Save or Spend
Yesterday I finished reading, Pit Bull by Martin S. Schwartz which while being on the lines of the famous Jesse Livermore book hasn’t gained that much fame despite the fact that unlike Livermore who died broke, Martin has been a exceptionally good trader who never came close to Bankruptcy despite being a full time trader and one who while not swinging for the fences did take enormous risks in the course of his career.
I believe the book contains various nuggets of wisdom throughout which are applicable both for the trader as well for the common man. One of the things that appealed to me was his view to taste the fruits of success rather than investing the same elsewhere where it could have given even more gains.
Quoting from the book,
“Over the last two years there had been many times when I’d said to myself, gee whiz, why did I dump one third of my net worth into that beach house? If I’d put that money into mutual funds, it’d be worth well over a million now and that would have made my entire family more secure.
That was the trap that a lot of traders fell into. Most big-time traders didn’t taste the fruits of their labors until they’d climbed to the very top of the tree, and in some cases, they never tasted them at all. To them, making money was the fruit, because to them, money was power, and power was the only way they could feed their giant egos. I wasn’t interested in power. I wanted to taste my fruits all the way up the tree, which meant that I didn’t mind spending money, lots of money.
……………..
If Audrey and I wanted a beach house, we’d buy a beach house. If we wanted a twelve-room apartment on Park Avenue, we’d buy that, too. There came a time when you had to spend the money you’d been making so you could understand why you’d been killing yourself”
I was reminded of a recent advertisement by a Mutual Fund house where the child admonishes her parents for spending money on Handbag / Car when they could make it even bigger by putting them in a Mutual Fund (‘n’ years down the lane).
As I commented on Twitter upon seeing that advertisement, while saving is important, there also needs to be a balance in living a good life. After all none of us can carry over our savings to the other world, so what is the whole point in struggling throughout our lives to save more and more without a clue as to when we can actually start using it.
A secondary learning from the book was that there would always be some one who made more and not everyone can take the pressure required to accomplish that (without it coming at cost of family / health). Knowing one’s limits goes a long way in ensuing that we don’t get onto a race we know we cannot win even if we put everything on the line.
Martin is a wonderful trader (based on his record) but if some one takes the book to mean that day trading is the way to go, he is going to crumble very soon since its one thing to read about the success of one person and quite another to pass through the fire like many before him would have and yet not get burnt. Do remember, History is written by the Winners.
Sounds similar to this
Amazing logic indeed. This is a crazy world! Interesting article written by an Indian Economist
Japanese save a lot. They do not spend much. Also, Japan exports far more than it imports. Has an annual trade surplus of over 100 billion. Yet Japanese economy is considered weak, even collapsing.
Americans spend, save little. Also US imports more than it exports.
Has an annual trade deficit of over $400 billion. Yet, the American economy is considered strong and trusted to get stronger.
But where from do Americans get money to spend? They borrow from Japan, China and even India.
Virtually others save for the US to spend. Global savings are mostly invested in US, in dollars.
India itself keeps its foreign currency assets of over $50 billion in US securities. China has sunk over $160 billion in US securities.
Japan’s stakes in US securities is in trillions.
Result:
The US has taken over $5 trillion from the world. So, as the world
saves for the US – It’s The Americans who spend freely. Today, to keep the US consumption going, that is for the US economy to work, other
countries have to remit $180 billion every quarter, which is $2
billion a day, to the US!
A Chinese economist asked a neat question. Who has invested more, US in China, or China in US? The US has invested in China less than half of what China has invested in US.
The same is the case with India. We have invested in US over $50
billion. But the US has invested less than $20 billion in India.
Why the world is after US?
The secret lies in the American spending, that they hardly save. In fact they use their credit cards to spend their future income. That the US spends is what makes it attractive to export to the US. So US imports more than what it exports year after year.
The result:
The world is dependent on US consumption for its growth. By its deepening culture of consumption, the US has habituated the world to
feed on US consumption. But as the US needs money to finance its consumption, the world provides the money.
It’s like a shopkeeper providing the money to a customer so that the customer keeps buying from the shop. If the customer will not buy, the shop won’t have business, unless the shopkeeper funds him. The US is like the lucky customer. And the world is like the helpless shopkeeper
financier.
Who is America’s biggest shopkeeper financier? Japan of course. Yet it’s Japan which is regarded as weak. Modern economists complain that
Japanese do not spend, so they do not grow. To force the Japanese to spend, the Japanese government exerted itself, reduced the savings
rates, even charged the savers. Even then the Japanese did not spend (habits don’t change, even with taxes, do they?). Their traditional postal savings alone is over $1.2 trillion. Thus, savings, far from being the strength of Japan, has become its pain.
Hence, what is the lesson?
That is, a nation cannot grow unless the people spend, not save. Not just spend, but borrow and spend.
Dr. Jagdish Bhagwati, the famous Indian-born economist in the US, told Manmohan Singh that Indians wastefully save. Ask them to spend, on imported cars and, seriously, even on cosmetics! This will put India on a growth curve. This is one of the reason for MNC’s coming down to India, seeing the consumer spending.
‘Saving is sin, and spending is virtue.’
But before you follow this Neo Economics, get some fools to save so that you can borrow from them and spend !!!
The world is in a economical mess
While I agree with Martin’s overall theme of enjoying the money rather than becoming a slave to it, I have a different take from my own perspective:
1. Compared to US or Europe, India (because of the sheer size of our population) is a damn competitive place for education and jobs. That’s why we have to be extra careful to secure the future of our kids. Poverty here can be extremely brutal and there is no easy way out of it.
2. The level at which Martins of the world operate is completely different. With a networth of multiple millions of dollars, he can do as he likes. People struggling to get even a Crore rupees mark here can’t obviously as spendthrift as a Martin.
My two paisa’s worth.