Productivity

Week 4.2 Productivity

Assume you have 1 oz of gold, anywhere you put it is still 1 oz of gold. Maybe less if you happen to scratch it and lose some gold. On top of that you still need some money to safe guard the gold such as putting it in safe deposit box, lock it in safe, hide it etc. All these are cost to you. Yet, many people consider gold as an investment. Thus, something is very wrong here. Precious Metal has negative productivity.

One properties of gold is it cannot be printed out of thin air. It can be must be physically mined and it is limited in quantity.  Thus gold is appreciating in value because lot of paper money is printed out of thin air everywhere. Since gold cannot be printed, over time the price of gold will increase faster than paper money.

Thus, gold will serve as a protection of wealth, preservation of wealth rather than an investment. It is an insurance policy which has no recurring premium other than storage fee.

The more correct assessment of value will be gold to oil ratio or gold to energy ratio. How many oz of gold to buy 1 barrel of oil?

What is productivity then?

Here is the definition of productivity from Wikipedia. 
Productivity is a measure of output from a production process, per unit of input. For example, labor productivity is typically measured as a ratio of output per labor-hour, an input. Productivity may be conceived of as a metric of the technical or engineering efficiency of production. As such, the emphasis is on quantitative metrics of input, and sometimes output. Productivity is distinct from metrics of allocative efficiency, which take into account both the monetary value (price) of what is produced and the cost of inputs used, and also distinct from metrics of profitability, which address the difference between the revenues obtained from output and the expense associated with consumption of inputs.^[1]

Productivity means bringing value to customer.

Food stall operator turns some raw meat, grain and vegetable into ready to eat food for factory worker. Factory work will have more time to spend in their work. His cost is RM2 per plate of rice but he is selling it at RM4 per plate. Since the food stall operator is making some profit, over time he will be able to feed his family, buy a house or car. That is productivity. Food stalls existed long time back in China.
Off course, there is a limit to how much profit can the food operator can make because he only got a few workers, the number of customer is more of less fix. Whatever surplus he made should be able to sustain his lifestyle. Any surplus money re-invested into his business is not going to add to his productivity/profit. Law of diminishing return.

In our life, everybody have productivity. Let said you spend all your years to become a musician, not everybody can compete with you, only a musician can compete with you. Thus, as far as music is concern, your productivity is better than others. Nobody can compete with you unless they willing to go through the long tedious training. Thus, your productivity is your job. In order for you to stay in your job, your company must be making some $$. That works well in private sector environment. No comment on government job. However as usual, there is a limit to how much your company can pay you. If you are network person, person who can bodek well then maybe your pay is higher lah. There is also a limit to what you can do for your employer. Anything extra may not worth the effort. Law of diminishing return. Over time as you move on in your career you may amass some wealth. What you going with it? Well, buy some gold as insurance lah. This is not going to make you rich. It’s just an insurance policy to preserve your purchasing power.

In order to be rich, you have to be in business which generates productivity. However, it very difficult to identified it. Once it is identified, you must execute it quickly. Over time people will replicate your idea and price war will begin.
 
Lesson learned: Precious metal is not an investment. It is just a tool for you to preserve your purchasing power.

Action Plan: Continue to do what you good at to earn your living. If you are a doctor, then be a better doctor, a lawyer then be a better lawyer. Anything extra, buy gold and silver. At the mean time, look around for some business which you can venture into.