Sunday, January 21, 2018

Think twice before you marry the financially independent guy.


[ Kyith Ng of Investment Moats requested a fantasy themed picture to represent a financially independent person. I think a D&D Troll represents such a person best because our finances regenerate over time making us fairly resilient in a fight against adventurers. Of course, you can burn our capital away to stop that regeneration. ]


The first time I was exposed to this problem was years ago when I heard about an account of why a girl turned down a guy after one date. From the person who recounted the story, she and the guy had one date and then became evasive and came up with all sorts of excuses to avoid having a follow-up session. The person who recounted the story told me that the girl avoided that guy BECAUSE he was financially independent ! She just cannot imagine what it is like not to have a reasonable goal in life.

I refused to believe the story when I first heard it. In fact, I was so angry when I heard it, I thought I was being trolled by the person who recounted the story to me. Either the guy had other negative qualities that got him rejected, or the story was just plain untrue.

How can financial independence be a bad thing ? While the story had nothing to do with me, it felt like a personal attack and I felt slighted.

( I even offered to meet that girl to counsel her on the error of her ways. )

Because of the new exposure in my current career, I am starting to observe why financially independent or rich guys can be a really bad idea. As I cannot explain the details of my personal experience, I can only discuss the theoretically underpinings of this theory.

The question of whether you are financially independent or rich is completely independent of your intrinsic motivation in life.

There are three components of intrinsic motivation :

a) Autonomy 

This covers how independently you function in society. A rich guy on inherited wealth may lack autonomy because he does not have the means to generate more income even if he wanted to. While the wealth is enough, I have experienced rich men saying that he felt shame taking money from his family firm.  Autonomy means that either you do things that are valuable enough for others to pay you, or can find mays to make your wealth multiply. Cornelius Vanderbilt had plenty of autonomy, his grandchildren likely had less.

b) Mastery

This covers the amount of self-improvement people need to go through in life to feel fulfilled. Mastery means that somehow such a person is learning and growing. A "funemployed" scion of inherited wealth will struggle trying to decide what kind of activities to amuse himself. Very likely, folks at this level will either indulge in vices like casino gambling or prostitution, or meaningless acts of conspicuous consumption like collecting antique watches and synchronising them everyday.

c) Meaning

The final component of motivation is meaning. Within the grander scheme of things, the person must figure out what is reason for his existence. This is similar to the existential problem I spoke about in my talks on midlife crisis. If you cannot function in society and do not have meaningful things to improve upon, life automatically becomes meaningless. The rich "funemployed" man may develop a strangely controlling attitude towards his spouse or find ways to belittle his family and friends. This arises from a nihilistic philosophy that manifests when life was meaningless over a long period of time that is mixed-in with feelings of insecurity.

In summary, we need to raise our daughters differently if we want them to be happy in life.

While rich men who stand to inherit wealth are prized catches in the dating market in a materialistic society, we need to caution our daughters so as not to turn them into gold-diggers. ( Of course, matrimonial laws do have some safeguards against gold-diggers. )

When observing the behaviour of a guy who claims to be wealthy or financially independent on a first date, a savvy girl needs to ensure that this person has motivation : he needs to have autonomy, mastery and has developed a meaningful life philosophy.

This means steering the discussion towards the man's ideals, ambitions and how he sees himself in the grand scheme of things on a first date.

If the guy can only harp about his wealth, flash his expensive gear, and have nothing else to offer, it may be wiser to do what the girl in the story did.

Which is to run like fuck !




Friday, January 19, 2018

Properties of an ideal investment across history.

Sometimes lessons about money can be picked up from some of the most shameful moments of human history.

One of the hardest chapters to read in this book was about slavery. Historical records actually showed what happened at a slave auction. A 27 year old prime cotton planter could be sold for $1200. His wife $900 and young children sold for $200 because they are only productive when they reached adulthood. Slavers were wise and would not allow a slave family to be split up via an auction, but they were less kind to couples who are courting or close friends.

Interestingly, the slave trade in the US can tell us a thing or two about what an ideal investment looks like.

Slavery was lucrative because it powered the cotton economy. Owning a slave in those days was similar to owning a BMW, its a sign that a white slave owner has arrived.

Eventually, slavery became the monetary base of the US South for the following reasons :

  • Careful management of slaves led to steady dividends from the yields in the cotton fields.
  • Slaves appreciate in value as the value of cotton went up.
  • A slave can be made into a collateral for a loan. This made ownership of a slave easier because you can pay a smaller down-payment and borrow the rest. You can leverage your portfolio of slaves.
  • Slaves can breed with each other to create more slaves.
Slaves were so fundamental to the southern states that it is no longer possible to frame the issue of slavery in terms of morality. A widow may own part of the equity of slave with the rest financed by credit from bank, so it is simply not a moral decision for her to simply set her slave free. The slave was not fully hers to begin with !

Eventually, much like cryptocurrencies we see today,  a bubble was formed when slave prices skyrocketed in the 1850s. A decade later, the US Southern states were willing to start a Civil War to maintain their rights over their slave labor.

The ideal properties of an asset class has not changed throughout history.

The closest asset class to a slave in modern Singapore society is the REIT. Real estate is a scarce resource, it generates yields and can be leveraged. The only thing real estate cannot do is to breed with other real estate property but it can be argued that yields can easily be used to more units of REITs. This is especially so if you can borrow at a low rate of interest.

I think an understanding of history will allow us to really confront the lunatic fringe financial articles that has of late been very critical of REITs and its role in Singapore. There are accusations that REITs artificially inflate consumer prices and is one of the great Satans of Singapore capitalism. 

Without even getting into the debate of whether REITs or real estate ownership is right or wrong, we should remind ourselves that real estate is now too mixed up with credit and has become some sort of a monetary base itself in Singapore. Even older folks need REITs to fight inflation and maintain their standard of living in the face of perpetually increasing priuces. 

At this stage, like in America in the 1800s, only a serious class warfare or bloodshed can get investors to give up on their REIT portfolios that they fought so hard to accumulate. 

While possibly no blood will be shed over REITs, we should expect a bit of drama at the ballot box. 

Tuesday, January 16, 2018

The Art of the Good Life #6 : Negative thinking

By negative thinking, we mean to live our lives thinking about minimising the negatives rather than maximising the positives.

This makes a lot of sense because we can't really agree on the positive things we should do to achieve optimal success and happiness.

Does taking multi-vitamins work? How much sex is ideal ? Should I diet or exercise to lose weight ?

But we do know what's objectively bad for us - drugs, alcohol and char kway teow.

So instead of doing the right things, some people can do very well simply by avoiding the doing of bad things. Once I read about the "useless caste" in The Economist, I stopped playing computer games entirely because I became convinced that computer games has the power to replace a happy family and a career.

This philosophy is encapsulated in my current margin portfolio that makes an attempt to minimise the semi-variance rather than maximise the returns of a back-tested portfolio. If I can keep the semi-variance small and minimise the downside, I can catch up with the market portfolio by simply employing a reasonable amount of leverage.

Another novel application of this approach is when it comes to friends you choose to hang out with.

In the modern world, success can be lonely and successful people may be too busy building careers and families to develop a social life.

In the absence of successful role-models, it may be helpful to spend some time deconstructing the folks you hang out with and ask yourself what's preventing them from having a happy life. As our brains are wired to be quite critical and judgmental, coming up with an answer would not be too difficult at all.

Some people we know might be flaky and unreliable. Others simply lack a motivation throughout their lives.

Once you discover something about your friends, you need to ask yourself honestly whether you have that same problem. After all, you are the average of five of closest folks you hang out with.

No, unless someone asks politely, you should keep your blunt analysis to yourself.


Sunday, January 14, 2018

What is a "Civet Cat" friend ?

So it's been about 2 weeks of work. I'm getting a lot of very interesting exposure and personal growth from the problems I face at work. Naturally, these problems are very human and is therefore something most engineers have never faced before.

Over the next six months, I will be trying to distill the essence of what I am learning into generalised principles because I am forbidden to talk too much about the actual work that I do. One thing I can share is that I grapple with issues faced by very rich and very unhappy people, some are so rich, even if you add the net worth of the top 3 financial bloggers that you know, their wealth will come up short compared to the folks I am given the opportunity to investigate.

A lot of things I learnt fly in the face of what I have learnt studying for the three degrees I have. The world has become a much stranger place to me.

This Sunday, let's learn about what a "Civet Cat" friend is.

We deal with a lot of dubious financial products in everyday life. Some of these products are aggressively sold because commissions are ridiculous and sometimes even half of the selling price of the product . They can be some land-banking oriented product or fractional ownership of foreign property. Some might be rights over timberland and if you are not too careful, you might end even up with some product related to Gold-backed guarantee as well. 

Most of the time, you get scammed if you buy these products. We financial bloggers fight an uneasy battle with scammers all the time but sometimes we are slow because someone invents a new product an unleashes it against unsuspecting members of the public.

But what is a civet cat ? A civet cat processes coffee beans and because of his sense of smell can pick the best beans to be processed. This is why the best coffee beans are found from civet cat droppings.

Here's a funny thing - The "Civet Cat Friend" is a benign version of these scammers. 

Such a friend can tell amongst these scams, which products can still yield a profit and which don't so they only sell the best products to a select group of wealthy individuals. Over time, having gained the trust of rich friends, Civet Cats can become very rich by earning ridiculous commissions by ensuring that their friends get into products that have pretty solid returns which are uncorrelated with the financial markets.

The existence of the Civet Cat throws a monkey wrench into people who rail against these exotic and borderline illegal products because there are people who have made consistent money out of buying them from a trusted friend. Civet Cats also seem to be nice guys. The richest ones, being those who make the most of their allies the most money.

How do we discover a Civet Cat? I do not know of one personally but I guess it is  someone who not only sells, but has a network of wealthy people they have on a first name basis. There must be evidence that he or she will only sell a few products even though he has a universe of products that he can tout. Also, a Civet Cat must also be well-loved and be constantly consulted and fawned over by these wealthy people. They can't be the guy who owns a flashy Maserati (even though many may own one), they need to be the guy who talks about the Maserati their clients bought after listening to his good advice. 

Sadly, most of us, myself included, will not sought by Civet Cats because we do not belong in that league to be included in their circles so it is still better to remain skeptical of dubious financial products. 

Naturally, the fake Civet Cats will out number the real ones, constantly proclaiming that they are the real McCoy and the path to riches lies through the products that they sell. 

I know a real one will never approach me now, so I can wear my CB face and ask them to talk to my hand.








Saturday, January 13, 2018

How I coped with my shitty O level results

[ The original title of this article would have been tasteless in light of the latest news on social media about the teen who committed suicide over his O level results. I have amended the title as soon as I could after hearing the news and corroborating it from different sources ]

Sec 4A from the 1987 intake of Swiss Cottage Secondary was the only Pure Science class in the school. The administration felt that their students would not have what it took to enter medical school so Pure Science meant taking only pure Physics and Chemistry. In spite of this, entry into the class was relatively competitive because, for some arcane reason, it was just cooler to be in Pure Science in the 1980s.

The other distinguishing feature of Sec 4A was that it was arrogant. Possibly the most arrogant class ever produced in the history of the secondary school.

We were the rare forty or so Pure Science students, we thought we were like the Aryans, the Master Race, of the school.  We never had a formal classroom, the school ran out of space and gave us science lab which was crazy by today's standards.

We were indignant and we overcompensated.

We won the Drama competition and when Sec 4D challenged us to soccer match to curb our arrogance, we thrashed them as well.  We formally complained to the school administration when we felt that the Pure Physics questions were too easy and did not reflect the level difficulty in other schools. We banded together to complain again when the Physics preliminary exams were riddled with errors.

We did all this on our own without parental support, I remember going to the National library to research on A level texts to prove why the teacher's answers were wrong. And we were so terrifying, there was a period of time where we never even had a Physics teacher because teachers expressed reluctance to teach us because we self-studied so aggressively.

But Sec 4A had one weakness which blindsided us and made us fall.

We were mostly Chinese helicopters. The Ang Mo Tua Kees went into 4B because 4B offered English Literature. Sec 4A were basically kids with mathematical aptitude that came from Chinese speaking families. We thought we could do EL1, but we were woefully inadequate for the actual exam.

For the O levels, the mightily arrogant Sec 4A was given the biggest thrashing it ever had experienced as a class. 4 out of 5 top O level students eventually went to Sec 4B. The English Literature teacher, who actually refused to give the class our drama trophies because we were such arrogant fuckers, was jubilant.

Naturally, my O level showing was the most humiliating showing in my entire my life.

I got B4 for English, B3 for Geography. My total score was 11 and scraped through NJC likely because I took a rare combination involving Computing and Further Maths. The idea of leaving a JC after 3 months of bonding with your classmates is a terrifying one, some of my classmates were crying when their appeals to stay in NJC failed. One, who is a Phd in Engineering today, even contemplated monk-hood.

Many years later, Sec 4A alumni had a gathering. On the whole, we had done rather well in tertiary education.

One of things we spoke, and had great memories of, is how much we hated  doing so badly for our O levels and losing to Sec 4B and why the bulk of us who became professionals really did not want the experience of humiliation to repeat itself.

We drive ourselves hard.

I think this humiliation continues to drive me until today.

At the back of my mind, I think that perhaps Sec 4A of 1987 cohort would be able to produce a lawyer trained for the Singapore Bar in 2018.

But looking back, I think being scarred by my O level showing turned out be quite ok for me on hindsight.

So to the folks who had a shit O level showing....

Not letting that failure define you is a lost opportunity.

Let the anger and humiliation consume you.

Take it personally if a teacher laughs at you or puts your down.

For subsequent rounds, it will be payback time !










Wednesday, January 10, 2018

The Art of the Good Life #5 : Productivity and counter-productivity

As I have just started working again for a prolonged period of time, it has become worth my time to start thinking productivity. The book I have chosen to read this week is entitled The Productivity Project by Chris Bailey. I will list out three outstanding life hacks here.

a) Drink water first thing in the morning

This simple hack is something worth trying out immediately. Drinking plain water can boost your metabolism by 24%.

b) Maintenance Day

Another useful hack is to institute a Maintenance day to do all your personal stuff in one batch. Designate a single day to perform routine personal tasks like clipping your nails, doing your hair and other acts of personal maintenance. This frees up the rest of your time to do more important projects.

c) Learn to day dream and focus your attention on a single task

Imagination pays its own dividends and you should devote some specific time just to daydream. This can be a great use of travel time. If you are not being deliberately distracted, avoid multitasking. Perform one task in short bursts of 25 minutes while taking a short break between each burst of concentrated effort.

The book contains a lot more hacks that are simple and elegant.

Coincidentally, The Art of the Good life has a very different chapter called counter-productivity which should have filled a much needed complementary chapter in The Productivity Project. There is this prevailing idea that technology will increase our productivity but we should be mindful that in reality, a lot of technology is counter productive. A car will allow you to match speeds above that of a public bus, but driving to work requires attention and you will end up wasting a lot of time looking for parking space. You will find in practice that folks with vehicles are not the most punctual folks to have around. Similarly, email just makes mailing so cheap that you end up sifting through tons of FYI emails in your workplace.

This makes simple productivity hacks more significant and meaningful.

Technology is not always the answer.

Sunday, January 07, 2018

Personal Update - Training has begun.

It's about time to provide a personal update.

a) Training

Training has commenced for a week. I spent the first two days working until around 9pm. Comparing notes against my fellow trainees who are spread over other firms, I consider myself to be very lucky as some of my peers are finishing the first day of work at 2am in the morning. For the sake of the rookie lawyers reading this blog, I will begin pinging my classmates and sharing the consolidated data on this blog throughout this six months.

Some of the advantages of being a financially independent mid-career hirer is starting to bear out as we get into the workplace. The training stipend is a very small component of my income. The same cannot be said for a young professional trying to make his way within the industry.

I will be trying to get a bigger lead on my competitors and will be researching what local small firms can recover from government bodies for giving a fighting chance to a 40-something year old who has been unemployed for the past 4 years. Hopefully, hiring me will ultimately be virtually free thanks to the latest government incentives.

Yes, my peers are younger, sharper and more energetic. But I hope to have government subsidies backing up my candidacy.

b) Financial Markets

It has been a fantastic first week for my portfolio.

This January, we're seeing a very strong Capricorn effect. The market upswing in January seems to be much stronger if December has been a flat month. I am seeing some upside to my core portfolio but the real winner is my margin portfolio which has been up 5 out of 5 days. If I see similar performance over the next two weeks, my margin portfolio would be complete before Chinese New Year.

I need to get out of Tech firms and pick up higher yielding counters early 2018.

c) Crypto-currency markets

At the tail end of December, I started messing around with my cryptocurrency holdings because it has burgeoned up to about $2500 over the past 1 year from a spare change of around $100. As exchanges are limiting the amounts I can put into crypto, I can only play with what I have but I made one good move to plough half of my holdings in Ripple.

The resulting effect is that I now have around $5000 spread somewhat equally over 7 different coins. I don't have a methodology to trade cryptocurrencies because I think we're riding on a temporary mania. I am also not likely to make a lot because I have no intention to sell so I expect to see a crash before the year is over. However, for me to lose money, my entire crypto currency would have to crash around 80% though.

I see all this as the latest MMORPG that I am playing with.

d) Moratorium on book buying

My moratorium on book buying is off to a good start. The first week, I have already identified >$200 of books which I would have wanted to buy. John Naisbitt launched a new Megatrends book and Paranoia RPG just arrived in Singapore. SMU has just launched a new book on bitcoins and inclusiveness.

The $200 I saved was immediately committed to LTC.

e) Upcoming talks

I do have an upcoming investing talk at the end of January but I was told not to market it yet as the sponsor wants to give priority to their own customers. Maybe I can talk about it in about two weeks.