The economics behind Trader Joe’s bags: An Introduction

I went grocery shopping today at a nearby Trader Joe’s store. As Joel (my cashier today) was ringing up the items I had picked, he asked me in typical Trader Joe’s fashion, “any exciting stuff happen today?” By the way for anyone who hasn’t been to a Trader Joe’s before, their cashiers tend to strike up conversations with you.

I mentioned to him that I learned some Spanish phrases on Duolingo this morning, and asked if he had tried the app too. It turns out that he uses it for learning Japanese, and he started talking to me in pretty good Japanese: “watashi wa nihongo wo hanashimasu. Trader Joe’s no baggu wa nihon de ninki desu.” (I speak Japanese. Trader Joe’s bags are popular in Japan.)

Clearly that second phrase is not something he learned directly from Duolingo, so he must have taken his learning a bit further, and I was very proud of him for that.

Then he proceeded to tell me about an interesting phenomenon: the $5 Trader Joe’s reusable bags are being sold in Japan for $25. “There is a black market for Trader Joe’s bags in Japan,” he claims.

Of course the “black market” part is a joke because there’s nothing illegal about me buying a few of these bags and selling them in my home country, but I got curious so I searched on some Japanese peer-to-peer shopping sites, and sure enough, these bags are indeed being sold in Japan for around $25.

This fascinated me, because as an educator at heart, I could not stop thinking about what a great lesson in economics this makes. Any curious student of mine, when told about this phenomenmon, would have asked me: “Well why does a $5 Trader Joe’s bag sell for $25 in Japan? Can I get rich by starting a Trader Joe bag business in Tokyo?”

It turns out that answering this seemingly simple question requires a solid understanding of some of the most important economic concepts, such as “supply and demand”, “scarcity”, “free market”, “division of labor”, “tradeable vs non-tradeable goods”, “exchange rate”, “purchasing power parity” and many more.

So let’s delve into those topics in future posts. But first, why should you care? For starters, economics is really interesting, but more importantly, I believe that a firm grasp of economics is essential for any citizen of a modern society. Not only are we affected profoundly by the economic decisions we make in our lives, we are also voting citizens, and as such, we ought to understand the philosophies behind each of the fiscal and monetary policies we support. The field of economics, contrary to popular belief, is not just about money. At its core, economics is about making the best use of limited resources to improve society.

choose the difficult road

During a recent music gig, a girl who looked to be a teenager came up to me and asked, “is it hard to become a musician?”

At that moment, I could have simply answered the question and tell her that yes, it is probably difficult and requires much more work to be a musician than most other jobs, but I wondered about why she was asking the question in the first place, so I asked her, “what would you do if I told you that it was difficult?”

After a short conversation, I found out that she loves to play the guitar, and her parents think that making a living as a musician is difficult, so she should pursue other things instead.

I see two main beliefs that drive this kind of thinking.

  1. You should not pursue something if it is difficult.
  2. Pursuing one career takes away an opportunity to pick up another down the road.

The only problem I see here is that both points above are completely wrong.

Often, it is very tempting to take the easy road. In fact, a lot of what we do on a daily basis is driven by how much short-term reward we can get for doing as little work as possible. For example, many people (including me) like to get drunk for the good feelings we get in return, however temporary they may be. We also like to satisfy our hunger by consuming junk food. And we attempt to garner “likes” on social media by posting an over-dramatic representation of some status update based at least in part on our lives showing off how great our lives are, or taking pictures of food that we didn’t even make ourselves, as if we somehow deserve the credit for the culinary art.

All these things give us instant gratification, but they make us worse off in the long run. They make us feel good just in that moment, but that feeling does not persist, and we even pay a price afterward. In the case of alcohol and junk food, the price is obviously our degrading health. In the case of posting things on social media, our price is the empty feeling we feel on the inside from desiring so badly for social approval while doing nothing of value to others.

It turns out that the things that are truly worth doing, like the things that change the world for the better and the things give us a sense of purpose, are all difficult things. So even though we all succumb at times to the desire to pursue the easy road, we must not give up completely by making that our default action. Whenever we come across a juncture (which is pretty much every single day), we must intentionally choose the difficult path that takes more work but also leads to more growth.

And as for the second point, no, we do not necessarily diminish our chance at one career by pursuing another, and sometimes, we even gain more, as our philosophy slowly builds to help compound our overall growth which opens up more opportunities. Besides, with the current pace of societal changes, there isn’t a single job that exist today that is guaranteed to exist twenty years from now anyway, so we might as well embrace the changes and take joy in all the learning that we must do continually. It is even becoming the norm for people to pursue multiple careers throughout their lifetime. Personally, I know that I have lost nothing by pursuing music. In fact, music taught me some of the most important lessons that allowed me the chance to develop my skills in other areas. Music helped me internalize that the only way to get better is to work to get better. It turns out that this applies in any other field. So just by knowing that and letting that conviction be the guide for daily action, you will have a leg up on anyone who believes that there is some magical shortcut in life to achieve more with less effort. There isn’t.

Just show up

I happen to live and work by the gym where Kobe Bryant works out. He works out quite early, and today he showed up at 5:45AM for his morning workout. My coworkers tell me that this is nothing unusual for Kobe, and he’s been doing it since his high school days. Mind you, he is a retired player, but hey, Kobe is still Kobe, and I think the fact that he still shows up in the morning to this day says a lot about his attitude and philosophy toward life in general, not just basketball. Now I feel like a coward lecturing to my students about the importance of work ethic, when my daily practice sessions don’t start until much later in the morning (if it starts at all). Apparently, I still have a whole lot I must learn from truly dedicated people like Kobe. He makes me look like the laziest person on the planet, and that’s probably why he makes millions and I don’t.

By the way, here’s a little nugget of insight I’ve discovered over time, for anyone who thinks that practicing is too hard and unpleasant; practicing is actually not hard at all. What’s really difficult is to do the Step Zero, which is to show up for practice. Or in my case, to sit myself down in front of the piano. Once I can overcome that initial step, the actual process of going through the practice is not as difficult.

New York City

When I stepped foot in New York City, I felt a strange sense of familiarity. Here I was, in a city that I had never been in, yet it seemed as if the scenery in front of me was something I had seen before. I even felt like I had come home.

It could be because New York City is similar to my hometown in many ways. Just like Tokyo, you encounter thousands of pedestrians on a daily basis. Many of them seem to be in a rush to get somewhere. They are “strangers” to you, as in they are people whose only connection to your life is that they once walked by you in a busy city street. If your life were a movie, they are part of the “extra”. But let us remind ourselves that in their lives, we are the extra. Just strangers walking by. Most will stay strangers, yet, should you get to know some of them through a stroke of life’s luck that bring you together, you quickly find out that you were not strangers at all. After all, we are all human, and as such, we share much in common. We all seek meaningful relationships, we strive to do the best given our life’s circumstances, we worry about our future, and we ponder about things like the meaning of life and our place in society.

I wrote this piece, “New York City” for my album “Portraits”. The album is called that because these are pieces that portray some aspects of my life that have meant a lot to me.

You can listen to the rest of the album on Spotify and iTunes.

the fear of investing

Many people tell me that when it comes to investing aggressively, fear often gets in the way. But when I talk to them, I quickly find out that their fear is based on their emotions, and just by having more information, they can get over their fears and start investing wisely. Too often, our fears are unwarranted and we don’t even know it.

For example, here are some comments I’ve heard from my friends just in the recent months:

“Other than my real estate properties, I hold a lot of my assets in cash. I just can’t go into the stock market, I’m scared that it is way too overpriced.”

“I just sold all of my stocks recently. I’m glad I did it because the stock market hasn’t gone up at all this year.”

“It took 25 years after the Great Depression for the market to recover. I can’t risk an event like that happening again. I can’t afford to wait 25 years to get my money back.” (This is not true by the way, it doesn’t take 25 years to recover, as I’ll argue in this post.)

All of these fears are understandable. Just the potential of losing money is scary, and I actually used to have the same fear before I studied about this topic more and have come to the understanding that my fear was purely based on the lack of my knowledge.

Having said that, there are a few things that you must understand when investing for the long-term.

You will lose money in some years.
The stock market does not always go up. So if you’re invested in the stock market, you will lose money in some years. I lost close to 40% of my assets in 2008. And guess what? That’s totally okay! You’re actually in good company when you lose money, because even Warren Buffett, the world’s best investor, loses money in those years too. Which leads me to my next point:

You will gain money in most years.
And these years are quite profitable. Way more than enough to make up for the lost years in my first point.

You cannot predict which year will be which.
This is really important. You cannot predict the market. That doesn’t mean the market is completely random. There actually are ways to evaluate whether the market maybe over or under-priced, and one good way is to calculate the price-to-earning (P/E) ratio of a broad stock market index and compare it to the historical average. But even with that information, you still can’t predict what the market will do that year. Take 2017 as an example. It seemed that the market was overpriced at the start of the year. Seeing that the market is overpriced, an investor could have sold all his stocks predicting that it will go down (sadly, some people actually did). Well guess what? By the end of the year, the market gained a whopping 21.7%!

It’s costly to be NOT invested in the market.
It is tempting to sell your stocks when the market seems overpriced. But when you sell your stocks, you miss out on the potential growth, and history has shown that the market tends to have just a few days every year when the most significant growth occurs (we’re talking multiple percentage points in a single day). The only problem is, nobody can predict when those days will come. So how costly is it when you miss out on the few good days? Consider this fun thought-experiment:

Suppose you had $100,000 on January 1st of 1994, and decided to invest all that money for two decades, ending on December 31st of 2013. That’s a total of 5037 trading days. If you kept all of the asset in an S&P 500 index fund for all of those trading days, you will have a hefty $583,520 sitting in your account at the end of the experiment. Cool! You survived the dot-com crash of 2001 and the housing-crash and financial melt down of 2008 just fine, and you can now retire comfortably on your money. Readers in Los Angeles or New York might disagree and argue that they need a few million dollars to retire, but remember, the reason why people seek to live in these expensive cities in the first place is because of the wealth of economic opportunities close to a center of commerce. But if you are financially free, the prospect of a well-paying job doesn’t factor into your decision anymore. You can pretty much live anywhere in the world at that point.

Now, to continue with the thought experiment, consider this alternative: Suppose that instead of investing your money for the entirety of the 20-year duration, you took your money in and out of the market due to fear, and you happen to miss out on forty of the best trading days during the 5037 trading days span (that’s less than just 1% of the duration). Guess how much you’d have at the end. A mere $81,490. Remember, you started with $100k. You actually LOST money over those twenty years, simply by missing out on those forty days of trading. It turns out that fear could be very costly.

When it comes to making a financial decision, you are much better off going with what the research says, not what your emotion tells you to do. And the research says that the people who stay invested see much better returns than people who try to time the market. So stay invested at all times.

Count your wealth by how much of the economy you own, not dollars.
Money is just a piece of paper. Although it is a pretty useful piece of paper for trading goods, there is no inherent value in it. But so many people think that there is. I even know of an extreme case of a family who holds most of their assets in cash hidden in various places of their house. They do things like that because they think that money is valuable. It is not. When you hold onto cash, you are actually constantly losing wealth over time, because the purchasing power of a dollar diminishes over time. Economists call this “inflation”. Just think about it. A person could buy a hamburger for 12 cents in 1950. Well, that’s not true anymore, in fact you can’t buy much of anything for 12 cents nowadays. So by keeping 12 cents under your bed thinking that you could treat yourself to a nice juicy burger in some future date, you lost all your purchasing power. That’s essentially what happens when you just keep cash. Money loses value over time.

But it is so tempting to compare prices simply in terms of dollars. I’ve met some old people who talk about the “good old days” when everything used to cost cents. Well they forgot one important factor: their wages were much lower then too, and their purchasing power was actually lower in those “good old days”. Most of them couldn’t afford a color TV, for example.

It’s also the same misunderstanding that causes people to think that they got a raise when their salary goes up, because they simply look at their wealth in terms of dollars. If your salary goes up by 1% every year, you are not getting a raise. In fact, your income went down, because inflation raises the consumer price index by more than 1% per year.

When you think that your wealth is measured in dollars, it makes sense that you would have an aversion to loss by investing in the stock market. After all, your $100 today could suddenly drop to $60 tomorrow, and it appears that you “lost” your wealth. But that’s not how I think of it. I count my wealth in terms of the proportion of the world’s economy that I own, because essentially, that’s what I am buying when I invest in index funds. Suddenly, the ups and downs of the market don’t affect my emotions anymore, because even if the market crashes tomorrow, I still hold the exact same percentage of the economy. So my wealth hasn’t really decreased, first, because prices of goods also drop with the market keeping my purchasing power relatively stable, and second, now those shares are at a steep discount! If the market crashes and loses half its value, I can afford to buy double the shares for the same amount of dollars all of a sudden! So the market crash is not bad at all. In fact, it’s a great opportunity for me to keep investing.

When you invest consistently, you naturally end up buying more shares when they are discounted due to downturns, and that leads to a significant wealth over time. Market downturns are actually to your advantage.

It won’t take 25 years to recover from a crash.
This is partially related to my last point. If you simply look at it in terms of dollars, it does appear that the recovery from Great Depression took 25 years. But you know by now that your wealth is not to be counted in dollars. Remember, this was a deflationary period when the prices also went down, so if you just look at purchasing power alone, it turns out that the recovery only took 4.5 years, not 25. Plus, this person was assuming that he invested ALL of his assets right before the market crashed, and didn’t invest a single dollar after it crashed. But that’s not what you’d be doing if you’ve been reading my posts. You will likely start investing way before the market crashes and see significant growth in your funds that makes the loss of a crash not hurt as much. And even if you do get unlucky and invest a significant amount of money right before a crash, as long as you keep investing after the crash, you will still be in golden shape.

So there you have it. Hopefully now you have a better understanding of the market, and are not that afraid to invest. There’s no telling when the next crash is. It might happen tomorrow. It might happen in 20 years. It doesn’t matter. Just keep investing.

Simplicity is fun.

Yesterday, I wrote about getting stuck in traffic and how fun that was because of how rare that is in my life. There is actually a broader point I wanted to make, which is that events in your life that are rare are more enjoyable than those that happen frequently, and understanding that part of your psychology can help you hack your life in a certain way to make it much more enjoyable.

There are many examples of this.

For one, I don’t subscribe to anything. No cable, no Netflix, no Spotify, no Amazon Prime, and I actually don’t even own a TV nor a computer. While these services may appear like a good deal because you get to consume as much entertainment as you want for a very low price, having constant access to entertainment actually diminishes the positive life-energy that you can gain from them. Plus, seeking for “good deals” is not the best way to go about life. We will fare much better by optimizing our surrounding to improve our quality of life rather than stuffing our minds and bodies with unnecessary stuff, however cheap they may be.

I actually still do watch TV once in a while, at Best Buy. I walk into their state-of-the-art surround-sound and TV display room, and enjoy a good showing of Planet Earth 2 (or whatever they happen to have on display), and let me tell you, it is a pretty amazing experience! It’s been so cool to see the improvements in TV technology over time, because when I walk into a Best Buy store after not having visited one in a few years, I am shocked to see that what used to be an amazing feat of technology that costed $2000 are now being sold for like $200, and there is an even more amazing piece of technology out today that has claimed its place in the $2000 range (apparently called “4k” now. Did you say 1080p? That’s so yesterday). But do I come home with the TV after this really cool TV-watching experience? No. Because I understand that as soon as I bring one home, I will just get used to it, and it won’t feel as amazing anymore.

Last week was TYCTWD (Take Your Child to Work Day) at Google. I signed up to teach one of the computer science classes, and the kids had a blast skipping a day of school to learn about Google and our work in machine learning, and also about computers and society at large. But what was particularly interesting to me was to see the kids’ joyous reactions to the free gourmet meal at one of Google’s cafes. They think it is the best thing ever, and it reminded me of my first days at Google. The meals are amazing! Or so I thought at first. Then I just got used to it. Now, it’s just food. I even catch myself complaining sometimes, “that dish was a bit strong on the spices”, “Taco Tuesday again? We just had one two weeks ago!” “Why not serve lamb chops or scallops more often?” Wow, what a snob I am. But you see the point? Even something as amazing as free gourmet meals at work, a very special perk that pretty much nobody else in the world gets, will quickly start to feel ordinary if you get it every single day.

I have a friend who lives atop a hill overlooking the city of Orange. About once a year, I would attend a dinner party at her house where she brings together scientists and engineers in the area. The view is quite spectacular, and I enjoy every minute of it, sipping a good wine and having an intellectually stimulating conversation learning about various things happening at the forefront of science and technology. I realize then just how much I appreciate a nice home with a view. But would I buy that house? Never! Not because I can’t afford it, but because I understand my own psychology. The view is enjoyable because I go there once a year. If I owned that backyard, it’ll just become the norm, and I would no longer appreciate it. Same exact reason why I don’t own a luxury car. I love it when I get to catch a ride with some of my friends who own luxury cars, precisely because I don’t own one and I rarely get the opportunity to ride in one. Recently I got to ride in my friend’s Tesla and he demonstrated to me its acceleration capability. It was like a thrill ride at an amusement park!

We can improve our lives by simplifying our surrounding environment. The less we have, the more we enjoy everything in life.

I relived a day of high school

Today, I visited Six Flags to take care of some paperwork for my music gig, and what a fun day it turned out to be!

First, I got stuck in traffic. I know that doesn’t sound like fun, but as someone who lives walking distance from work and the grocery store (the only two places I frequent), driving through traffic has a kind of a specialty factor because it is such a rare occurrence. As I sat in my car, I reflected on how blessed I am that this is not my routine every single day as is the case for so many residents of this city often referred to as the traffic-capital of the world. I thought hard to try to remember the last time I was stuck in traffic. I couldn’t.

When I got there, my appointment coincided with a high-school hiring event that they were having, and I got to talk to some of the students. They were dressed up very nicely, and one was hoping to land the first job of her life. I know that working a job is one of the best ways to learn some crucial life-lessons that will propel them far no matter what the job is or what they decide to pursue in the future, because every job has its unique challenges and makes students think critically in a very different way from an academic setting. And a job that is mostly outdoors in the midst of summer in Valencia, CA can be quite tough, as far as I can tell. Looking back on my life, my first job as a busboy and dishwasher taught me that money is hard-earned, and it turned an embarrassingly clueless and entitled kid into a somewhat responsible person who can function in society.

I chuckled a little bit when one staff member thought that I was one of the interviewees, told me that I should never wear jeans to any job interview, and handed me a math test. I guess I still look young enough. I contemplated whether I should tell them that my degree is in aerospace engineering, and any math test short of problems involving some second-order differential equations or the free-body diagram analysis of a passenger on X2 (their popular 4th dimension roller coaster) would be an insult to my intelligence. But curiosity got the best of me and I took the test just to see what it is. It wasn’t easy! Not because of the math concepts, but because the problems involving pictures of various U.S. currency were printed in black and white. It turns out that dimes and pennies really look alike without the help of color.

I didn’t expect I would get so much kick out of a day of driving, paperwork, and an unexpected math test. Life is fun when I can find the humor in all situations and just roll with it.

You don’t need a to-do list

How we spend our days is, of course, how we spend our lives.” -Annie Dillard

 

Do you keep a to-do list? I suggest that you replace it with this:

Step one: Throw away your to-do list.

 

Once I heard a doctor say that the people who have been diagnosed with a terminal illness are the people who live their lives to the fullest. I guess that makes sense, I mean, if you were suddenly told today that you were going to die soon, wouldn’t you also start living as if today were your last, and just cut to the most important thing that you had wanted to do to make a difference, whatever that may be?

I say that we abolish these to-do and bucket lists completely because frankly, if you need to keep a list in order to remember the things you want or have to accomplish, those things must not be all that important. When is the last time you forgot something that is really important to you? Never. If you forgot, then trust me, it wasn’t that important. So let’s not confuse what’s important versus what all of the world’s marketing gurus have convinced us are important when they actually aren’t. Those are just distractions, and they do not deserve a place on your to-do list. Plus, keeping a list of things that you may or not get to do someday equates to spending a significant part of your limited time and energy on imagining some vague future all the while forgetting to make most out of the only moment that you have been guaranteed, which is this moment right now. Your focus and attention would propel you much further if they are spent on your actions today rather than on some fantasy of tomorrow. And perhaps ironically, focusing on today will actually give you a better tomorrow, because every day of your life is significantly shaped by what you have accumulated in all of the “today’s” that came before. So if something is REALLY important and you have the urge to put it on some to-do list with the hopes of getting to it, don’t even bother writing it down, and just take care of it today instead.

I also challenge the notion that there is a correlation between life’s satisfaction and the quantity of things you get to do. There are many wonderfully content people whose lives are centered around just one thing that is important to them. Even though that one thing can morph over time and that is only natural for anybody seeking growth, it’s still one thing at a time. The rest of life is fluff; stuff that will take care of themselves if you focus on your one thing.

This may not just be general life advice; it might even apply to more specific endeavors, such as your art or your work. Success and satisfaction come from not letting the small things get in their way of what’s actually important, so we can all start by figuring out what that thing is. And we surely don’t need a list to remember it, because after all, it’s only one thing. The challenge is not in remembering it, but sticking with it despite all of life’s distractions that constantly surround us.

The power of boredom

Some of my friends find it absurd that I don’t have internet at home. Maybe it’s not just that, but coupled with the facts that I have never owned a smartphone other than the company phones that my jobs have required me to carry, and my occupation being a software engineer at Google. The questions I often hear are along the lines of “You don’t have internet? But you work for the internet!”

While I am in no way advocating that everybody else do the same and live like me, it turns out that the internet, for all its upsides of giving you constant access to any information you might need at anytime, can also be a detriment and a source of distraction that prevents you from producing your best work. There are huge advantages that come from disconnecting yourself and incorporating moments of boredom to your life.

While boredom may sound like a negative thing, it has actually been a very important part of my life and my work both as a musician and an engineer. It is precisely in these moments of doing nothing that I am the most creative. Many of my musical melodies were born of these moments. So were the solutions to many of the difficult engineering problems I have faced. And it turns out that life without the internet is actually not “boring” at all, because these creative bursts also happen to be the moments when my brain works the hardest, and I end up experiencing my deepest sense of satisfaction.

If you don’t believe it, just try it and you’ll see for yourself. No, I don’t mean you have to go cancel your internet and phone plans right this moment, although you totally could and maybe you should in the near future, but for now, just unplug your wireless router and turn off your phone for an extended period of time. You’ll discover that you’re actually not depriving yourself at all by cutting yourself off from the digital world. It is rather liberating and satisfying that you can totally be at peace even in moments of boredom. And who knows, you might even produce your best work that you never knew you had within you.

Lessons from the Japanese language

What I love about the Japanese language is that an individual word often tells a story, and gets to the core of what that word is actually about.

For example, when I translate the following Japanese words literally back to English, this is what happens:

Physics – 物理学 “butsu-ri-gaku” – the study of the reason for the way things are

Engineering – 工学 “kou-gaku”- the study of the making of useful things

Music – 音楽 “on-gaku” – the enjoyment of sound

Note that music is to be enjoyed, not studied.

 

Here’s another one I love:

Happiness – 幸福 “kou-fuku” – Happy and Lucky

Now, this is deep. Happy AND lucky, not just happy. Let that sink in for a moment.

When we think about the word “happiness”, we often think of it as something that we are currently missing, and therefore need to go looking for. Isn’t that right? I mean, why else would so many people read all these self-help books, or click on articles we see on Facebook with titles like “13 Incredibly Smart Tips to be Happier”?

Maybe we’ve got it all wrong. Maybe happiness is not to be sought after, but rather, something that we all have already.