Saturday, September 24, 2016

On Oscar Wilde, cynics, price and value.

Today's piece is going to be little philosophical.

Let's start with Oscar Wilde's definition of a cynic which is  "A man who knows the price of everything and the value of nothing."

I thought this is exactly the kind of nasty remark most disgruntled Singaporeans would heap on a value investor so I thought it might be a good time to think deeper about this statement. It is highly probable that a person who thrives on economic analysis would see everything in economic terms.

After all, once you have a hammer in your hands, everything looks like a nail.

I'm going to propose a philosophical framework for us investment types not to fall into the trap of valuing everything via economic means. The inspiration for this idea is from the book The Five Life Decisions by Robert T Michael which is yet another excellent read which details a longitudinal study on Millenials and the consequences of the many life decisions they made. This also ties into my exhortation a few essays ago that we should study Gen X like an anthropologist and decide whether the YOLO philosophy makes sense for you.

My framework is as follows :

We need to understand that some things in life are means to an end as opposed to other things which are ends in itself. There is also a hybrid class of things which are both means and ends.

Here are my proposed examples :

a) An education is largely a means to some end. 

The study confirmed that even in the US, for the batch born in 1980, a higher education results in higher wage differentials, with someone with an advanced degree earning twice as that of a someone with a high school diploma. More damning news for the folks who want to emulate Bill Gates the Harvard dropout, the gap widens dramatically as the Millenials grow older.

An education also determines the people you associate with, who you marry, your lifespan, and the odds of your children also receiving a high education.

It is a key decision you have to make in your life. But education does not really stand on its own, it is merely a means to end. As such, economic analysis is useful in this regard. What courses to take should account for employment opportunities and median salaries.

b) A spouse is both a means and an end.

If you perform economic analysis on whether to marry, there is ample evidence to go ahead and get hitched in ROM. While it is not accurate to say that two can live on the price of one, according to the survey, two can indeed live on the price of 1.62. ( In fact 5 can live on the price of 3, but polygamy is not longer allowed in modern societies ! )

Marriage allows two people to complement each other and specialise in something to keep the household running, but marriage also takes time to work out and generate enough savings for both husband and wife so the overwhelming advice from the survey is to marry only if you have a long term orientation. Another words, if your significant other is a "here and now" kind of crazy personality, the best advice is to dump the person ASAP and find someone more stable.

But we don't generally do economic analysis on our spouses because you cannot really put a price tag on the intimacy and joys of being with someone else. Otherwise, SDU would have been much more successful in that case we Singaporeans are such a kiasu people.

c) Children are better treated as an end in itself.

Unless you are really perverse, children should not be the means to anything. They are really expensive to raise in the US which can cost $1,000 per month from ages 0-2. While it's way cheaper in Singapore thanks to government subsidies, parents suffer from bad job performance and lose a lot of personal freedom once they have kids. So right now, no economic analysis can justify having children in modern society.

But once you shift your focus to children as an end in itself, then very possibly you can enjoy the process of raising kids.

This is the key to avoid becoming a cynic.

Children should be treated as ends rather than means. We become financially independent to raise our kids. But it's not wise nor realistic to raise kids thinking that  they can make us financially independent although some very successful parents may be able to that.

But it does not end at just kids.

Sports, artistic and cultural endeavours are better off evaluated as an end point objective rather than some sort of means to an end.

Which comes back to my previous point on Vladimir Nabokov. Cultural capital should based on its own merit, and not to be benchmarked against other forms of capital. Otherwise, there will be no art and beauty in society at all.

Of course, this framework cannot deal adequately with all issues we face in this modern age.

If a person wishes to study for a qualification in Fine Arts, he is paying good money to eventually join an economy which places little value on their qualification. He needs to be clear that Fine Arts is an end and should not expect to be remunerated ( unless he is very talented ) as perhaps a surgeon should in modern society.

The most pragmatic way of dealing with this problem is to simply be born with rich parents.

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