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Speculation

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May. 2nd, 2006 | 03:42 pm
mood: curiouscurious

For the past few months, the Australian dollar has been weakening against the Singapore dollar. This means that Australian money is worth less compared to Singaporean money. Watching this happen, I felt an urge to convert my money into Singapore dollars, so that it wouldn't keep losing value.

But, good investment practice says that such speculation is going to be bad for you, no matter how appealing and urgent it looks. So I was patient.

Here is the latest graph:



The Australian dollar has strengthened once again. At the peak it cost 87c for one singapore dollar. Now it costs only 83c. Not as cheap as last year, but it's improving.

Had I given in to temptation and converted my money, I would now be in the situation of having Singapore dollars which are losing value vs Australian dollars. And I would be tempted to convert back.

Then the values would move the other way, and I would feel like converting AGAIN, losing more money.

Not only would I lose a considerable amount of money in transfer fees each time, but I would lose money because I am always converting from the weaker currency to the stronger currency. In fact, I am converting BECAUSE the currency I am converting to is stronger. It's insane, but instinctively it seems like a good idea. Like gambling seems like a good idea, until you realize you're not going to win back all that money you borrowed for a "sure thing."

Now that the currency has started moving again, I can say this with confidence. But it took a lot of willpower to stick to the plan.

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