1.7.12

Life Arbitrage - An Investment Idea


Bankers talk about arbitrage as the practice of taking advantage of a price difference between two or more markets and striking a combination of matching deals that capitalize upon the imbalance. This weekend on a day trip to Johor Bahru, the Malaysian border gateway to Singapore, my friend James and I discussed the feasibility of applying arbitrage theory to daily life.

The main premise of life arbitrage is to use your earnings made in a relatively higher cost locale to finance your lifestyle in a relatively low cost locale. The underlying premise and key to success is that it is feasible to travel freely and conveniently between the two locations. Although I was unable to find official numbers, the wisdom of the internet suggests that thousands of people cross into Singapore everyday to work before returning to Johor Bahru and even further afield.

The biggest savings would potentially be made on land purchases, housing and consumer durable goods. The trade off would likely be access to Singaporean education and healthcare. We did a simple analysis of some everyday purchases and the cost of accessibility to see how much of an arbitrage opportunity exists:

Assumptions:
- Exchange Rate Assumption: 2.5MYR = 1SGD
- Cost of Travel = $10SGD by taxi/$3SGD by bus
- Time to Travel = From 1 hour to 3 hours (extremely volatile distribution of mean travel time)
- Significantly more feasible for singles or couples with no children

Price Arbitrage Scenarios (Upside)
1. Simple but bountiful meal at food court for 2 people = 13MYR vs 12SGD = 5.2SGD vs 12SGD
2. Shave and aggressive scalp massage at barbershop = 7MYR vs 6SGD = 2.8SGD vs 6SGD
3. Chewing Gum = 2MYR vs 100000000SGD ;)
4. Significant and anecdotal savings of up to 40%  on weekly grocery shopping, rent and car ownership

Barriers to execution (Downside)
1. Lower quality of life due to long commutes and administration hassle
2. Volatility in journey times
3. Taxation/Administration issues

If you are interested in more of this then here is an account of someone who tried to execute on it...

Finally is there any other places where you think this could work? The savings have to be significant enough to offset the inconvenience and the immigration policy must allow for it to happen (i.e. Pyongyang-Seoul or Jerusalem-Ramallah might be a little far fetched...!)