WHAT IS DERIVATIVE VALUE?
AND DOES IT HAVE VALUE, ESPECIALLY FOR ONE'S LIFE
Sometimes we oversimplify things and fail to follow the trail leading from one end of a process to the result on the other end.
When we think money will get us happiness, we give value to the money, although the true end value is the happiness (and perhaps security, which in turn allow us to not be unhappy). And then we think that more money will make us even happier. However, in this case, we have a logic and factual error in that if we spend too much effort and life on making money something else will suffer - and more money does not make us happier at some point. You know this, as it is super-publicized by now.
The key here is that the money (other than the idea of buys us stuff to make us happy) derives its value from that fact that it can "get us" something of value. It, by itself, is a bunch of pieces of paper. The value (derivative value) occurs only because it will get us something we value, like happiness, security, or whatever thing we value.
The basic "derivative value chain" looks like this:
Helps us to → Get more → Get more happiness
Enables us to of what makes us happy
Does that make sense so far?
ONE MUST "THINK DEEPER" TO GET THE MOST VALUE HERE
With that reasoning, while "rest" appears to not have much value compared to working hard for more hours, that may not actually be true. And, yes, it is a fairly complex chain to understand.
It turns out that a person taking a nap when he is fatigued, will end up being sufficiently alert and extra productive that, in total, he will produce more in the next few hours than he would have produced in those hours plus the time to nap.
Therefore, the "nap" had value derived from the fact that it enabled more total production during all the time involved.
In a car, there is certainly some value in maintaining it, instead of just trying to keep on driving all the time to get extra miles travelled - but at some point there will be costly problems. There is derivative value from maintenance. (If one tries to keep driving, whether in a car or in life, without proper balance, that is said to be "killing the golden goose to get the golden eggs. Discussed in Wikipedia, as "unprofitable action motivated by greed".)
That is true whether it is equipment machinery or the machinery of the body. The non-thinker, however, will often not be aware of it and most often will have poor judgment. I could go through the reasoning for each item, but that would be overkill at this point if you "get" the idea of derivative value already.
CONSIDER THIS TYPE OF VALUE WHEN PRIORITIZING
Anyway, when you are identifying what you value the most in life and then prioritizing what has the most impact on your life, don't forget the derivative values! Sometimes, people call those items "so that"s or "in order to"s or "the means to", as they are not done for their own sake but for the sake of what they produce that has direct value.
There are several items that have greater derivative value per hour than the actual thing that they derive value from would provide if done directly for the same time.
We want happiness, but sometimes it is better to give up an hour where we could directly produce happiness in order to invest that hour in a derivative activity that would enable us to have several hours more of happiness in the future. In some cases, the derivative hour will produce 100 times as much as the "end-goal" value. The derivative hour might also be called an hour that is "a means to the end". If we are seeking to get money for instance, that is a "means goal" - it is thought to be something that will enable happiness, which is our "end goal". Our "end goal" is to attain an "end-value", called happiness in both cases.
We have to think these out sufficiently to be able to predict the extra value from spending time enabling future happiness versus experiencing it now. If we are smart about that we can invest in super-investments that will transform our lives to having 10, or far more, as much happiness as before.
Those items, in relative order, are in the list that follows. Before you look at the list, I would like to caution you about the fact that "returns" (payoffs) from a particular activity may diminish after we get the most from the activity. For instance, once we make "sufficient" money, the value to our happiness of making an extra dollar will be significantly less, so naturally the tradeoff at that point would be significantly different. If you don't do that minimum level of thinking and fact finding, you will end up making choices that are dramatically inferior to the ones could make.
[I would recommend that even those who might feel intimidated by these concepts, that they still read the following - it will, at least in whole, be understandable, and hugely valuable in your life.
Now, on to the derivative's values.]
THE DERIVATIVES WITH THE BIGGEST VALUE
Learning "life value productivity" - This is the lynchpin that enables everything else, so that there are enough hours used well in the future to derive the most value. (Once a person gets to a good level of expertise in this, the study of it dramatically reduces in time to "very little", as needed to keep up on changes..)
Life Learning - Learning how to live life much better. I call this Life Capability. (Once you've already learned alot, the value of further study diminishes because you've gotten most of the value out of life already, but, interestingly, it appears that we never reach that point where extra life learning will not produce more happiness than an extra hour of doing anything else - to get rid of the confusion of the double negative, an hour of life learning will always pay off in more end value the actual end-value item!!!) - This is the most valuable of all activites, once you've become expert at life value productivity - and it will always produce better and better balance so that it never ends up being deleterious to life.
Planning - Usually at least a 10 to 1 return in end value.
Rest and recovery for the body and mind
This is all part of being "life intelligent", which I recommend highly...
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The following is not necessary reading, but it is interesting to me and possibly a few others that experienced The Great Recession.
And it is a bit of a sad story of non-thinking:
BUT I THOUGHT THAT DERIVATIVES WERE "BAD"!?
People think that derivatives were what caused the Greatest Recession (2008), but they were not thinking quite specifically with adequate knowledge, insight, understanding and/or insufficient thinking.
A "financial" derivative is something that derives its value relative to something that is measured in terms of money value.
A farmer before he plants his crop is aware that prices at the end of the season might be too low and that he could go broke. Of course, the prices could be real high. But he can't afford to go broke, so to speak, so he seeks "insurance" against his going broke. He seeks to insure that he could get a decent price (say $5 a bushel) for it from a buyer who would be willing, after the season, to buy his crop at a set price in the future. That is what is called the "futures" market. Of course, the entity that does the guarantee to purchase at that price thinks that there is a possibility that the price on the market at that time will be higher (say, $8 a bushel) for the crop. One is buying the future potential (and risking his money to do so) and one is insuring against going broke. A good deal for both. Nothing crooked about it.
The futures contract derives its value for the farmer from guaranteeing a price where he can make some profit while insuring against future price risk. The buyer is buying the potential value to it of the extra profit. There is a value there that is therefore "derived" from whatever is the actual farmer's product. There is insurance value on one side and investment value on the other side, both derivative values.
Entities will often buy the "other side" of the transaction in order to make money (of course!) or insure, depending on which side they are on (in a sense).
If a company had a big stake in mortgages, there was always a risk of default (and the price of the home going down too far). So it would buy "credit default" insurance, at a cost of course, to get the safety even though it reduced their profits in total. They were reducing their risks, which is simply called "hedging" (as in "hedging your bets").
No fault, no foul. Everybody was getting something they wanted.
However, at least one big insurer underestimated the risk and failed to diversify or hedge enought to assure that if there were alot of mortgages that defaulted it would have enough assets left to pay off the insured. That was an error in judgment and mismanagement, where they (and almost everyone else) thought that real estate was pretty safe. [A business error is not evil, just "unsmart".]
So, any companies that had too big a portion of their assets in mortgages and had too much debt in the company were unable to get enough money to cover their debt, so bankruptcy was threatened in the real estate crash, which had a depth that nobody anticipated. The "derivative value" from future promised payments guaranteed by the value of the real estate crashed with it.
And the big insurer did not have enough money to pay off those companies that it insured against the risk.
Many big companies therefore did not have enough money and were threatened with going out of business. And it looked like a disaster was about to happen.
However, these financial and investments companies were so big that everything else would have come down with them and literally stop the financial system that is necessary to run the country.
If the financial system would have gone down, there would be a likely great depression that would hurt alot of people - in fact, almost everyone.
That was not acceptable, so the government decided, with Congressional approval of course (supported by most strongly by Democrats, with the majority of Republicans, to provide enough money (called by some a "bailout") on a loan basis to save the financial system and the disaster that would befall the country in a "derivative" domino effect. (Amusingly, many people miss the point and say that it was unfair to bail out Wall Street and not to bail out Main Street - but the bailout is what saved Main Street from disaster, too! And there wasn't enough money anywhere to bail out everybody, so it wasn't a possibility that people who were foolish in their mortgage and personal debt could be saved - or even if they should be saved from their own excesses and lack of savings - all that could be afforded was to provide a minimum safety net.)
Interestingly enough, one company that had a large position in mortgages was smart enough to buy "insurance" against the risk of having those. So it bought insurance from the big insurance company as a hedge. Unknowledgeable people in Congress later accused them of betting against their investors - a rather "unsmart" accusation - and then they were off into a Kangaroo Court of "those sneaky guys are bad and evil and...", where the politicians (and the public) were making up all sorts of falsehoods based on conclusions made without proper thinking and knowledge.
And so it is that people misunderstand "derivatives" in the financial markets just as they do in one's personal situation. But, with a little extra thinking and knowledge and not jumping to conclusions without examination of the facts, we can see what the value is and use them judiciously in our lives.
In the case of the politicians, they did a "wrong cause" conclusion. They failed to see that it was too much borrowing (though they did complain about it, too) and some business and judgment mistakes that caused the problem, not the derivatives. But those who don't think will associate them all together and add characteristics to the others that are not at all true. It is the same thinking that is involved in racial prejudice or religious prejudice or prejudice between classes - very "unsmart" thinking. And it is that lack of thinking that is our greatest enemy.
"We have met the enemy, and he is us."
Pogo
