Thursday, September 20, 2018

The Art of the Good Life #40 : Other People's Shoes



Suppose you are doing your Reservist and you hear a story from Uncle Sam. Uncle Sam is one of the most popular specialists in the Brigade and always seems to be surrounded by men wanting to hear about his ridiculous escapades.

Today Uncle Sam describes a story of his last trip to Hong Kong.

In this last trip, Uncle Sam visited Temple Street and hired the services of someone who calls herself Mistress Akina (Based on 80s pop singer Akina Nakamori). After bringing her back to the hotel room, Mistress Akina first orders Uncle Sam to strip, and thereafter, she ties up  while simultaneously humiliating him about the small size of one of his organs.

When Uncle Sam is tied up in bed, Mistress Akina proceeds to climb on top of him and takes a nice long crap on his chest.

Philosophical question for the reader from this scatological anecdote :

Was Uncle Sam suffering throughout this engagement ?

This chapter in the book talks about the important of getting into someone's shoes and trying to empathise with them. I think this is an important point in the "FIREr vs Entrepreneur" debate raging in the FB group after Alvin Chow of Dr Wealth wrote an article on whether financial bloggers are suffering.

Over the years, I have faced my share of critics who reason that my approach to personal finance causes me a lot of suffering. This is as if they are speaking for myself. But the truth is that without really going ahead to cut down the savings and actually grow your wealth, you don't really know whether this journey is one of pain or pleasure (or both, in the case of Uncle Sam).

I would instead argue that high octane entrepreneurs, super-FIRErs and BDSM enthusiasts have one thing in common : They belong to deviant subcultures that are misunderstood by members of the public.

Sub-cultures engage in conflict because of difference in what french sociologist Pierre Bourdieu would call a habitus. 

The habitus of a FIREr is that they dress and eat simply. A lot of their social capital is tied to the books they read and whatever investing strategies they have. Books FIREr's read include Your Money or Your Life by Vicki Robin.

The habitus of a entrepreneur, on the other hand, is that have have to dress well to hustle and sometimes rewards themselves with better food. Such a person might consider knowledge of finer restaurants part of their cultural capital. Entrepreneurs prefer reads like Gary Vaynerchuck or Michael Gerber.

But like two countries having different currencies without a formal exchange rate, the cultural capital of a FIREr may seem worthless to an entrepreneur and vice versa.

People will say all sorts of things about FIRErs. Some will say that they are denying themselves True Happiness. But these guys might not know that  FIREr is secretly laughing all the way to the bank getting thousands into their bank accounts in dividends every quarter.

[ Digression : For this weekend's class, one strategy backtest 31.28% with a semivariance of 15.93%. As there are no more previews left, if you want one of the last few seat for the lesson. Write to me private. I'll get you guys in touch with the organisers. ]

To ordinary people, life as a startup entrepreneur is harsh and they seem to hustle all the time. But these guys also have the great privilege of seeing their product ideas find validation in the market. I'm going through a journey myself, giving talks in previews and seeing if the audience dig my presentation enough to buying one of my programs and tuning the message if it falls flat.

As such, I think it a lot better to see Savers (High end FIRErs) and Strivers (Entrepreneurs) as the same side of the coin.

The opposite side of the coin is everyone else, folks who drift along the Singapore economy and accepts whatever society throws at them.

If they get upset, they can always activate their keyboards and pick on someone they don't like, like Nas Daily.













Tuesday, September 18, 2018

The Great Marriage Firewall of Singapore.


This came about because I had to tackle a conundrum with Government statistics.

Earlier on, I wrote in the last article that the median income was $2,699 in 2017. Kyith Ng of Investment Moats thought that this number was a tad low and another BIGS participant found another number that said $4,232 per month.

As it turns out, all the numbers are correct. $2,699 was median income of a household divided by the number of heads in a household. $4,232 is the median income of someone who contributes to the CPF. In practice what this means is that a family consisting of a couple with kids will typically see the husband and wife making about two times $4,232. Dividing this sum total but the number of folks in the household, including kids, this will results in a figure closer to $2,699.

This brings up an entirely new and interesting dimension to reading national statistics.

If you remained single and worked for a living, half of you will be able to earn $4,232. However, if you gotten married and settled down, after diving the income across all members of the household, you only have $2,699.

The price tag of being married is about $1,500 a month !

This great $1,500 firewall may be the reason preventing singles are getting married. Unfortunately, this is manifesting in ways which confuse citizens like the recent argument that you can make babies in small flats. It does not help that, recently in the UK, the game Fortnite is starting to appear in quite a few divorce papers - Some computer games are so good that a lot of guys are giving up family life to pursue a life of gaming instead.

This also changes the way we should engage our single friends. Yes, even those who are currently looking for someone to settle down with.

If I'm feeling trollish, I would challenge my single friends this way :

Whoever marries you would have to downgrade their lifestyles by $1,500 a month. What makes you so worthy that someone would choose to downgrade their salary by $1,500 in order to start a family with you ?

At an individual level, this is a high bar to cross - especially for men. Most men will simply try to work hard and reach an income above the median by at least $1,500 so that they can worthy.

It's like Thor slogging to become worthy for his hammer (only to have his hammer crushed by his evil sister).

It gets worse. Just remember not too long ago, I wrote about ITE graduates drawing $3,000 after a decade of slogging.

At a policy maker level, this number is a huge national disaster because when we scale up the numbers, people do tend to be quite rational when making lifelong decisions.

On one hand, singles have a lot going for them these days. Why should single men bother with dealing with the choosiness of single women when they can have endless treats on Netflix and Steam.

Similarly, why would single women give up their financial autonomy for a media income guy? 

The Great Marriage Firewall of Singapore is the biggest policy challenge in the future. This will be surely be exacerbated by technological disruption which will see a generation of single men lose their jobs and then retreat into their tiny flats to Fortnite until they expire from old age. 











Sunday, September 16, 2018

That Starbucks Kerfuffle...


This article is a response based on the series of spirited debates over this article on the Dr Wealth website :

https://www.drwealth.com/how-to-save-money-in-singapore/

I thought I should share a few insights on this issue because at least one guy on the BIGS FB group has threatened to stop reading Dr Wealth for good, and I am working to contribute an article myself sometime next week and don't want to lose fans when I start.

For a start, Starbucks has become some kind of whipping boy by personal finance experts thanks to David Bach who came out with the concept known as The Latte Factor. After a while, as an occasional customer of Starbucks, I think that personal finance experts misrepresent Starbucks selling proposition. Starbucks is selling a new kind of space that is neither home nor the office. By paying the price of a latte, you get to park yourself there and use their wifi. Part B Law students typically hang out at Starbucks to go through their tutorial notes before an evening lesson in a law firm. So the $7 you spend is more than merely a cup of coffee, you are buying a place to work. If company employees want a more informal meeting area to discuss matters, sometimes Starbucks is the only choice.

Putting that aside, I think some Singapore statistics would be helpful to resolve the technical issues of the debate.

A median salary of an individual in Singapore is not too high.  The median income per individual is $2,699 in 2017. This is merely $2,306 after adjusting for employer's contribution to CPF. Take home pay after CPF is only $1,844.

If we divide a household expenses of $4,699 by the number of members of the household, we get a rough estimate of the expenses of an individual which is about $1,400. These numbers are date so we adjust by inflation to get about $1,430.

This means that the average Joe in Singapore can save about $400 a month or 21% of take home pay - not bad given that books from the US typically encourage a person to save only 10% of income.

I think the major sticking point of the article is this : Marcus incorrectly plays down the effects of saving $2,190 in a year. This is actually quite large from standpoint of the average Singaporean, this is almost a 50% increase in savings.

The argument that the extra $87.60 saved every month from the STI ETF is also poorly argued because forgoing Starbucks earns a cumulative $87.60 every year. After two years of denying Starbucks, it becomes an extra $175.20 and you have $4,380 extra money in your portfolio or war-chest. Furthermore, an investor also does not have to limit himself to the STI ETF. For example, a portfolio consisting of equal weights of all REITs can return 10%.

The second half of the article is a contradictory mess.

Marcus goes on to advocate saving 10% and investing 10% of your income, but the median Singaporean seems to be already doing that. If the median income Singaporean can indeed, save $2,190 from forgoing Starbucks, he would be saving close to 30% of his take home pay which puts him in a much better fiscal position than this proven method that Marcus proposes. Of course, I think it would be hard to find someone who spends his 10% of his take home pay on Starbucks coffee.

Instead, I would position a disciplined Singaporean saver as someone who can set aside 30% of his take home pay as a rookie. iI you are, in fact, a Starbuck addict who spends 10% of your take home pay on Frappucinos, it's time to get back to kopitiam kopi or buy an espresso machine.

Right now, I cannot go on to unravel more logical inconsistencies in the article which I'm sure many readers would be able to do so if they read the article a few more times. But I think we should be nice and congratulate Marcus because he succeeded beyond expectations to get folks into a passionate discussion about the need to maintain fiscal discipline. This is only his second writing stint with Dr Wealth.

Please give him a chance.





Friday, September 14, 2018

Are you a free agent or a prisoner ?


[ Workshop preparation at the final stage is really intense and I think I got my third bout of flu in two months. This is a light weight article for the week-end. Maybe I'll do a more hardcore article on Sunday. ]

So I ended up watching Crazy Rich Asians with my mum and I loved it. I even started listening to the sound track which is perfect. Can't wait to see Katherine Ho's cover of Coldplay's Yellow in our local karaokes.

My wife said that I enjoyed the movie because I aspire to join the ranks of Crazy Rich Asians. I think that's not the point. The point is that the movie shed some bits of light into the lives of the uber-rich in ways that do not make ordinary mortals really want to be like them.

Instead, I think the real question is what can money do for you ?

Can it turn you into a free agent or a prisoner ?

The obligations of old money and familial relationships forms a prison around Nick Young and even threatened to draw Rachel Chu into it.

This is not the kind of reason why people seek financial independence. I don't want to be rich so that people will threaten by wife with a dead fish on her bed.

Money is a tool to be free.

That is why "F*** Y** Money" is such a powerful message to Singaporeans who have to report to a boss that they not necessarily look up to.

A financial independent worker and an ordinary worker can work for the same job and perform the same tasks but there is a fundamental difference between them :

The Financially Free Worker has the option to quit and seek another job. He does not have to endure a tyrannical boss.

The ordinary worker needs to think twice because he has obligations if he becomes jobless. He is a prisoner chained to his workplace.

[ Digression: Sometimes I wonder whether local Law Schools should keep on accepting high SES kids because they are the the ones who are most likely to be able to say no to a highly intense workplace and demanding boss. ]

So to me, Crazy Rich Asians is a cautionary tale.

Old money is stifling. Nick Young was supposed to be married to his equal and be stuck in this milieu for the rest of his life. If you read all the books, Eleanor Young was a victim too. Until that pivotal Mahjong scene, all that money in the world cannot give Nick the freedom to be with who he loves.

On the other hand, new money is free. Goh Wye Mun played by the hilarious Ken Jeong is much looser when upbringing his kids Peik Lin and PT. I have a special affinity with PT in the story because he seems to channel Singapore geek demographic. PT is also likely to turn INCEL in spite of all his wealth.

F*** Y** money can turn you from a prisoner to a free agent.

But you need to exercise caution.

Newer reports are showing evidence that employees with a Plan B tend to be less productive at work.

Being able to achieve passive income that exceeds your expenses is a binary test. Either you can or you cannot live on your passive income without digging into your investment capital.

Transitioning from a prisoner to a free agent is not binary.

You transition slowly as you gain more mastery over your money. My biggest fear is that folks who try out FIRE start losing their motivation before they are fully free from the workplace.

Perhaps the solution would be to use an absolute return portfolio and grow it until it is large enough to be converted into a dividend portfolio that pays all your bills at a later stage.

It may solve the motivation problem by making Plan B less obvious to the investor.




Tuesday, September 11, 2018

The Art of the Good Life #39 : The Maximum Point of Deliberation



As you think or rationalise your way through a problem, the point by which further contemplation no longer adds value to the decision you have to make, tends to be reached quickly. More thinking and research will reach diminishing returns.  At that point of time, the author suggests that you act because by interacting with the problem more directly, you get more insight on the situation that cannot be gained by thinking or by reading manuals.

One of the considerations I make when planning my workshop is to address the mistake I made when I was in my mid-twenties.

I considered myself "untrained" in investing and refused to buy individual stocks until I passed CFA III. In fact, by the time I started investing individual stocks seriously, I had the FRM, CAIA and MSc Applied Finance qualifications and it did not lead to any significant outperformance. Little did I know that the orthodox financial models like the Discounted Cash Flow are hardly useful in picking up better stocks in the stock market. This is because projecting future cash flows is too subjective.

Worse, I kept telling folks to buy Phillip Morris 20 years ago when I did not have the courage to act myself. I think this was a big mistake which I should have undone if I had a time machine. Philip Morris along in 2001 would have made me a rich guy today. On hindsight, I should have risked $10,000 of my money on local stocks while studying my Masters because it would have helped me get better grades (not to mention more money). I would not also feel so left out when my "adult" classmates spoke about investing.

So, prior to blasting the class with my factor models and backtesting results in my workshop on Day 2, emphasis will be made on getting a beginner's portfolio up as fast as possible with around $10,000 on Day 1.

The strategy should not just allow a student to overcome fear, it has to enable sufficient interaction with the stock markets to maximise learnings instead of focusing on profits. This is why picking blue chips from the STI is a useful way to get folks started rather than getting into ETFs - returns backtested only 7.5% if you pick all stocks in equal shares from the STI but you can learn to start  cherry picking from 30 stocks. Also emphasised are retail bonds, preference shares and REITs which put money in an investors pocket within the next 3 or 6 months.

Good returns that can get someone started is better for rookies than getting great returns from a complicated strategy involving cross-reference two stock screeners.

I think there are two domains where it is far better to think more and do less :

a) In government work, there are too problems with optics and there are multiple stakeholders in everything public servants do. It is far better to ensure that documentation and procedures are being followed. I know from personal experience that trying to short-cut a procedure makes it many times slower. Not everyone can do procurement like Philip Yeo.

b) In legal work, revising arguments and adducing evidence will ramp up the costs for the client quickly. It is far better to get it right the first time, consulting and giving business to a more experienced lawyer if the situation calls for such. I think lawyers are highly stressed because there is so much anxiety over things that can go wrong in a document submission. For me triple checking is just not enough.







Saturday, September 08, 2018

Safe Channels for Personal Development


Thought I would share something that is possibly novel in the personal development. This comes after thinking about my own hobbies or interests which played a majored role in many of my personal successes today.

I define a Safe Channel for personal development as some means to develop skills and competencies away from society's judgmental eyes. This can come in the form of a hobby or personal interest.

There are three components to having a safe channel.

The channel must develop some kind of useful skill through a regime of deliberate practice.  The second component is that no external party should assess your proficiency in this skill - you shouldn't need to feel that you need to attain a grade when you are in a safe channel.  The third is that developing this skill must be primarily for the purposes of having fun and goofing off.

For most of my life, my safe channel was Dungeons and Dragons. This was a game that does not even declare a winner at the end of a gaming session. Your player character just needs to survive and make it to the next game. Everything else is about coming up with a memorable story that people would talk about decades later. ( Much like my friend who hid in a dragon's anus for an entire fight and was the only PC to emerge unhurt in a battle with a dragon. ) Dungeons and Dragons allowed me to develop mathematical skills and verbal skills which went beyond what most kids were capable of during my time and was quite useful when I finally did my SATs during junior college.

During a presentation on Evidence Law, I noticed that my lecturer was getting sleepy. So during Q&A, I analogized the laws that granted a judge's ability to accept/ignore evidence as being akin to someone wearing three condoms at the same time. It works, but you may doubts after experience this law in practice. We got an A+ for the presentation and the professor stayed awake throughout the rest of my session.

During my NUS days, I had a different Safe Channel. I joined the Toastmasters and made a whole lot of friends who still keep in touch with me today. Public speaking, on hindsight, is a valuable corporate skill but, in those days, we made speeches to amuse our friends. Some of us wanted to see how many sexual innuendoes we can inject into 5 minute presentation. We practically offered the club presidency to this guy who made a 5 minute speech on his squash training but chose to describe how he stroked his ball before a crucial match. Doing research on how make a presentation more compelling was more of a hobby and, unless the speech was particularly bad, most speakers move on to the next project. Having public speaking as a safe channel allowed many of us to become communications experts without the pressure of taking some kind of exam. As for me, my life was also shaped by many law students I befriended doing this ECA.

( This was when NUS authorities still felt safe enough to place law students in a central part of a University campus instead of pushing them to some Gulag along Bukit Timah road. )

At work, there was also a lot of pressure to perform and meet performance targets. I chose a way to make money without going through multiple rounds of assessment. The stock markets do not care about my performance at work. Losing money was a personal affair but generally investment turned out to be a fun and profitable hobby. Not much more need to be said about this.

An then during my time in SMU, BIGScribe was incorporated and I started giving talks using whatever knowledge I gained on investing. Most of the time I spent speaking ran parallel to my time as a law student. did I have plans to eventually start a serious workshop ? Probably not. I doubt a serious financial speaker would build his reputation by talking about "50 Shades of Dividends Investing" and "F*** Y** Money" BIGScribe was a safe channel to find shelter from a stressful study schedule. Meeting like-minded bloggers was also a bonus.

In summary, I think this art of finding a Safe Channel for personal development has been lost. Authorities made it worse by making assessment more "well-rounded". This made CCAs, which are meant to be means to develop a personal hobby and interest, into part of the Rat Race.

To be fair, Gen Z is also shaping up to be a pretty intense generation closer to us Gen Xer than Millennials.

If there is a novel principle in personal development, I would say that finding a Safe Channel to develop some useful skills indirectly through play is probably crucial to survive in an innovation driven economy.










Thursday, September 06, 2018

How to interpret salaries and lifestyle decisions of fellow Singaporeans

One of the few things I learned while creating my workshop are interesting statistics on Singapore families. Of the new things incorporated into my training materials, two statistics stand out in terms of usefulness.

a) Median Household Expense Information 

The median household expense information is about $4,699 per month. This number is only useful after we adjust for inflation since the figures were collected in 2013. Inflation has been quite mild for the past 5 years, so after applying a 2% increase, a household spends around $4,792. Now, the median household size is around 3.2. So dividing expenses by headcount, we get a really reliable expense figure of about $1,500 per person in 2018 as a reasonable benchmark.

b) Median Household Income Information

The median household income information for 2017 is a fairly high figure at $9,023 per month. This is very impressive. Assuming that each household consists of 2 working adults as a couple, this is still an impressive $4500 a month. If you perform a full division assuming 3.2 adults, you get $2,819 per month which seems a lot more reasonable.

[ Note that these numbers include employer CPF contribution ! Revised household income then becomes $7,711. Don't get into a mess trying to match these numbers ! ]

I think these two statistics is useful when interpreting latest news on the lives of individual Singaporeans. Two examples come into mind.

a) Middle class and feeling the pinch.

This article describes the struggles of a middle class family that is earning $7,000 a month.

It might be tempting to buy the angst shared in this article but we need to remind ourselves that expenses of 50% of Singapore families fall below $4,800 a month. After deducting 20%, the couple still has $5,400. 

The couple is better off reviewing their personal expenses and cutting it down. I would not waste too much time feeling sorry for them.

b) ITE salaries

This optimistic article talks about ITE salaries and explains that ITE graduates can earn up to $3,000 after 10 years of work in 2017. This has attracted praise from parts of social media which lauded the 9%+ increments ITE graduates received for the first 10 years of their working life.

This optimism is misplaced. 

Suppose I make $1 a month and I get a 100% increment every year for 10 years my salary is still $1,024 per month. 

The most positive reading of this statistic is that an ITE graduate, after 10 years of work, can support himself with ease and live a comfortable single life.

But there are alternative reading of this article - After 10 years of hard work, an ITE graduate couple will earn below the median income of a Singapore family.  After contributing for CPF, the couple has $4,800 which is just barely enough for median living. In practice,  such a couple will be attempting to live below the median expenses level. This is something I have done so myself for many years.

There is another darker interpretation to this data. 

A male ITE graduate, after 10 years of work, is unlikely to be able to sustain a family's living expenses at the median level on his own. He will need assistance from his spouse. This interpretation may seem unfair, but it is the reason why Donald Trump had so much support from rural white males in America who voted him into power.

Does this call for universal basic income ? Perhaps not, I think perhaps some form of negative taxation may be justified to give our ITE grads a break. 

All corners of society would want them to succeed in Singapore.