Take a 2 person and 2 choice game.
Rule of the game:
A coin is tossed.
For Person A, he can call head (H) or tail (T).
If Person B calls the same, ie HH or TT, then A gets $1.
If A calls H and B calls T, then A loses $1.
The reverse is true for B.
In other words, if B calls H and A calls H, then B loses $1.
But if B calls T and A calls H, then B gets $1.
The game is played infinite number of times.
Interestingly, the following result is observed...
When A calls H and B calls H, A gains $1 and A continues to call H.
But B loses $1 and will switch to T.
Once B switches his choice, A realizes that he is losing money, so he will switch to T too.
They can keep playing and continue switching but neither party will gain or lose!
Well~ I thought this is an amazing game. No winner or loser and no Nash equilibrium!
Monday, November 03, 2008
Tuesday, October 21, 2008
Coca Cola Story
One of my favourite stories from one of my favourite Professors...
You take $1 and you slot it into a vending machine,
You press the right buttons,
A Coca Cola comes out.
You take the same $1,
You throw it out of the window,
You wait for 1 hours, 2 hours, 3 hours...
Nothing happens!
You must know what result you want to get! Then you can get the result~
Moral of the story:
Begin with the end in mind.
The method comes naturally thereafter.
You take $1 and you slot it into a vending machine,
You press the right buttons,
A Coca Cola comes out.
You take the same $1,
You throw it out of the window,
You wait for 1 hours, 2 hours, 3 hours...
Nothing happens!
You must know what result you want to get! Then you can get the result~
Moral of the story:
Begin with the end in mind.
The method comes naturally thereafter.
Saturday, October 18, 2008
Financial illiteracy
The recent subprime mortage crisis has finally hit home and hit hard on the heartlanders. MAS estimated that around 10,000 Singaporeans are affected by the collapse of Lehman Brothers and may end up losing their hard-earned savings amounting to around 0.5 billion dollars in total.
In the recent gathering over at Hong Lim Park, many told a depressing tale. Most of these heartlanders who have invested in the minibonds in their 60s. They had invested their hard-earned savings; some as much as $100,000 to $200,000, after getting assurance from the relationship officers in local banks that minibonds were low-risk yet offered returns of 5% or more, which is a lot higher than the amount they are getting from putting their money in fixed deposits. Many of them could not read English and never fully understand what kind of product they were investing their money into. They trusted what the bank officers said and took the minibond to be simply another kind of 'fixed deposit' (the bond period was 5 years), which was low risk but could earn them higher returns of 5%. With Lehman Brothers filing for bankruptcy, there is a possibility that these investors could lose all their hard-earned savings. It's worthy to note that most of them were extremely low-risk investors. Capital preservation was of paramount important to them and they only agreed after repeated assurance from bank officers that their capital is protected. For many of them, it was the sum of money they had saved for retirement. Now they can forget about retiring~
Amazingly, as an Economic major, I have never been taught how to read a financial product throughout my 4 years in University! I can barely imagine how the aunties and uncles, most of them uneducated, were to make sense of what SWAP, bonds, minibonds and structured deposits were! Yet, it is amazing how these structured products were a huge sellout! Think about the thousands who bought the minibonds. Something doesn't quite fit right here. Of course, i know relationship officers and financial planners go through a lot of courses and as such i shall not question their professionalism. But seriously, if the potential investors cannot understand what the whole product is about, how are they supposed to invest in them? I was watching this tv news report in which the reporter got a copy of the minibond agreement. Yes the details were inside but it was not reader friendly at all! Any layman who looks at it will not be able to make good sense out of what the agreement talks about. In short, the whole thing was just too technical and too confusing, even for some of the financial consultants the reporter interviewed! It's such a complex product!
However, sadly, this is not the only structured product in the market. When we invest our money in something other than deposits, i wonder how many of us really know what we are investing into? My guess is not a lot, in fact, only a small proportion of the population who has studied in the relevant courses. Other than blaming the bank officers who made such products simpler than they were, and in some sense, making the product into something they were not, perhaps we should also acknowledge our serious financial illiteracy for it's our financial illiteracy that will cost us in the long run.
Simple rule: If you can't understand it, don't touch it.
In the recent gathering over at Hong Lim Park, many told a depressing tale. Most of these heartlanders who have invested in the minibonds in their 60s. They had invested their hard-earned savings; some as much as $100,000 to $200,000, after getting assurance from the relationship officers in local banks that minibonds were low-risk yet offered returns of 5% or more, which is a lot higher than the amount they are getting from putting their money in fixed deposits. Many of them could not read English and never fully understand what kind of product they were investing their money into. They trusted what the bank officers said and took the minibond to be simply another kind of 'fixed deposit' (the bond period was 5 years), which was low risk but could earn them higher returns of 5%. With Lehman Brothers filing for bankruptcy, there is a possibility that these investors could lose all their hard-earned savings. It's worthy to note that most of them were extremely low-risk investors. Capital preservation was of paramount important to them and they only agreed after repeated assurance from bank officers that their capital is protected. For many of them, it was the sum of money they had saved for retirement. Now they can forget about retiring~
Amazingly, as an Economic major, I have never been taught how to read a financial product throughout my 4 years in University! I can barely imagine how the aunties and uncles, most of them uneducated, were to make sense of what SWAP, bonds, minibonds and structured deposits were! Yet, it is amazing how these structured products were a huge sellout! Think about the thousands who bought the minibonds. Something doesn't quite fit right here. Of course, i know relationship officers and financial planners go through a lot of courses and as such i shall not question their professionalism. But seriously, if the potential investors cannot understand what the whole product is about, how are they supposed to invest in them? I was watching this tv news report in which the reporter got a copy of the minibond agreement. Yes the details were inside but it was not reader friendly at all! Any layman who looks at it will not be able to make good sense out of what the agreement talks about. In short, the whole thing was just too technical and too confusing, even for some of the financial consultants the reporter interviewed! It's such a complex product!
However, sadly, this is not the only structured product in the market. When we invest our money in something other than deposits, i wonder how many of us really know what we are investing into? My guess is not a lot, in fact, only a small proportion of the population who has studied in the relevant courses. Other than blaming the bank officers who made such products simpler than they were, and in some sense, making the product into something they were not, perhaps we should also acknowledge our serious financial illiteracy for it's our financial illiteracy that will cost us in the long run.
Simple rule: If you can't understand it, don't touch it.
Insights from Financial Planning talk by Mr Tan Kin Lian
- Buy Term Life Insurance for 25 years, after which your children would have grown up.
Beyond that, you can pretty much rely on your savings. Major illnesses are covered by Medishield.
- Watch out for this product (not available in SGP yet): Decreasing Term Life Insurance, useful because it cuts your sum insured as you get older and thus your premium. May sound counter-intuitive but explanation given by Mr Tan was surprisingly logical. An insight that would only occur to us when we reach his age. ie. By then we are not that far away from death and our children no longer needs to be taken care of by us.
- Preferably, accumulate 0.5 million SGD , before accounting for depreciation and inflation, by the time you retire, usually around 65. This works out to about $1000 per month assuming you start work at 25. This will be your rainy day fund.
- Life insurance amount should be at least equal to 5 years of earnings. ie If you earn $2500 per month, $2500 x 12 x 5 = $150,000. More if you can afford and of course more if you earn more.
That way, your family can still function even without you around.
- Go for what you can afford. Forget about the $1 million life insurance your agent told you about. If you are just earning $2,000 a month or less, align your expectations accordingly. Never let the premium become a source of financial burden. It's meant to provide protection, NOT undue stress unnecessarily.
Finally, the one i liked best:
-Once you are very old, say 70+ or 80, medical insurance become way too expensive and are really not necessary anymore. For one, you have medishield. Then again, let's say you are down with some critical illness say cancer. Would you want to go for an operation that cost $250,000 yet the success rate is not 100%. Many old people would rather die in the arms of their loved ones at home than on the operating theatre or on the hospital bed. By then, it's just watching the days go by. 一天过一天。Why would you want to get a health insurance when you are not even planning to go for any major operations in the first place? Minor specialist treatments costing between a few hundreds to a few thousands can easily be taken out of your rainy day funds which have already been consciously built up.
I thought this was really insightful. What he said made sense. When you turn old, your mindset about life will take a drastic turn. Many things become transient. Not withstanding that the risk of operation increases proportionate to age. Of course, there will be people who argue that we should seek to live a longer life so that we can do more fulfilling things; we can still contribute to the society. I don't deny that. But if we were really sincere about doing these, we should have started when we were young and well. Not wait till we are old and frail. No time is an excuse. It's the heart that wants to do something that counts. Just some personal thoughts~
Beyond that, you can pretty much rely on your savings. Major illnesses are covered by Medishield.
- Watch out for this product (not available in SGP yet): Decreasing Term Life Insurance, useful because it cuts your sum insured as you get older and thus your premium. May sound counter-intuitive but explanation given by Mr Tan was surprisingly logical. An insight that would only occur to us when we reach his age. ie. By then we are not that far away from death and our children no longer needs to be taken care of by us.
- Preferably, accumulate 0.5 million SGD , before accounting for depreciation and inflation, by the time you retire, usually around 65. This works out to about $1000 per month assuming you start work at 25. This will be your rainy day fund.
- Life insurance amount should be at least equal to 5 years of earnings. ie If you earn $2500 per month, $2500 x 12 x 5 = $150,000. More if you can afford and of course more if you earn more.
That way, your family can still function even without you around.
- Go for what you can afford. Forget about the $1 million life insurance your agent told you about. If you are just earning $2,000 a month or less, align your expectations accordingly. Never let the premium become a source of financial burden. It's meant to provide protection, NOT undue stress unnecessarily.
Finally, the one i liked best:
-Once you are very old, say 70+ or 80, medical insurance become way too expensive and are really not necessary anymore. For one, you have medishield. Then again, let's say you are down with some critical illness say cancer. Would you want to go for an operation that cost $250,000 yet the success rate is not 100%. Many old people would rather die in the arms of their loved ones at home than on the operating theatre or on the hospital bed. By then, it's just watching the days go by. 一天过一天。Why would you want to get a health insurance when you are not even planning to go for any major operations in the first place? Minor specialist treatments costing between a few hundreds to a few thousands can easily be taken out of your rainy day funds which have already been consciously built up.
I thought this was really insightful. What he said made sense. When you turn old, your mindset about life will take a drastic turn. Many things become transient. Not withstanding that the risk of operation increases proportionate to age. Of course, there will be people who argue that we should seek to live a longer life so that we can do more fulfilling things; we can still contribute to the society. I don't deny that. But if we were really sincere about doing these, we should have started when we were young and well. Not wait till we are old and frail. No time is an excuse. It's the heart that wants to do something that counts. Just some personal thoughts~
Some useful websites for financial planning
www.askdrmoney.com
www.tankinlian.com
www.tankinlian.blogspot.com
The last one had been quite popular since the Lehman Brothers Minibond issue.
www.tankinlian.com
www.tankinlian.blogspot.com
The last one had been quite popular since the Lehman Brothers Minibond issue.
Tuesday, October 14, 2008
When outstanding is just average
Check this out! Elite college = scholar factory? Haha~ Now i DO agree that there is a Singaporean culture somewhere ingrained in us.
http://www.straitstimes.com/Free/Story/STIStory_216917.html
http://www.straitstimes.com/Free/Story/STIStory_216917.html
Perfect scores, perfect students
Woo... I like this... Says quite a lot about our education system which has zero tolerance for failure. What kind of values are we imparting to our children?
http://diodati.omniscientx.com/2008/03/15/perfect-scores-perfect-students-a-perfect-storm-for-future-failure/
http://diodati.omniscientx.com/2008/03/15/perfect-scores-perfect-students-a-perfect-storm-for-future-failure/
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