Friday, September 30, 2016

Legal issues which are of concern to financial bloggers.

Some financial bloggers know that one of my personal aims is to become the financial blogger that other bloggers read. This forces me to always push myself at the fore-front of thought leadership in personal finance but it also sacrifices some relevance to ordinary readers.

I have an exam in Financial Regulations after my mid-term break and deliberately made it a point to write this article for all financial bloggers as we always have some legal concerns on the articles which we write.

As I am but a humble law student, please do not take this as legal advice, but appreciate this as an essay on how I intend to manage my own personal risks when putting up articles on this blog.

A key risk of financial blogging is that if someone makes a complaint to MAS that we are providing financial advise without a license, we face the risk of  being fined or given a jail term.

a) What constitutes financial advise ?

Schedule Two of the Financial Advisor's Act (FAA) has the following definition on what financial advise is. As you can observe later on, some blog articles can constitute research analysis concerning an investment product like a stock. Even promoting a plain-jane ETF strategy can run the risk of attempting to market a collective investment scheme.

Basically if you are considered to provide a financial advisory service, you will need to obtain a license from MAS and be subject to more stringent regulations.

You can find the snippet from Schedule Two here :

1.  Advising others, either directly or through publications or writings, and whether in electronic, print or other form, concerning any investment product, other than —
in the manner set out in paragraph 2; or
advising on corporate finance within the meaning of the Securities and Futures Act (Cap. 289).
2.  Advising others by issuing or promulgating research analyses or research reports, whether in electronic, print or other form, concerning any investment product.
3.  Marketing of any collective investment scheme.
4.  Arranging of any contract of insurance in respect of life policies, other than a contract of reinsurance.

b) So how do bloggers get their exemption from getting  a license ?
MAS obviously does not really want to spend their time going after bloggers, so an exemption occurs under the first schedule of the SFA. The following section 4, under Schedule 1 of the FAA relieves financial bloggers from the need to obtain a license.

4.  Any person who owns, operates or provides an information service through an electronic, or a broadcasting or telecommunications medium, where —
the service is generally available to the public in Singapore;
any advice given, or analysis or report issued or promulgated, is given, issued or promulgated only through that service;
that person receives no commission or other consideration, apart from any fee received from subscription to the service, for giving the advice, or for issuing or promulgating the analysis or report; and
 the advice is given, or the analysis or report is issued or promulgated, solely as incidental to that person’s ownership, operation or provision of that service.

Blogging is generally available to the public in Singapore. Our articles are issued only on our blogs, we get no commissions from our readers and the advice given by blogs is incidental to the operation of our blog.

So in essence, if you are a financial blogger, you are safe.

c) Some risks are heightened when we get into the public and speak to people.

One issue which was repeatedly bugging me is next week's talk when participants do pay good money to engage with us. 

Due to the lack of common law precedents, I can only offer a very amateurish take on cases where bloggers get paid for a public appearance to mingle with fans.

One possibility is that the exemption remains valid because the blogger does not get commissions from any sales of securities from the talk. But I am not comfortable with this notion because being paid a fee may be considered "other consideration" as stated in 4(c). 

The safest course of action is to treat all public appearance as voiding the exemption for financial bloggers. 

This means that we need to be extra careful once we start speaking for a fee.

d) Financial bloggers need to be careful when interacting with the public for a fee.

Some things we have done :
  • In this case, it may be safer to make sure that every power point slide does not mention specific securities so that it cannot be interpreted as an inducement to get the public to buy something. I have censored some screenshots from Bloomberg to avoid creating the impression that the stocks in the screen-shot are buy recommendations.
  • Another possibility is to couch our answers in way that it cannot misunderstood as any form of advice but what we would do for our own portfolios given our personal situation and how we assess the markets.
  • The safest way to share the strategy are broad strategic ideas that add value to the participant without making a buy/sell recommendation for any stock counter. 
Anyway, that's all I have for now given how much I studied our local laws. 

The only way for me to know more and become more useful to other bloggers is that I somehow get into real legal practice and take on actual cases. 

Please so not mistake this as legal advise. 

Always consult a real lawyer. 

Wednesday, September 28, 2016

Talk by financial bloggers got sold out in less than 24 hours !

As our friendly neighbourhood troll, SMOL has rightfully pointed out, I did not do a really great job promoting my fellow bloggers Kyith and Brian who were giving this talk on 6th October 2016.

I was actually meaning to meet up with them yesterday to have a discussion on the talk and then drum up support for the talk today in a separate article.

How was I to know that we got SOLD OUT IN LESS THAN 24 hours ?

So I have no talk to promote today.

For the folks who were disappointed that they are unable to get tickets, we are definitely planning a similar session soon once we get our numbers and logistical planning right, we are doing this the first time as a team and really want to make this a successful enterprise.

So yesterday Kyith, Brian and myself met up to discuss this upcoming talk. one of our key concerns was to make sure that participants get their value for money. We expect you guys to want this session to be more fruitful than the $19 that you paid for.

As a law student, I have other worries, I was mugging up on the Financial Advisors Act and walked through some legal risks we might be getting ourselves into so its important to maintain that we are not making a recommendation on any financial products. We are just sharing on how we manage our own finances.

More interesting, we were brainstorming tactics on tackling more difficult questions from the crowd.

I thought I'd just share a tough question we came up with which stumped ourselves :

If you have a choice between creating a bond ladder or investing in the Asian Bond ETF, which would you choose and why ?

We did eventually come up with an answer amongst ourselves but I think we should get participants to send questions to us via email.

If you wish to have a question addressed on 6th October, do email me at

Things can a lot easier and objective if I can refer to a Bloomberg terminal before I can provide an answer.

Tuesday, September 27, 2016

Talk Event - Building Cash Flow from Stocks

From  a professional perspective, I will be making a fairly substantial leap in about a week's time. In the past, I have been giving free talks to members of the public on money matters.

This time round, the talk which I will be giving will be a paid talk but at a reasonable $19.

Myself and a few other prominent bloggers are part of a collective called BigScribe. We think that we will be more effective in promoting ourselves when we band together and pool our resources because some of us can do research, others are really good at speaking and marketing.

As this is the first time I will be speaking behind a pay-wall, so we are going to try to make it as valuable to you as reasonably possible but as it is our maiden effort, this talk will still be geared towards beginners.

I will first conduct a short presentation on on how all of us bloggers agree on how to build up cash flow from stocks, after which I will talk about how I filter the stock market for counters for sustainable dividend yields.

After which the panel segment will begin proper as we have already anticipated some of the questions you guys would have. The other bloggers will participate in this panel and answer these questions to the best of their ability.

Saturday, September 24, 2016

On Oscar Wilde, cynics, price and value.

Today's piece is going to be little philosophical.

Let's start with Oscar Wilde's definition of a cynic which is  "A man who knows the price of everything and the value of nothing."

I thought this is exactly the kind of nasty remark most disgruntled Singaporeans would heap on a value investor so I thought it might be a good time to think deeper about this statement. It is highly probable that a person who thrives on economic analysis would see everything in economic terms.

After all, once you have a hammer in your hands, everything looks like a nail.

I'm going to propose a philosophical framework for us investment types not to fall into the trap of valuing everything via economic means. The inspiration for this idea is from the book The Five Life Decisions by Robert T Michael which is yet another excellent read which details a longitudinal study on Millenials and the consequences of the many life decisions they made. This also ties into my exhortation a few essays ago that we should study Gen X like an anthropologist and decide whether the YOLO philosophy makes sense for you.

My framework is as follows :

We need to understand that some things in life are means to an end as opposed to other things which are ends in itself. There is also a hybrid class of things which are both means and ends.

Here are my proposed examples :

a) An education is largely a means to some end. 

The study confirmed that even in the US, for the batch born in 1980, a higher education results in higher wage differentials, with someone with an advanced degree earning twice as that of a someone with a high school diploma. More damning news for the folks who want to emulate Bill Gates the Harvard dropout, the gap widens dramatically as the Millenials grow older.

An education also determines the people you associate with, who you marry, your lifespan, and the odds of your children also receiving a high education.

It is a key decision you have to make in your life. But education does not really stand on its own, it is merely a means to end. As such, economic analysis is useful in this regard. What courses to take should account for employment opportunities and median salaries.

b) A spouse is both a means and an end.

If you perform economic analysis on whether to marry, there is ample evidence to go ahead and get hitched in ROM. While it is not accurate to say that two can live on the price of one, according to the survey, two can indeed live on the price of 1.62. ( In fact 5 can live on the price of 3, but polygamy is not longer allowed in modern societies ! )

Marriage allows two people to complement each other and specialise in something to keep the household running, but marriage also takes time to work out and generate enough savings for both husband and wife so the overwhelming advice from the survey is to marry only if you have a long term orientation. Another words, if your significant other is a "here and now" kind of crazy personality, the best advice is to dump the person ASAP and find someone more stable.

But we don't generally do economic analysis on our spouses because you cannot really put a price tag on the intimacy and joys of being with someone else. Otherwise, SDU would have been much more successful in that case we Singaporeans are such a kiasu people.

c) Children are better treated as an end in itself.

Unless you are really perverse, children should not be the means to anything. They are really expensive to raise in the US which can cost $1,000 per month from ages 0-2. While it's way cheaper in Singapore thanks to government subsidies, parents suffer from bad job performance and lose a lot of personal freedom once they have kids. So right now, no economic analysis can justify having children in modern society.

But once you shift your focus to children as an end in itself, then very possibly you can enjoy the process of raising kids.

This is the key to avoid becoming a cynic.

Children should be treated as ends rather than means. We become financially independent to raise our kids. But it's not wise nor realistic to raise kids thinking that  they can make us financially independent although some very successful parents may be able to that.

But it does not end at just kids.

Sports, artistic and cultural endeavours are better off evaluated as an end point objective rather than some sort of means to an end.

Which comes back to my previous point on Vladimir Nabokov. Cultural capital should based on its own merit, and not to be benchmarked against other forms of capital. Otherwise, there will be no art and beauty in society at all.

Of course, this framework cannot deal adequately with all issues we face in this modern age.

If a person wishes to study for a qualification in Fine Arts, he is paying good money to eventually join an economy which places little value on their qualification. He needs to be clear that Fine Arts is an end and should not expect to be remunerated ( unless he is very talented ) as perhaps a surgeon should in modern society.

The most pragmatic way of dealing with this problem is to simply be born with rich parents.

Wednesday, September 21, 2016

What do high income people know ?

Self-help in this age of complicated data analytics means that the advice we can get on how to conduct our lives can become very specific and very useful. This is light years ahead of the good old days where we are stuck with Dale Carnegie, Stephen Covey and, worse, Napoleon Hill if we actually try to read to improve ourselves.

William Poundstone's Head in the Clouds, can be a very disturbing read but I now view it as a compulsory read if one aspires to be a thought leader in personal finance. William's experiment is ground breaking because he invented a questionnaire which asks a series of questions on general knowledge and then he maps out the answers to a person's earned income. In many cases, he adjusted his statistical results to remove the effects of age and educational level.

What we have is a guide to what a person knows against his annual income.

I am just going to share three findings which really made me think.

a) Knowing about personal finance increases wealth and income but not dramatically.

Knowing about personal finance such as effects of compounding interest would ideally be the biggest predictor of income and wealth, but it had only a moderate effect. The income gap between a person who knows compound interest and basic personal finance is only $20,000.

b) General knowledge and in particular basic knowledge on sports has the greatest effect on income and wealth.

The biggest income gap is worth over $50,000 of annual income is general knowledge and basic knowledge on sports. The folks who can point to Kazakhstan on the map have a huge income differential against someone who could not do so. That is somehow intuitive.

What is not intuitive is that knowledge on sports also results in a dramatic difference. But the questions on sports were simple ones which well-informed persons would know such as the number of players in a soccer team.

But don't start cancelling your Economist subscription for the New Paper yet ! When Poundstone created a sports quiz for die hard fans, the income difference vanishes. I struggle with understanding result and harbour grave doubts that this will replicate in Singapore.

c) Cultural knowledge does not result in any income difference

The most hilarious result is that cultural knowledge does not result in any income advantage at all. If you know that Vladimir Nabokov is the author of the book Lolita, it does not enrich you financially in any way ! This is a mind-blowing finding which nay have repercussions on how the US would see their cultural education in the future.

The only current explanation is that the folks who have a mastery of cultural trivia tends to be lower paid than other segments of US society.

d) Open mindedness and curiosity are important traits for wealth creation.

If we are to take our findings in totality, open-mindedness and curiosity are valuable traits for wealth creation. The quiz was designed to be done well by someone who reads beyond his syllabus no matter what his educational qualifications are, which explains why general knowledge creates such a robust income difference even after adjusting for educational qualifications.

Certainly this book has changed my views on the personality traits for wealth creation.

I would place Conscientious and Open-mindedness key in my future works on Learning how to Earn.

Sunday, September 18, 2016

Learning as a fundamental skill in personal finance.

If you look at the news on the glut of law students, one lesson becomes clear : there are no clear career paths with guarantees of comfortable middle class lifestyle. Engineers have always lived in this reality because when times are good, foreigners will be deliberately introduced into the economy to keep salaries and business costs on the low side. The only solution is extreme austerity, career gamesmanship and savvy investing.

Moving forward, I no longer think that my classmates are destined for a good life anymore. For even the select few who can get into the big four law firms, their constitution and resilience will be severely tested. Even with the high incomes, the glut will ensure that the legal industry remains an employer's market for the next 5-10 years. An employer's market based on my personal experience means that you have to accept the working conditions no matter how bad things get. Law students who cannot get a training certificate would have to think of creative ways to have a legal career as a non-lawyer, which can be just as lucrative if played right. Advantage will go to the more creative folks.  

This reflects a problem in personal finance, where no one has really bothered to study pre-employment issues in wealth accumulation. Most of us are stuck with the belief that we need high earnings to generate high savings before investment can even take place. 

But what enables you to get the high earnings in the first place ? In China, a vocational skills certificate enables the same pay as a graduate degree because skills are in a much higher demand in Chinese society. In Singapore, an NUS graduate can hand-in-heart expect $500 more per month than an SIM graduate. 

From this point onwards, a thought leader in personal finance must be focused on Learning as a skill.

Learning is pre-requisite to earning. In knowledge-based economies, the best learners can command the highest salaries. In the book Head in the Clouds by William Poundstone, people who can answer questions on the world history and current affairs were found to have higher salaries. But that's not all, Poundstone adjusted the statistical models to account for education and age and still found that folks who knew more still commanded higher incomes than those who did not. The differences were stark, a graduate who is knowledgeable about world affairs can command almost twice the salary of a similarly aged graduate who was not as knowledgeable. This is in spite of knowledge losing its currency in a world of search engines. 

Learning is also a post-requisite to financial independence. Once all your financial goals are met, your curiosity and open-mindedness will probably determine the quality of your life after you dispense with the need to work for someone. Otherwise it's just meaningless existence of sharing food photos and watching cat videos on the Internet.  

I am only halfway though the Poundstone book, after which I will read The Five Life Decisions by Robert Michael on how Millenials make key decision on what to study and who to marry. 

The aim is to find a way to instill curiosity into someone regardless of his/her academic talent. 

I hope to be able to have enough research material to establish Learning as a fundamental personal finance skill. 


Thursday, September 15, 2016

[Vote for me #3] Investing your money starts with containing your costs

[ I have submitted a personal finance essay and right now, I am still canvassing for votes here. Voting will only end on 16th September. I will be writing  a set of three essays to elaborate on the ideas presented in my essay in the hopes that I can get more hopes and hopefully win something for this competition. This is the third and last essay ]

The last component is investing your money, and I will not go into the territory covered by other bloggers on specifically investing which stock counters, instead I will share general tips which would dramatically improve your investment performance.

a) Investing is about cost control, so you need to get rid of parasites out to suck you dry

If you are focused on investment performance and always trying to guess which sector or industry would outperform the markets, you are already wrong. The performance of global equities over time will always be around 7-8% per annum. For bonds, you might be lucky to get 3-4%.

Face with this reality, the fastest way to outperform is by controlling your costs. If you buy a unit trust or ILP from some financial advisor, you can lose thousands when you hit retirement age because the expense ratios and management fees will cause you to lose 2.5% every year. So your equity returns are more likely to be around 5.5% per year.

The same applies if you invest your own money in the stock market but churn your own account often. The money goes to your stock-broker.

b) Investing is about spreading your risks

Too many investors think that they invest like Warren Buffett. Too many end up investing like Jimmy Buffett. The really good guys who can read financial statements might be able to hold 8-12 stocks and achieve returns of 30% every year, but most of us are average investors.

I think that it is better to assume that you are an average guy.

I hold about 30+ stocks because I really don't want to be affected by the underperformance of one counter. Instead, some of bad performance of my stocks are counteracted by those which outperform, giving me a good night's sleep.

c) ETFs are the best tool to lower costs and spread your risks.

If you agree with my earlier points then an ETF which covers all the stocks like Straits times index is a great way to reduce your costs and spread your risks. For beginners, a simple strategy of holding a stock and bond index is a great way to invest your money without going through the lengths of becoming a stock market expert.

d) If you are stock picker, be principled with your stock picking approach. 

If you fancy yourself as a stock picker, then you will need to be principled in your stock picking approach. You can't really wake up one morning and decide that Sheng Siong is a great stock because your wife shops there everyday ( Even though Sheng Siong is actually a great stock to have over the past year ).

I use a Bloomberg terminal which is free for all SMU students. You can use a terminal for free at the central library but fighting the other uncles for a 1 hour slot can be quite annoying.

I employ a selection criteria like "high dividend yields" and "free cash flow > dividends". Every now and then, Bloomberg gives me a list of stocks which meet my criteria, then I try to check out stocks which have yet to own. I will research and then buy the counter if the dividends I accumulate to spread my portfolio further.

Every now and then I try to run a simulation on how my strategy would perform in the markets over the next 10 years.

This is to convince me that the strategy I employ is not a bad joke.

e) I do have money set aside for high-risk investments

As I am a financial blogger, maintaining a degree of thought leadership matters to me, so I dabble in crowdfunding websites and mine cryptocurrencies in a datacenter in Iceland.

These initiatives rarely make me any substantial amount of money but reading up aggressively on these new ideas keeps me updated on technology trends and adds an X factor to my class presentations.

The combined effects of my investment portfolio and high risk initiatives is that I have very little money on me at all times after setting aside family expenses.

How little liquidity I have is often affected by rights issues from my REITs investments.