Thursday, October 27, 2022

Market Assessment #4 : Why we pursue status ?


One topic that a lot of personal finance books rarely discuss is status. Why do people seem to be obsessed with their status and why the pursuit of status can actually lead to wealth destruction. As such, a book like Status and Culture by David Marx is a useful addition to a reader's collection because developing an ability to identify status-seeking manoeuvres is the first step to curbing one's own impulses.

There are four important points regarding status :
  • Status is a position within society that denotes respect and perceived importance.
  • Status comes with rights and duties, but having status does accrue benefits.
  • Status has to be bestowed by others.
  • Status is contextual, based on how we are treated at a time and place.
Status matters to me even post-financial freedom. In Singapore, I found out the hard way that you will get abused if you fall into a lower status. I will never forget being shabbily treated when I tried to apply for my wife's Singapore citizenship with ICA, as I was queuing with the folks who are also doing the same for their Vietnamese wives, I was shouted at by boomer auntie counter staff after I said I was an unemployed student. Only after escalation to the woman's manager was I treated better because I revealed I was a law student with SMU (with the requisite non-Singlish orang atas accent).  

So the pursuit of status is really fundamental to being a human being and a higher status does lead to a better quality of life.

When people come together, they form status hierarchies and some fairly universal rules become established. One rule is that a person cannot claim more status than what they deserve. 

The four principles that run in status hierarchies are as follows :
  • Status maximization - we desire high status and fear low status.
  • Status achievement - we can level up and improve our status via our talents, accomplishments, possessions and virtue.
  • Status integrity - we cannot claim more status than what we deserve.
  • Status mobility - we can migrate to a different status hierarchy that values us more.
In my first company Procter & Gamble, employees are subject to a three-grade rating system where getting a grade A is very hard and competitive. As much as tried to get a good rating, I was not able to punch above the higher end of the B grade regardless of how much I invested in my IT skills and certifications. I'm also ranked very low socially among the "management associates" because I don't enjoy small talk during lunch about scuba diving, prefer clowning with operations staff,  and certainly don't see myself as a young and fabulous "yuppie".

So I migrated to a different status hierarchy. 

I used my savings and investments to synthetically build up my wage increments. If I saved 50% of my take-home pay and invested it at 8%, my annual increment will receive a 4% boost the following year from dividends. In a good year, my increment will be higher than someone with a Grade A. Of course, I can't really share this technique with my competition because if a Grade A employee started saving 50%, I'd be toast. 

The funny thing is that after replacing about 60-70% of my expenses with my dividends, I became much more confident about myself, got a lot more vocal and disagreeable, and I actually did get a few A grades after we got sold off to HP. There was no FIRE movement in those days, and I was really trying to build a sub-culture with just myself. But these days I can join a new FIRE movement that values frugality and low-key living instead.

I'm actually really obsessed with this topic of status right now and in the next article, I will talk about the different status markers of Old Money, New Money and FIRE money. So guys who want to hear about Patek Phillip watches and Bugattis may want to read the article I will put up next.

On my observation of the markets, I'm very happy to see a small rebound even after Hong Kong had a crash on Monday. I don't think it is time to move into the markets yet. If on November 2nd, the Fed raises by 75bps, that will be within the realm of market expectations so there should not be a big response. But if the Fed raises by 50bps, there may be a case to start buying a few local counters. 


1 comment:

  1. Likely 75 bps on 2nd Nov. The important thing is what Powell will say at 2:30am press conf.

    If he hints moderation in hikes going forward i.e. 50 bps, S&P will shoot up 4%.

    If he maintains kuai lan-ness, market will drop -2%.