The Eleventh Commandment
My simple definition of an arbitrage is: ‘A situation where we can enjoy absolutely the same value, but not have to pay the normal asking price’. I wrote about some such arbitrage possibilities in my previous post (Being smart about costs – Part 2). Being smart is not about cutting down on the simple pleasures in life. Cutting costs is a personal prerogative, and who am I to lecture you on that? However, being smart about costs is the eleventh commandment, and I have every right to remind you about it – “Thou shalt not be stupid and overpay. Thou shalt seek savings by being smart about thy money”. I made it up but it kinda sounds right.
A most common form of arbitrage is the bulk discounts that we often enjoy by prepaying for some goods or services, as my friend commented on my previous post. Surely a good way to save, when you are going to make the purchase in future anyway. However that comes with the inherent counter-party risk or the risk of over consumption.
Risk of over consumption is a very real risk. Someone once drove me for 45 mins down to a Costco, as he wanted to buy a frisbee for his son. He ended up buying a 3-pack because there was a discount. Even if I ignore the value of time and fuel, which kid needs 3 frisbees anyway? This is stretching “value-seeking” a bit far. One extreme example of this can be seen on the TV show “Extreme couponing” You got to see it to believe it, and the hoarding part makes me sick.
On the other hand, there are plenty of smart arbitrage opportunities that one could always take advantage of. I was on a long holiday in Phuket, Thailand, few years back. It was at the time of the global financial crisis and hotels were offering lots of discounts to woo customers. I received an offer from one of the service apartments offering the following discount slabs:
1. Stay for 3 nights, pay for 2
2. Stay for 5 nights, pay for 3
3. Stay for 10 nights, pay for 7
4. Stay for 13 nights, pay for 10 ……and so on and so forth…..
We ended up staying a month in Phuket but opted for the discount slab 2 and kept rolling it. Considering the low tourist numbers, we were not worried about not finding a room at the end of each period. The resort manager found it curious that I did not opt for the “stay for 30 nights and pay for 24” option but chose to use six 5-night slots instead. When I explained to her (at the end of our stay) that all I did was chose the slab where I paid the least % wise, you should have seen the look on her face.
When was the last time you purchased some thing without checking if they offered a student discount? I always (well almost) make it a point to drag my son along with his student id, whenever I go for a purchase. The discount that I enjoy on Apple products can be quite significant, and it’s sacrilegious to forego it just because we did not bother to check. I love it so much that I have been contemplating joining a PhD program in one of the local univs, to get my own student id.
The great Singapore arbitrage
There are some amazing arbitrage opportunities for people in Singapore and I am going to become very unpopular for even alluding to them. Car prices in Singapore are very high and its for a very good reason. It’s smart to have the best public transport infrastructure, and discourage car ownership.
I drive the same model that I drove in Europe, and here it cost me more than three times compared to Europe. Now, here is something to ponder upon – I am not a ‘car-enthusiast’ and it is just a mode of transport for me. I use public transport or cycle during the week and use the car only on weekends. If instead of owning the liability (servicing, road tax, insurance, depreciation, COE etc etc), I go and rent exactly the same car only for weekends……..and go a step further by offering some extra cash to the rental company to even provide home delivery and pickup service……I will still end up spending a way lot less without compromising an iota of value.
Why don’t I do it then? Well, just because I am writing a blog on being smart about money, doesn’t mean I am going to give up all the ‘instant pleasures of stupidity’, does it? Everybody is entitled to their share of stupidity and so am I.
Before I sign off, I would like to share a video about being outstandingly smart about costs. This sums up the whole philosophy.
Read the previous posts in this series here