Blog 26: Opportunity Cost by Xavier Lo, FIA, FRM, MBA

Xavier Lo Actuarial Lessons

Firstly, I would like to thank all of you for DMing [直接訊息] me questions. I might not be able to answer questions that are personal to you, but I always think it helps to discuss your concerns [顧慮] or thoughts [想法] out to someone as it clears your own thoughts – so please don’t hesitate to reach out.

Opportunity cost [機會成本] is the topic of today. Simply put, the opportunity cost is just what you are giving up by doing or buying something else. For example, by reading my blog, you are giving up your time where you could be maybe watching a movie. In terms of buying things, if you bought a car, that means you gave up buying something else like a watch. If we go bigger, if a company decided to put money into the stock market [投資股票], they won’t be able to acquire a competitor [收購公司] if the opportunity comes.

Strictly speaking, its not just simply what you are giving up, it’s the second-best option that you need to consider as the “cost”. To think about this more concretely, lets say you had some money and were given the chance to put all of it in a time deposit [定期存款] for 1 year at 5% a year. From an accounting perspective, you had no loss at all. However, during this year you might have missed out on buying a stock which could have made you massive returns (anyone been following GME or bitcoin [比特幣] lately?). This is your opportunity cost!

Try to apply this concept to your everyday life. Think about it, when you’re lazing around watching TV, you could be reading and studying more actuarial concepts! Feeling guilty yet!

Qualified fellow actuary (in UK and Hong Kong), Financial Risk Manager, and MBA graduate (listed on the Dean's List) with a passion for insurance, data science, and analytics. Experienced in a broad range of insurance roles (pricing, capital modelling, reserving, ERM), along with a touch of knowledge in banking. Member of the General Insurance Committee (2021), Actuarial Innovation Committee (2019 - 2021) in ASHK.