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Thursday, 27 February 2014

Flexibility versus Lock-in

A common complaint by loyal customers of our telcos is that the latest promotions are only eligible for NEW customers only.

You signed up for that 2 year 100 Mbps broadband plan with glee thinking how smart you were. Especially if you compare the savings you are getting in relation to the more flexible pay-as-you-go top up plans.

You smart; others not stupid.

From the "others" perspective, you are the bird in hand for the 2 next years.

One year later, you find to your dismay for the same price, the telcos are now offering new customers twice the speed at 200 Mbps!? Throwing in free installation and other services to rub salt into wound.

You now wonder whether it would have been wiser if you had used the more expensive pay-as-you go top up plans for 1 year and then switch to the current promotional plan...

We face similar dilemmas in our investing and trading decisions.

Should I lock-in my money for 1 year, or do I go for the 5 years fixed deposit that pays a higher interest?  

Sames goes for bonds. Hmm... Is now the time to go for shorter maturities as in 1 to 5 years, or do I go for the longer maturities like 10 to 30 years?

Is renting now better or should I bite the bullet and buy with a 30 year mortgage? 

(This is can be a classic penny wise pound foolish scenario. Save small money here and there and always talking about low cost index funds to only find out your neighbour has bought their unit for $100,000 less than you. Ouch!)

Should I hold on to this losing speculative position, or should I just cut my losses short and retain my flexibility to pounce on future opportunities?

Flexibility has a price.

Lock-in may not be the bargain you thought it is. 


  1. Hi SMOL

    If I were a business owner I would want my customers to lock in early so that I can forecast my earnings easier. Of course this means enticing them with extra perks to make them take the bite early.

    Interestingly if I am on the customer side I rather take each month as it is and I hate for my money to be locked in.

    Owner customer issue I guess
    Conflict of interests.

    1. B,

      I sometimes smile to myself whenever I get upside with a company but I "LL" (it's a hokkien crude word) must still pay up.

      Pissed off as a consumer; but happy as an investor ;)

      I just found a company with a moat!?

  2. Locking in customers take place not just for telcos, the promotional rate for fresh funds also defy logic.

    U mention the businessman not stupid, but I think they sometime believe we are, my friend just send me a link that says Singtel believe it is right to charge users for use of what's app and Skype ? Hmm... A even bigger moat?

    1. sillyinvestor,

      It's not a moat if customers can walk away ;)

      Very interesting if we see things from the other side once in a while.

      The best are Spa or Gym memberships. Sell first. If customers complain overcrowded or bad service, what can they do? Already stated in the fine print membership fees are non-refundable.

      The one about the country club fiasco a few years back also good example of if everyone is a member, then it's not exclusive!

  3. Same same.

    May be tmr never come. Spend now. Why save?

  4. We are always living in conflicting choices, views and decisions


    1. CW,

      Middle path.


      Ah Dee oi, agar agar du hor! (Wang Sha famous Teochew saying)

    2. the funny things is that in very large scale like the earth or cosmos, scientis can measure right down to the very details of all particles in the universe.

      but in particle physic, the extreme small one, they can't even get 50% accuratecy, really wird.

      in hind sight we should aga aga the big one and get very accurate on the small one.

    3. is like saying, if you have one million dollars with you, you know all that money you have in every accounts and in every corners and pockets and drawers down to the very cents. every cent count!

      but another guy who is so poor he have but only a single cent and he don't know where he kept it!

  5. if in doubt, don't do (buy) it, if do it, then don't regret.

    in doing so, if you think you are not getting the best deal or someone taking advantage of you, don't dispare, get someone (who is good in this field) to help you.

    thats my wife! she is very good at it haha...

    1. if there is a "lock in" condition comes with a deal, the very first thing to ask is whats the (your) condition of a "break out".

    2. otherwise, maintain a flexible deal or better still, an open market concept just like our financial markets!

    3. coconut,

      Only you can link quarks and quasars to financial matters ;)

      We do it too when we sign our employment contracts.

      It's the reverse here. The longer the months of notice we need to give our employer when we resign, the higher our pay.

    4. then sign the longest one la!

      a life time contract! whats my pay?

    5. by the way, at the top level, people who design trading systems are no longer traders or programmers, they are the scientis who study particles physic.

    6. coconut,

      1) Ask your wife. You are her long term meal ticket ;)

      2) Eh... The Phds at Long Term Capital didn't work out too well...

    7. ya, so they think they can solve the equation by punching numbers.

      but if some scientis can unify the theory to discribe everything (general relativity and QM), i will retire from trading! the game is over!!

  6. The way I see it, nobody predicts the future accurately... lock-in can be like a hedge against something going south (or is it north?). At the point you sign the dotted line, you already assessed that this is the best deal that day. Maybe you say I stupid when 200mbps package is cheaper next year, but who can say for sure? Maybe next year no more "low" bandwidth package, all must be 500mbps and above at 5 times the price today.

    On a side note, I notice most lock-in contracts usually favors one side (the locker ... erm what's the right word for it?) than the other side (the lockee). Shouldn't it be more fair to both side?

    1. ckw-I99,

      No wonder deflation is the fear word for modern economies. Who will buy today or go for lock-in packages if we think prices will be lower tomorrow?

      It's all about sentiments and consumer confidence.

      Most businesses welcome moderate inflation of 2-3% annually.

      In monopoly or oligopoly sectors or industries, consumers have little negotiation power to get "fair"...

      Consumers' strongest power is the ability to walk away.

      Thank goodness in investing and trading, we can walk away anytime :)

      Although there are some "investors" who prefer to lock themselves in and grumble against management; as if management works for minority investors....

  7. Those who are locked in want to be locked up. Those who are locked out want to be locked in. And this just go on and on. And remember not everyone can afford to be locked in. You just have to suit yourself- Just like buying bond and preference shares.

    1. temperament,

      We choose our own poison and get on with life ;)


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