Pete Wargent blogspot
Co-founder & CEO of AllenWargent property advisory & buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.
4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.
"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.
"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.
"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.
"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.
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Friday, 11 January 2013
The benefits of specialisation
I haven’t always worked in finance. Before I went to University I spent a year working in a timber factory in Heybridge, Essex, a good old-fashioned British manufacturing company.
The timber arrived on trucks and it went through a series of processes and refinements before being packed off to decorate kitchens.
First the wood went through giant saws to make standard size pieces, then it was trimmed to standard lengths, then it went through very loud moulding machines before being sent to the spray shop for varnishing (or in the case of MDF, veneer-wrapping).
The employment roles were highly specialised – each department had one foreman or ‘charge-hand’ (white overalls) and half a dozen skilled and un-skilled staff (blue overalls).
The roles were so specialised, in fact, that after a tour of duty to discover where my ‘talents’ lay, I was offered a position on the roaring moulding machines and thus came to spend 12 months of my life – 45 hours a week – essentially pushing wood through a machine.
The idea of division of labour is fairly well known in industry and economics: by specialising in one task each, collectively a factory’s staff can massively increase its output.
If I’d had to take each piece of wood round to the saws, the moulding machines and the spray shop myself…well, I’d probably still be there today.
Origins of the division of labour
Back in the mid-15th century the Venetians mastered the art of dividing labour in order to construct ships and weaponry far more quickly than others could manage. Their secret was getting individuals to focus on doing only one role or task repeatedly a great number of times.
When the Industrial Revolution swept Britain in the 18th Century the idea was embraced with fervour and Britain’s Gross Domestic Product (GDP) began to grow, which it had previously not been through the Middle Ages. We have division of labour to thank for the wealth of the developed world today.
As the twentieth century progressed Henry Ford took division of labour to a new level and mass-produced his famous Model-T Ford in America. Every car was the same and Ford was even moved to make one his many great quotes in saying that that customers “can have a car painted any color you like…as long as it’s black!”
3 problems with specialisation
A question which intermittently bugs me and one that has been explored many times from The Day of the Triffids, to 28 Days Later, to that Will Smith movie with the maniacal zombies in it (I am Legend?) is how humans would cope if we had to start out all over again with no electricity, no food supplies and no shops. The consensus is: pretty badly, for most us have become so specialised in our dsay-to-day activities that we wouldn't know where to start.
Let’s go back to my timber factory employment, as it explains the three problems with division of labour pretty well.
I never had a single sick day in my 12 months: come hell, high water or horrendous hangover I always arrived at 6am to clock in. After all, had I taken leave there would have been nobody to put wood through the moulding machines, and then there would have been hell to pay! Even my unskilled, blue-overalled labour was not easy to replace at short notice.
This tendency towards over-reliance on a number of key individuals is what has allowed unions to wield power and the employees of some industries, such as British coal miners or the London Underground Tube staff, to go on strike with little fear of reproach.
Secondly, when the timber factory finally closed its gates for the last time it was difficult for some of the employees to find new work due to their specialist skills. Most had simply joined upon leaving school at age 16 and expected to stay there until they were 65. Specialisation, innovation and automation can lead to employee skills becoming obsolete and thus structural unemployment.
Thirdly, repeating the same task ad nauseam for 45 or more hours every week can be soul-destroying. Curiously, I rather enjoyed running a moulding machine, but then I do like to be different. The work wasn’t mentally taxing so I simply whacked a bit of AC/DC on my i-Pod (actually, we called it a Walkman back then) and put on my noise-protection earphones over the top.
In The Wealth of Nations, Adam Smith talks of divison of labour causing the “mental mutilation” of employees who are forced to repeat mind-numbing tasks. Indeed it is this very point that sees the genesis of the infamous Karl Marx Theory of Determinism. The working classes, he argued, would become so disillusioned with the tedium that they would inevitably rise up and seize the means of production.
It didn’t happen in most developed countries, though. Certainly in the timber factory most of us were happy enough with the routine. Cups of tea (two sugars) at 10.30am and 2.30pm, and 30 minutes at lunchtime to read The Sun newspaper or to have a smoke or a cheese and pickle sandwich.
George Orwell in one if his books (I'm clutching at straws a little today – I think it may have been The Road to Wigan Pier) wrote that the increasing availability of products such as cheap instant coffee gradually improved the quality of life for workers in Britain and thus a Marxist revolution of the workers was averted.
The benefits of specialisation
The great benefit of division of labour is that it allows countries to massively increase their output and ultimately our wealth.
Investors would also do well to consider the benefits of specialisation. The finest investors and business-people in history have been those who became experts in their specialist field.
While it might be desirable to diversify in your investing, over-diversification can lead to a lack of specialist knowledge and necessarily average results. To move ahead of the pack it can help to become a specialist in one asset class.
The idea of each of us sticking to our strengths is also worthy of note when it comes to considering the use of an expert. If we have no expertise in a particular area it can make sense to hire a stockbroker, a fund manager, a property buyer’s agent or a property manager who is an expert in their field.
Through using their expertise you can often achieve a win-win outcome.
Incidentally, you see some photos of the timber factory I worked in here.
In a quite extraordinary turn of events, after the closure of the timber company a new company took on the lease purporting to be a pallet company (the suspicious absence of any pallets around the site being one key failure in their cunning plan), whereas in fact the factory was being used by a Vietnam/Romford-based racket to house a truly enormous cannabis factory.
There was none of that going on when I worked there. Had there been, it might possibly have livened things up a little but may also have led to "mental mutilation" of a different kind.