Tuesday, December 16, 2014

Financial Independence as a Continuum.

Since my exams, I have been busy getting my EC ready as TOP occurred a couple of months ago.

Most of my day has been spent moving my belongings from my parent's place and assembling Ikea furniture. As we spend quite a fortune on conservancy fees, I was also retooling my exercise routine to ensure that my conservancy fees will result in a healthier life which will hopefully defray medical expenses in the future.

This blog article is my first one from my new home.

A lot of bloggers and the financial community have been very anxious and excited over Anthony Robbin's latest book entitled Money. Overall, I think that it is a a very credible product. I don't really read Tony Robbins for his financial know-how, his genius lies in making really complex self-improvement habits accessible to the lay-man - folks who are emotional creatures and not conscientious scholar-types who would not require a motivational speaker to meet their personal goals. This is something which I struggle to do as a finance writer.

The financial community has had many years to criticize Anthony Robbins when he was the King of Infomercials in the past, when he was trying to sell his brand of NLP and even invented a new measure of healthiness of  a food product by labeling each item with a frequency measure.

This time, twenty years after his previous book, Tony Robbins actually created a real product which can benefit a lot of readers, he has come under  attack from all corners of the financial industry. The criticisms  focused on nitpicking his choice of portfolio allocation, but I think what the financial community really wants to do is to muffle his central message which is to get everyone to cut down the commissions they pay to the financial industry. Another words, readers are advised to move away from actively managed funds into low cost ETFs.

I am only currently a third into his book and can't really comment on his investment strategies yet, but I am already impressed with the way he broke the concept of Financial Independence into manageable steps which people can aspire to.

Basically, according to Robbins, there are 5 levels of financial independence. At each level, your investment income covers some of your needs. A person who is financially secure covers his basic expenses, a person with absolute financial freedom can buy a private island in Greece and live a life of constant luxury without being answerable to anyone.

A summary of Robbin's ideas are as follows :
  • Financial Security = Investment Income covers  Mortgage, Utilities, Food, Transportation, Insurance
  • Financial Vitality = Financial Security + 0.5 x (Clothes + Dining + Entertainment + Indulgences)
  • Financial Independence = Current level of expenses
  • Financial Freedom = Financial Independence + Some travel + Donations
  • Absolute Financial Freedom = Financial Freedom + Private island + Private Jet
If you refer to Robbin's model, I can currently cover his criteria for Financial Independence but that's mainly because, beyond the fees I pay to SMU for Law School, I have few indulgences in my life. 

More useful to the beginner who is just beginning his journey in investments, is that it may be better to break the first step of  Financial Security down into component expenses. For a young graduate or blog reader who has just realized that he needs some retirement planning, one approach is to start with each expense item. 

For financial security, let's say that you incur $200 of insurance expenses a month or $2400 a year, As a beginner, you do not know how to invest and has decided to buy a portfolio of REITs which yield about 6.5% ( Suppose you alphabetically buy 1 lot of all local REITs with your savings ) . Using a conservative 5% estimate for dividends, you will need a portfolio size of $2400/5% or 20 x $2400 or $48,000 to permanently cover all your future insurance expenses. If you can save $12,000 a year, you may attain the state of being able to pay off all subsequent insurance expenses after 4 years of work. 

Similarly for transport, you may also spend $200 on bus and MRT trips. By saving another $48,000, you also permanently resolve your transport woes once your portfolio reaches another $48,000 milestone. This will take shorter than 4 years as you would have a couple of raises and can also save the $200 you no longer pay from your earned income to the insurance company. 

In your journey towards becoming financially secure, you may start with Utilities, Insurance, Transport before moving on to food and the mortgage which tend to be larger expenses. This may take a decade of work but at the end of the journey, you can stop relying on your earned income to pay for these basic items. Note that disciplined savers may also find that they can accelerate their wealth accumulation as they earn more and spend less of their earned income as the years gone by. 

All in all, it was nice that a motivational superstar like Anthony Robbins agree with my slow and steady approach to wealth accumulation. The problem with each generation of folks is that they are always looking for a short-cut to gain financial independence where there is none.  By the time I was in my early thirties, I was able to save 100% of my earned income every month. I was even more pleased that Tony was also able to highlight areas of growth for folks who have achieved financial independence. Perhaps after I resurrect my career as a lawyer in the future, I can start thinking about designing a more comfortable lifestyle for my self and my family.  






Tuesday, December 09, 2014

Why Jack Ma is wrong about education and innovation.

Jack Ma joins the list of very successful billionaires who laments about the education system he has gone through and has spoken very convincingly of why the Chinese education system must change in order for the country to make progress.

This is not a new idea. Einstein himself values imagination above knowledge.

Many successful business men and even our own minister talks about the value of creativity and imagination in creating a vibrant innovation driven economy. In fact, I count a large part of my academic achievements not so much by my mediocre exam taking skills but mostly through public speaking and class participation. My ability to think out of the box comes largely from my 30 years playing RPGs and Dungeons and Dragons. We spent years linking up class abilities, spells and magic items to resolve any scenario the Dungeon Master tosses at my party. The current generation will use the same mindset and thinking to plan their next Zerg rush or Warcraft raid attacks.

In spite of billionaires, famous scientists and top politicians who wax lyrical about imagination, innovation and creativity, I am inclined to think that they are all wrong.

The primary reason why this thinking is wrong is that while creativity and imagination allows a few individuals to really achieve quantum leap progress, we are not convinced that a system which fosters such out of the box thinking is good for the masses.

That is the dilemma faced by policy makers.

Creativity, imagination and innovation worked for me, Jack Ma and Albert Einstein. But does it work for Tan Chee Hong, a fictional Geylang Pimp,  who finds an interesting way to name his prostitutes to increase repeat customers by 30% ? How about the Chow Ah Beng, who experiments with colours and Surrealism by spraying a national monument to demonstrate his artistic talent? Or Roy Ngerng ?

Clearly the most innovative country in the world is America. It has Facebooks, Google, Apple and Microsoft - no other country can do that. But America is also the country where a liberal arts graduate will graduate with crippling bank loans and his best possible job is making coffee at Starbucks, why do we have private schools that trick him into a course where it's hard to get a decent job ? Where else you can be shot by a cop because of the colour of your skin or by a gun toting psycho because you are attending high school. You can also be raped by a comedian in the 80s or worse, have to listen to Justin Bieber.

I'm not going to take the position that creativity and innovation is bad. I think that it should be confined to a select few. How much, and who should be given such training is something I'd wish social science would be able to answer.

The problem of Asian societies and Singapore is not not whether creativity or innovation should be emphasised in educational training, the question is how many should be given this emphasis and how do we select these people. Western societies which desire to open the minds of everyone are taking the wrong approach - just look at Justin Bieber. Singapore's elitist approach emphasising academics may also be wrong, look at Dr. Eng Kai Er.

What we know is that most of the population need to be trained to follow instructions and run the bulk of the economy. That is to provide society with operational personnel, engineers and bureaucrats. There exists a sweet spot, a magic number of population where the Jack Ma's exist waiting for the system to unlock their potential.

Of course, taking my idea to it's logical conclusion runs the risk of adopting Plato's concept of the Philosopher King which can lead to a totalitarian regime. The moment you take the road to select people to be treated in a different way, you also run the risk of thinking that men of gold will produce children of gold, which I think is increasingly becoming a problem in Singapore.

Technology can provide the answer. Data analytics and the science of personality can isolate the traits of the Jack Ma's and Bill Gates and we can determine what are the traits which can make a difference. The answer may well radically differ from our government's fetish with academic ability.

We need to bring personality metrics, income and social economic status into a database for number crunching first, then we need our social scientists to work with our data scientists to determine what is that sweet spot.

That is the key to a truly Smart City.
















Monday, December 01, 2014

The Myth of the Self-Made man.

Wow ! It has been a while since I blogged. I've been busy on my first Law Exams which took me out for about 3 weeks, and after that, I've been playing Dragon Age : Inquisition and trying to move into my new condominium.

It's going to be almost a year since my last pay-check and it's been quite a struggle maintaining my fiscal balance in 2014. I have to settle two semesters of fees and condominium furniture and appliances on a year of investment income and I've been barely making it with some of my counters declaring fewer dividends ( like that blasted Sabana Reit counter ) over the months ahead. But so far so good, one of the biggest benefits of law school is that I no longer have any time to enjoy the stuff that I eventually pay for so my personal expenses have dipped below $200 a week.

2015 is all about interest rates with the Fed expected to raise rates over the year. Everyone is speculating how this would impact their investments, but Im going to sit this one out as I believe that many other countries like the EU and Japan will start their own QE in the months to come.

Today I'm just going to blog on what I've been observing among my non-law school friends ( Yes, I now have two categories of friends because of social pressure to conform to law school norms of drinking and talking about cases. ). As you know, many of us are approaching our forties and I've been realising that we middle-aged uncles, having sort of found our positions in society, are starting to erect very elaborate psychological defences to cope with middle age.

One such defence is the idea that there is such a thing as a self-made man.

The idea of the self-made man comes in many forms. The "weak form" of the self-made man idea is that it is inherently more noble not to receive help if you have privileges in society. A "strong form" is that you are actually better off not receiving help even if it is normally expected that you do so because we are an Asian society because it makes you grittier and more amenable to succeed.

Personally I think that this idea is comforting because it has a hidden purpose and meaning. When faced with mid-life and mediocre life outcomes, middle aged men like myself want to create that impression that we did it the harder way. It's an act of the mythologizing the self, so that we seem more heroic in spite of our pathetically average life outcomes in our health, finances and relationships. It's also quite easy to find evidence to support this stance, there is always a wastrel in the family from the rich side of the branch who amounts to nothing ( We forget that folks who are low in conscientiousness can come from both the rich and poor branches of a family ).

I'm against such psychological defences ( I am actually not entitled to it because I grew up in a relatively ok middle class household. )

My first disagreement is that there is no nobility in mediocrity. There should be little nobility in success, if you feel morally superior, use your success to help others. No point crimping yourself and not receiving help from your rich parents when you can give so much more to the world if only you get a slight push. You might as well say that you have average outcomes because you are a good and moral person.

My second disagreement is that a gritty life is a choice. If you are born with a silver spoon in your mouth, it's still your prerogative to choose a harder target to meet. If you have more, you can desire to achieve more.  If your peers are trying to get to a University, you can always choose to create jobs for others because you have started out with so much more. In Dragon Age III, you can choose the level of difficulty of your play experience. You can slam rich and successful people but there are those among their ranks who have created thousands of jobs today who would never apologise for using their social advantages.

My third disagreement is that even if you did not receive advantages from your family. A lot for folks are blessed if they have families which do not impose a burden upon them. You need to explain why you are mediocre when some folks who are born to gambler parents can still achieve greatness. In such a case, the psychological defence fails when someone who have less than you do, end up doing so much more.

Finally, I think folks who adopt this stance needs to ask themselves this question : If you really believe in the self-made man and that it is better not to tap your natural social and economic advantages - are you consistent with that philosophy when raising your children ?

Do you deny your children comforts, refuse to pay for tuition or even refuse to give them your personal time ? After all, if you are truly consistent, your kids will be grittier and more successful right ?

At this point, if I go further, I would just generally end up losing my friend.



 







 

Friday, November 07, 2014

What can we learn from hipsters ?

The days get worse and worse for everyone in my class. We survived our double-whammy Friday where two papers become due within one day and I must say that my class-mates are really amazing with many not having any sleep at all over the past 24 hours.

I think the worse is over not just for my class but for the markets as well. This is the time to stock up on equities for the Capricorn effect of 2015 !

Today's article we explore the concept of hipsters. Why ? Because I can.

I can't find any hipsters in SMU.

SMU is a bunch of overly happy and enthusiastic undergraduates who have too much love for Abercrombie and Fitch.  I actually saw a dude wearing some sort of woollen vest. WTF ! Either he thinks he's studying in Harvard or is the air-con setting too low ?

Ok, I digress, now back to hipsters !

Ordinarily I always thought that hipsters would not exist in Singapore because Hipsters are an economic phenomenon. During the Great Recession, an entire generation of Americans's hopes and dreams were destroyed by the economic fallout. So bereft of jobs and a future, they turned to irony and developed a personal philosophy to cope with the mess they were in. They all developed a similar dress code involving handle-bar mustaches and listened to vinyl records. The funny result of this is why they all aspire to be non-conformists, they all ended up being indistinguishable from each other.

The situation in Singapore is interesting. We don't have a lot of hipsters but we have too many hipster cafes. It is said that every hipster cafe aims to be unique but most of their coffee beans come from the same two sources.  Hipster cafes are a different economic phenomenon,  Singaporeans who go to Melbourne to study often want to import their coffee culture back home. I leave it to the readers to think about what economic prospects these hipster cafe owners would have if they could not charge $7 for a cup of cafe latte ( which I only found out 3 weeks ago, is a flat white with foam ! ).

The idea of hipster was churning in my mind until I had the pleasure to read Peter Thiel's book From Zero to One.

Peter's writing is clear and concise. After all, he went into the start-up space to launch Pay Pal after being denied clerkship in the US Supreme Court.

His insight is special.

Why do hipsters become hipsters ?

Peter's hypothesis is that humanity is reaching stage where most of the simple problems have already been solved and only problems in the impossible domain remained. Humanity's biggest issue is that the hard problems, those which can be solved by one person with great effort, no longer exist.

Hipsters yearn for a simpler time because in those days, people felt that there was progress. This explains the obsession with fashion which throwback to the 60s and 70s and their obsession with vinyl records.

I can certainly imagine how a Hipster can look like in Singapore.

Hipsters are simply nostalgic people !

  • When someone misses the SBC days and talk about Channel 8 dramas like The Awakening, the person might be a Singapore Hipster.
  • Whoever listens to a Flock of Seagulls and The Pet Shop Boys are hipsters. 
  • Whoever plays games on 8-bit Nintendo emulators are also hipsters of sorts.

I like to see myself as an anti-hipster. I think that folks can find interesting and small problems if they know where to search for them.

Useful insights can no longer found within one domain. You will need to look at multiple domains to find problems that are solvable, which would give an individual a tremendous sense of satisfaction.

I will just share one example I did in one of my classes.

The problem was negotiation.

Two law students had to represent two sides in the negotiation table, there were two variables, price and quality. Most lawyers would approach this issue to pin down one agreed price at a particular quality, this can get really acrimonious and both sides would use the facts to bully or cajole the other party into a settlement. In some cases, the person with the loudest voice or prettiest face would have a huge edge in the negotiation exercise, it's just not practical in the real world once your business thinks that you screwed him over at the negotiating table.

I did not see the negotiation as a legal problem. To me it's an engineering problem. Both parties just needed to agree on how a graph would look like given the variables at each axis, each quality would result in a reasonable price.

The outcome is that I positioned the solution as a linear equation and all we needed to do was to agree on slope and intercept of the graph. The final outcome, no party won, both sides felt that they got a damn good deal. I bet this is probably a rare moment in the history of common law because it was so adversarial, its hard for both sides to emerge the winner.

In conclusion, this article is less about hipsters but more about multi-disciplinary studies. Increasingly so, we will come to the conclusion  that while no hard problems have remain within one domain, plenty of problems and solutions exists if we gain the capability to reach across domains.



 








Friday, October 31, 2014

Are you Superman or Batman ?

One of the privileges I have in my life is that I get a front seat to experience the struggles of myself and my fellow classmates. This 3-year reboot has allowed me to do some serious thinking about the nature of success. This is not so much an analytic exercise, but I see this as more akin to a religious experience.

One phenomenon I notice in campus is the kind of quality people attribute to their personal conception of what success looks like. For folks who really are into personal development, this is very similar to Carol Dweck's notion of the fixed versus growth mindset.

Let us look at the Superman model.

If you believe in the Superman model, your model of success is effortless in Nature. Legends will always tell of some mysterious senior who can drink, party and not study but still get into the Dean's List every year. One of the more ludicrous stories I hear is of a top Law Student who claims that she can throw her books aside on Friday only to pick up her books when the week begins on Monday.

I am very skeptical of this model.

Yes, there will be superstars at school or at work, but there will always something that debunks the Superman model once you get to know these superstars. Some may sacrifice their personal lives, others have a battery of coaches or may have even found a way to outsource their lives to virtual assistants in India. Some may just have an awesome environment to hit the books since they stay in District 10.

The reason why I am skeptical of Superman model is that people who know how to manipulate power practice sprezzatura. Top students in NUS have this irritating habit to make their success seem effortless to sustain this myth of their abilities. Makes them sexy and superhuman. Some go through horrible lengths to get their peers to drink with them in discos only to spend the whole evening mugging to keep themselves in the Top Honor rolls.

In the world of work, the Superman model is the Super-Manager, the great CEO who rockets to financial independence by clawing their way up the ladder. These guys do exist, but they are one in a million.

The question we really need to ask ourselves is what happens if we really have no talent ?

I propose the Batman model. Or if you have a villainous bent, you can call it the Lex Luthor model.

Success is no accident. Batman can't beat Superman in most engagements because Batman is not an alien from Plant Krypton, he can't fly, does'nt have super strength and x-ray vision. He's just a dude in a black nipple suit with a low voice.

But Batman is awesome because he is a superb strategist. He anticipates the move of his opponents and ensures that every weakness will be exploited to the fullest. He's worked hard to train in martial arts and has an array of gadgets to level the playing field.

The Batman model assumes no talent. If you want an edge over Superman, you have to marshal all your resources and work hard to attain your goals. You need to know Superman's weaknesses and have a suitcase of kryptonite ready if you really need to take the Man of Steel down.

Nowhere else is this found in investments.

The Superman model assumes that a superstar analyst exists who can pick out magical stocks and attain financial independence without any effort. The Batman model assumes ordinary market returns, then conscientiously saves and invests based on tried and tested factor variables.

Of course, just because we have two mental models doesn't mean that we can always strategise and plan our way to victory. Adopting Batman's strategies, I have spent my entire life getting my as handed over to me by the Supermans at study and at work.

Sometimes talent does indeed beat hard work.

That's why after a trouncing, Batman can always console himself in the arms of the Catwoman.









Sunday, October 26, 2014

Why we should press on.

At the end of the semester, some classmates are having doubts about whether they made the right choice in coming to the SMU JD program. I promised that over the weekend, I would write something to cheer them up so that they would press on in their studies.

I think that my class is a small class and the industry is large enough to absorb all of us in spite of all these changes going on to "nerf" the legal profession.

For the rest of the readers, my analysis should also apply if you've worked damn hard to get into a fairly exclusive MBA like the one at INSEAD or the APEX MBA program in NUS.

When I look at my class, especially the younger folks in their early-30s and 20s, they are likely to able to be placed in a career that is going through the tail-end of a Golden Age. I've taken some very conservative estimates to calculate the expected net-worth of my classmates upon graduation.

Here are my assumptions.

a) You get the minimum grades to be admitted into the bar. No need for 2nd Upper grades.
b) You start out at $4,500 a month.
c) 7% increment a year with 3 months bonus every year.
d) You save 50% of your income and your entire bonus every year.
e) You invest your savings at 7% returns.

( Ok... granted not all of you lawyers will know how to invest, but 7% a year is not too ambitious )

Based on the table below, if they can meet conditions (a) to (e), a conservative starting salary will net them their first million within 13 years. So if a graduate at 30 charts his career and finances properly, they are likely to make their first million at 43.

SalaryBonusAnnual SavingsCumulative SavingsInvestment at 7% returns
$54,000.00$13,500.00$40,500.00$45,000.00$45,000.00
$57,780.00$14,445.00$43,335.00$88,335.00$91,485.00
$61,824.60$15,456.15$46,368.45$134,703.45$144,257.40
$66,152.32$16,538.08$49,614.24$184,317.69$203,969.66
$70,782.98$17,695.75$53,087.24$237,404.93$271,334.77
$75,737.79$18,934.45$56,803.35$294,208.27$347,131.55
$81,039.44$20,259.86$60,779.58$354,987.85$432,210.34
$86,712.20$21,678.05$65,034.15$420,022.00$527,499.22
$92,782.05$23,195.51$69,586.54$489,608.54$634,010.70
$99,276.80$24,819.20$74,457.60$564,066.14$752,849.05
$106,226.17$26,556.54$79,669.63$643,735.77$885,218.11
$113,662.01$28,415.50$85,246.50$728,982.28$1,032,429.88
$121,618.35$30,404.59$91,213.76$820,196.04$1,195,913.73
$130,131.63$32,532.91$97,598.72$917,794.76$1,377,226.42

I will let the real practitioners discuss the feasibility of my financial projection, these numbers can even apply for the top-flight engineers who can get into the banks after their first degree. 

Of course, my table and projections are what happens in theory. 

It's baffling to know legal professionals, who shockingly, are not millionaires before 40. There are many reasons why savings and investments targets cannot be met. I mean no insult to those professionals who are still working hard to met their financial targets but the alcohol at Ice Cold Beer attracts a lot of government taxes so less trips to the bars help. 

But, I think having a seat in SMU is something we should be grateful for, so I think this qualification is worth striving for, even when many of us are currently our ego bruised and getting perhaps our first B- in our entire lives. 

For me, even if no law firm were to take me in due to my age, I think I'd be a pretty formidable outsourcing contract manager if I have to crawl back to the IT industry.





Wednesday, October 22, 2014

Taste and Aesthetics. Being Basic and Normcore.

I think get along fairly well with my JD classmates despite a glaringly large generation gap. I actually said to a classmate that if I had a shotgun wedding when I was in JC, my kid would be her age, Maybe they treat me like a insane cousin or uncle that they can't seem to avoid on a family gathering. I like to ask questions in class like what if two people in a contract hypothetical case are lovers or whether consent can be withdrawn halfway during sexual intercourse just prior to male orgasm.

The generation gap becomes really magnified when I attend a lecture with the LLB kids. In those classes, I feel like a Singaporean Bill Crosby. Subconsciously,  like many older men, I really want to brow-beat the See-Gee-Nahs for the incoherent way they speak and their strange appearance. In the end I restrain myself because some of these kids are my seniors in Law School and may even end up coaching me for Moots. And of course, I should not pass judgment across generations, our struggles are quite different.

I actually feel ashamed to admit that the one thing which cheeses me off is the "SMU Smile". What happened to the angst, anomie and the general lack of confidence of an undergraduate ? Kids in my days have a lot of anxieties, how to get a job, how to get laid in a hostel and how to pay off the study loan, SMU undergraduates have this uncanny ability to project an inner sense of self confidence that I think has become the hallmark of the SMU brand which everyone else would either love or hate.

Today's article is about class anxiety. Buzzfeed has a really awesome article which talks about labelling someone as "basic" as a way to demonstrate their superiority in taste and class. In one lecture with the LLB folks, the lecturer picked on this kid because he wore an Abercrombie T-shirt. This is one brand I would never associate myself with. ( Unless it's to be a sole distributor )

After reading this article, I actually felt funny because I consider myself as having a taste beneath what would be considered basic in Singapore. After analyzing my personal taste and aesthetic, a friend concluded that I actually belong to a category called Normcore. It is a conscious striving to bland in taste and dress.

Being basic in Singapore is as follows :


  1. You shop at NTUC Fairprice.
  2. Eat in a foodcourt.
  3. Buy clothes from Forever 21 or Mango if you are woman. For a guy, maybe G2000 or Giordano.
  4. Drive a Toyota.
  5. One pair of decent does like Rockport maybe.


I propose that investors should try to live a live below that level of "Basic" to reach financial goals.


  1. Shop at Value$ or Sheng Siong.
  2. Eat at Kopitiam or hawker centre whenever possible. 
  3. I wear and love Goldlion shirts although I am slowing wearing some Uniqlo to keep up with the times. A Gen-X uncle brand. Boomers wear CYC or 3 Rifles. ( No SPG will talk to you and no one will ask you whether you are gay if you wear these brands )
  4. A weekend Hyundai which I don't drive because I take public transport.
  5. Bata shoes.


Of course, perhaps at the end of the day, in class anxious Singapore we can easily afford to find other areas to be complete snobs at. Done properly, it will not make you a jerk and can protect your self esteem from the consumerist types around you.

My weapon of choice is in the books I read. An expression of superiority coming from appearance is quite shallow and with available credit, anyone can look good. I am delighted by conversation on the works of Lawrence Freedman,  Steven Pinker, Thomas Piketty or perhaps Martin Seligman.

Of course, snobbery being snobbery, some books must be excluded from the club.  I am openly contemptuous of folks who read and wax lyrical about the works by Dr. Phil, Paul Coelho, John Gray or Rhonda Byrnes.

This is stupidity of the highest order.

( In case you are wondering, I did read most of their works to figure out how to make books sell. )