ReplyDelete
  4. Hmm...

    Think zero sum when dealing with people; thinking negative sum when dealin with money, but think win win when dealing with loved ones.

    Typically a sum is suppose to add value in the end, unless u are adding a big negative value ... So moral is ... Choose your company?

    ReplyDelete
    Replies
    1. Sillyinvestor,

      That's an excellent way of looking at it in terms of relationships!

      Interesting ;)

      Yup, if we add the concept of time from LP, CW's view on who gives to us without conditions, and your choosing of "right" company - it becomes clear:

      Spend more time with people that matters ;)


      Is this collaboration a sort of "crowdfunding r' us"?

      Cool or what?

      We each contribute a piece of our thoughts, and the end result is GREATER than the sum of the parts!?

      :)

      Delete
  5. Sometimes when dealing with people such as colleagues, bosses or people you regularly interact with, it's hard to tell whether the relationship will end up being a zero sum, negative sum or win win. But by then you may have already invested much time (sometimes not of you own choice) that you have to or want to make it a win win.

    ReplyDelete
    Replies
    1. Joyce,

      Distance travelled can determine the stamina of our horse.

      Time spent can help see the hearts of men.

      All I can say is "reading" people is one of the EQ Jedi tricks some learnt quicker than others.

      Trust but verify.

      Its one of those ironies that some investors spend more time verifying their stock picks than checking out their key relationships...

      All the money in the world yet you are paranoid you can't trust everyone around you... That's sad....

      Delete
  6. Hi SMOL,

    Trust is important.
    1) Using EQ, experiences, wisdom to judge a person....
    2) Background check and verify
    3) Asked one more time your gut.. if ur gut says yes.. just go ahead

    If proven wrong also no regrets... at least u take action to move forward...

    ReplyDelete
    Replies
    1. Rolf,

      That's why its Trust but Verify ;)

      Trust is in front and still very necessary.

      If there's no trust, we are either paranoid, or living in a dog eat dog world.

      The nearest equivalent is during the early days of Stalin's reign of terror where neighbours will spy on each other.

      Or perhaps during the Cultural Revolution in China where sons will report their fathers to the Red Guards, students turn on their professors, servants condemn their past employers...


      I did not come up with Trust but Verify, it came from:

      害人之心不可有, 防人之心不可无。

      Delete

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