Economy in Stable State

Week 46.1 Economy in Stable State

In a competitive environment, price war is unavoidable. Thus, let said one person state off with RM100,000 capital.

RM100,000 capital at RM5000/oz of gold he can get 20 oz of gold.

Cost Safe deposit box + insurance = RM500.

Price increase in gold 10.5%  (for ease of calculation)

He easily earn RM10,000 doing nothing. 10% nett.

Now he decided to buy and sell silver with RM100,000 capital. How much he should earn given the time spend. RM100,000/- let said RM100/oz for simple calculation. 1000 oz of silver.

Consider one month he can sell 2000 oz each at RM3 nett profit (after all travelling etc).

2000 x 3 = RM6000/-.

Assume an average order size of 50 oz per customer, he need to do COD 40x in one month or everyday 2-3 COD on average with some day off. That will consume approximately 3 hours of his time per day. (running to banks, packaging, storing etc)

In one year he will earn RM72000/- for 1095 hour of labour or approximately, RM65/hour of labour. Assume, there is a price war and the labour cost will go down to RM30/hr. is it still worth your effort? Think about it. Well, then comes few factors

a)     

 Do you have big capital to play with?

b)     does it worth your time think about it.? If you earning more than RM65/hr than not worth that risk. E.g People with their own business to take care.

c)     DO you have the spare time? Well, there always insufficient $ all the time, people just want a little bit more. Thus for those with spare time you can consider it.

Scaling beyond this will require hiring trustworthy people. They can just steal your goods when you ask them to deliver. Just like in Jason Hommel case.

For me, I think the price war may go down until the labour cost is around RM20/hour, after that the price will be roughly the same, selling will be localized to reduce travelling time and cost. Lastly, price will be very much dependent on what price the seller manages to buy and replace. In rising market quick profiteer will sell at below replacement cost for a quick profit.