How Far Would You Go to Drop Off a $1.29 Cheque?

Two months ago I received a cheque in the mail. It was a refund from HDB, for an unused period of season parking when I shifted house.

I had meant to drop it off on more than one occasion. It has found its way from the in-tray to my work bag to my casual going out bag. To write this article, I just extracted the cheque from my wallet.

There are some reasons why I have yet to drop it. For one, my daily (or even weekly) routine does not see me pass by a bank or a cheque deposit box. It makes little sense to go out of the way just to drop off the dollar and twenty nine cents.

Secondly, when I do pass by a cheque deposit box, I either do not have the cheque with me or I am preoccupied with something else that I have totally forgotten about it at that point in time.

And lastly of course, being the amount it is makes it easy for me to procrastinate and say next time tomorrow later soon. (Had the cheque been for $1.29 million, it would have been a different story).

Now, it has been two months and the cheque is starting to get to me. Every time I think of it, it is like an itch unscratched.

On one hand, I really should drop everything and drop it off right now. It is money. Real money. It is blasphemous to ignore money. No one messes around with and says no to money.

On the other hand, it is silly to make a deliberate attempt to go to the mall just to drop off the cheque. The time could be better spent on other things. If I could pay someone to drop it off I would.

How much is my time worth?

It got me thinking. How much is the cheque really worth? Or rather, how much is the time spent dropping off the cheque really worth?

Who else better to answer the question that the Ministry of Manpower. In 2015, the gross monthly income from work of full time employed residents stands at $3949. 

Assuming then, a typical workers puts in eight hours per day, he would be clocking 160 hours per month. The average hourly wage comes up to $24.68. This further translates to 41 cents per minute.

What this means is that the typical worker should spend no more than 3 minutes on the $1.29, either making a detour to drop off the cheque or queuing up to get it processed. If the time required is more than 3 minutes, you would be better off spending the extra time working and tearing up the cheque. Time is money.

This is the most rational way of thinking. Human beings are of course not fully rational all the time. We are experts at mental accounting. We do what makes us feel best rather than what is really optimal.

Return on invested brain damage

Bill Ackman is the founder of activist hedge fund manager Pershing Square Capital Management. He made his name buying undervalued (and shorting overvalued) companies. End 2015, the firm is worth an estimated USD 14 billion.

In an interview with Bloomberg in 2011, he shared his thoughts on why, despite the huge potential Hewlett-Packard presents at that point in time, he is reluctant to invest in the PC maker.

Before I make an investment that requires brain damage or a lot of work and energy, I figure out how much money I can make. And the higher the brain damage, the higher the profit has to be to justify it.

The logic is simple. There are simple deals and there are complex deals. Complex deals require more time and effort and energy to pull off. For Ackman to get involved, it is not pure profits alone. Instead, it is profits/brain damage that is a more accurate gauge to participation.

Ackman has gone on to expound his ‘return on invested brain damage’ philosophy over the years, even going as far as to say that it is an algorithm Pershing Square swears by. Here is a man who not only looks at money as a standalone metric, but also at the amount of effort required to obtain the money.

I wonder what he would have done with the $1.29 cheque.

What this means for retail investors

Couple of things really. First up, returns are half the story. If in evaluating an investment the only thing that concerns you is the potential returns, you are headed for a disaster.

Investment returns vary only because risk levels vary. The higher the chances of you losing your money in an investment, the more returns you should be demanding. Returns is always there to compensate for risk, so always look at risk together with returns. To examine one without the other is not complete. It is like eating mee siam laksa without hum.

Secondly, in the same vein, effort required also varies. As Bill Ackman has stated, some investments do require more work than others. If I have to spend hours a day, every single day studying the market, I have to outperform someone who passively invests. I must beat the ‘effort free rate‘. Otherwise the time could have been better spent on other productive activities like working at a job or starting a business.

And to push it even further. Picking individual blue chip stocks is the most overrated investing activity. The odds of a retail investor being able to spot the ‘better’ blue chips and doing better than professionals are slim. In studying and buying individual stocks, effort is required and risk is also increased. If the investor only wants to invest in blue chip stocks and nothing else, he would be much better off investing in the entire basket via the STI ETF.

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