This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on July 4 - 10, 2016.
As a banker, one of the indispensable tools I work with is Microsoft Excel. Since its birth in 1985, the business world has not been the same. I think about my ongoing relationship with Excel and I wonder what I would have done without it. I get misty eyed thinking how far back we go. It has taken me through my university years and thesis to the copious amount of business strategies and decisions formulated by poring over the spreadsheets in my 15 years of working.
Microsoft Excel’s ability to store data, process and present it is almost unparalleled despite its 30-plus years of existence. As a result, it is everywhere you look in the business world. The existence of spreadsheets is almost like a crutch in the way we operate, relying more on the output than the decision-making process itself.
A classic example is the role of Excel in the London Whale trade. In 2012, trader Bruno Iksil accumulated outsized credit default swap (CDS) positions that resulted in a trading loss of US$6.2 billion at JP Morgan Chase & Co. This gave rise to a series of investigations into the firm’s risk management systems and internal controls.
To sum up what happened, “the spreadsheet divided by their sum instead of their average, as the modeller had intended. This error likely had the effect of muting volatility by a factor of two and of lowering the VaR”.
In plain English, due to an error in the Excel spreadsheet used to model risk, downside risk was seriously underestimated, allowing the trader to take on more exposure than he would otherwise have been allowed to take. Yes, US$6.2 billion worth of exposure, it seems. All through a combination of copy-paste mistakes from one spreadsheet to another.
We must be quite divorced from reality if tens of billions in trades were being moved around based on the output of spreadsheets and what these spreadsheets were telling them. Did this trader, at any point, take a step back and think, “Hey, it feels like we are able to trade a lot more and take a hell lot more risk this week!” Have we become so reliant on what these little cells are telling us that we are not able to deal with reality? How did we end up living and dying by these spreadsheets that auto-calculate with the tweak of a number?
These thoughts came to me as my team and I worked on a new financial planning tool that we hope will make a difference in how people manage their money over the short and long term. As with every numerical challenge, we turn to our ever reliable Microsoft Excel to take in data and compute the output. So, a model was built and we commenced a series of focus groups.
As I was conducting these interviews on people’s money and their lives, I realised that money management or financial planning extends way beyond a spreadsheet. As I listened to their stories, their hopes, dreams and fears don’t have a place on a spreadsheet. And apparently, they don’t seem to have a place in many conversations either. We just don’t talk about money and the role it plays in our lives.
I can very well build a spreadsheet that says at age 60, I will have a cool RM5 million waiting for me if I can maybe cut my budget by about 10% and sock that away in an investment account. This process is almost as exciting as filing my monthly statements and as frustrating as paying taxes. We plot out life on these spreadsheets that are focused on meeting these goals so blindly that we forget about making life count today and every day up until that goal is achieved. I don’t just want a great life after retiring. I want my whole life to be a great life, not just after retirement.
Too often, we transform our lives to point us in the direction of where the money is. We sometimes compromise our quality of life so we can make a bit more. But shouldn’t it be the other way around? Shouldn’t we transform our relationship with money so that it points us in the direction of life that we have always wanted? Shouldn’t we start by living outside our spreadsheet?
I am not going to deny that spreadsheets are important. But we don’t always know what we want until we are forced to think deeper about how and why we want it. We are so entrenched in our daily lives focusing on what the world measures as success that we often overlook what really gives our lives a sense of accomplishment. And this could be being a better parent or spouse, giving back to charity, or doing something you are passionate about.
Ask anyone why they need money and they will tell you it is to pay bills, make the housing and car loan instalments and buy groceries. But what if I rephrased that question as: If you had everything you needed for the rest of your life, what would you do? Or if your doctor told you that you had 10 years to live but you would be healthy as long as you were alive, how would you live out those remaining years? Or imagine that you have only 24 hours left to live. Reflect on all the things you intended to do and all the things you have accomplished. What did you miss out on and who did you not get to be?
For now, my goal is to be a mother who will be around for my son. It means being in the present. It means leaving work on time so I can have that extra hour to play with him every single day. I am lucky my job allows me the work-life balance to do all of this.
Would I trade it for a higher-paying job? My spreadsheet says yes. But there is more to life than just a spreadsheet.
Ong Shi Jie (CJ) is head of integrated marketing and analytics at OCBC Bank (M) Bhd