Friday, January 17, 2020

Personal Update

It's time for another personal update.

a) No classes until end-March 2020.

My next ERM is quite a while away on 28 March. This is to have a short break for Chinese New Year but I will be keeping myself  busy. At the top of my agenda is to create an alternative preview for my course to keep things fresh for myself as well as for folks who need another preview to make up their minds.

This year we are going to push the envelope further and one of the things I want to disrupt is the idea that  preview is merely sales vehicle to drive more conversions. With an alternative preview format with different content, I am trying to embrace the idea of the course preview as "theatre", an opportunity not just to inform, but to entertain.

So we will still have the current play (super-successful so far I might add) which is entitled "The Four Seasons", but I will performing in February a different preview called "Roads to Riches" next month.

I think the crux of my drive is to do less selling and to do more edutainment. Expect to see more research and data in the newer talk that will be relevant for your financial life. The idea is that if you can learn so much in 2 hours, imagine how much you can pick up in 2 days.

b) Work-life integration of Netflix

As part of the drive towards a new theatrical performance, I have made it a point to integrate Netflix to my personal life. I have started binge watching on stand up comedy - trying to integrate some aspects of it into my work. I've not managed to go very far, having only managed to repurpose a few quips from The Witcher into my last finance talk.

I would just like to say that of all the stand-up comedy I watched, Ricky Gervais' Humanity is the best one so far. Do watch it if you can. Also, if you want something Singaporeans can relate to, you can follow Ronnie Chieng.

c) Starting work-outs with a personal trainer

This has also been a painful week with my first session with a personal trainer. My trainer has experience with diabetics patients and started with a rigorous workout targeting my leg muscles on Tuesday. The work-out were ok on that day itself, but I ended up taking painkillers on Thursday.

I have just recovered and will go back to normal exercise later. Hopefully the pain will pay off dividends in the form of stronger muscles as I suspect that I am suffering from sarcopenia or accelerated muscle loss.

d) Travelling this weekend

There will be no update this weekend as I will be travelling to KL with my mum. We will be travelling to KL to meet up with some relatives and I need to get some second hand book shopping done.

e) Books I am reading

I am currently reading a Wiley Finance volume on how to integrate Big Data and Machine Learning into Quantitative Finance and am really shocked at the new sources of alpha hedge fund managers are currently using, many involving non-traditional sources of data.

I am pretty certain now that almost all of us are really in the stone age when it comes to investing and I suspect even these hedge fund analysts will be rendered obsolete by newer ideas in a year or two. Maybe the only way to keep being in the know is to become a perpetual student and never leave cutting edge.

Thursday, January 16, 2020

My first dumb trading move in 2020...

Occasionally, I do something that is so dumb that it's worth putting up a blog article to warn readers not to do the same thing as I did.

I am currently in the process of cleaning out my father's portfolio and slowly removing his less promising investments from the family portfolio. One of the items I was eager to get rid of is 80,000 shares in Neratel. So two days ago, I put a sell position on 80,000 of Neratel and cycled the position into an equivalent amount of Netlink trust - I needed my mum to get dependable dividends moving forward so I can afford only the safest investments moving forward.

This would have been fantastic move.... if only I actually had 80,000 shares of Neratel !

So I got a call from the broker the next day telling me that I sold stocks that I did not actually own in my CDP. This was the first time it has happened, and it was the shock of my life.

The broker then sent me an email explaining what happens when an idiot like me sells stocks he does not have in his CDP account.

  • SGX will attempt to buy back the stock with this idiot's account on due date and due date + 1. Due date being T+2 where T was the date the original transaction took place.
  • Here's the scary bit. If the buy-in on due date and due date+1 is unsuccessful, a penalty of 5% of the transaction value or $1,000 will be imposed (whichever amount is larger).
  • A buy-in fee of $80.25 will be imposed along with fees that scale with the size of the transaction.
  • SGX will slowly ratchet up the offer price by 2 minimum bids during the buy-in attempt.
So for the next two days, I was gritting my teeth and staring at Neratel stock. Adding to the suspense, Neratel was illiquid and there were several offers at $0.285. Making matters worse, my broker advised me not to buy into the counter proactively to lock in the price earlier because the settlement would be too late and SGX would still perform the buy-in on due date based on the rules they established earlier.

To make the long story short, this stupid attempt to trade Neratel cost me about $800-$1,000. The pain was bearable because the amounts were small compared to my greater portfolio and the past two days has been rather good for the stock market. Also, the results would have been more catastrophic if I did not have about $20,000 in my cash account - I initially wanted farm my proceeds into Netlink Trust, so now I have to pay for Netlink Trust using cash at T+2 !

Nevertheless, this amount of money would have gotten me several good meals in KL.

If I had simply opened my CDP account on a browser tab and made a quick check before I sold my stocks, I would have saved myself from a world of pain.

Anyway, please learn from my mistake and don't be like me ! 

Tuesday, January 14, 2020

MBA in a Nutshell #20 - Accounting and Finance : The Balance Sheet

Image result for balance sheet

Interesting the section on balance sheet is only two pages long.

In a nutshell, a balance sheet is a snap-shot that summarizes everything the company owns (assets) and owes (liabilities). The difference between what the company owns and owe belongs to shareholders and this is called equity. The following equation must hold for all balance sheet

Assets = Liabilities + Equity

Beyond this very simple discussion on the balance are some items investors need to be aware of.

Assets minus Liabilities is also known as a company's Book Value. Dividing the market capitalization of the stock by the total book value will generate the P/B ratio. Value investors buy low P/B ratio companies because they are in essence buying up assets at a price lower than its value. Interesting, if you have gone for a lower P/B ratio in the Singapore stock market, you would get a return of 10.11% over the return of the entire universe of Singapore stocks which was 8.2%. This return would have been obtained at a lower risk.

The other interesting ratio is the debt to equity ratio which is total liabilities divided by total equity. I never do back-testing on this metric for equities because in all the tests done in the US that stretch back 50+ years, having a high D/E ratio and a low D/E ratio both lead to under performance. The sweet spot is to be around the 30% percentile. While I do D/E ratio back-testing for REITs, strategies targeting low gearing are no longer profitable in our stock-market. 

No one ever said investing is easy.

Sunday, January 12, 2020

Letter to Batch 11 of the Early Retirement Masterclass

Dear Students of Batch 11,

It’s been a great honour and privilege to be able to conduct a 2-Day Early Retirement Workshop for you.

One of my worst fears came true when teaching this class. I fell sick and was running a high fever throughout Day 1. Because I previously had a flu vaccine, the symptoms were so minor that I was able to use Panadol to still get away with a decent program run over the weekend. The lesson I would think we can learn from this is to get a flu jab wherever possible - A $30 intervention can prevent the loss of not just my trainer fees, but also the valuable time of the students of this program.

Otherwise, a lot of things occurred outside the classroom. DPP won the Taiwanese elections. This means that Chinese tourists would continue to visit Singapore since they are probably not welcome in Hong Kong or Taiwan, which in my opinion, should make this a bullish event for hospitality trusts with Singapore assets.

This is also the class where I begin my attempts to introduce investments outside our quantitative models. For the blue-chips equity portfolio, I made sure that only household brands were admitted into the portfolio mix. This is consistent with the idea that 2020, investors will be willing to take on more investment risk as it is the last year of the Presidential cycle. I am glad that after review, the class has accepted both proposals.

For the income portfolio, the class took a different tactic compared to previous classes, voting for a portfolio that gave higher returns but at a higher risk. Given that yields of such a portfolio is low, I had to insert two counters to uplift the dividend yields and am glad that one stock was chosen. The final product would yield 6.55% and over 10.02% when leveraged with an equity multiplier of 2.

I felt that the class did it’s best today and we were careful and judicious about eliminating stocks from the quantitative models. I will be investing $17,000 into the 17 counters that you have selected over the past two days. As I might be travelling to KL this week, execution will be at latest next week.

Finally, it is heart-warming is that I am seeing students leave the classroom and chatting in groups after class. Please don’t forget that the ERM Class is a significant investment on your part and you should network aggressively – maybe a fellow classmate may become a springboard to better things in the future.

I will see you folks at the Facebook group.

Christopher Ng Wai Chung

Wednesday, January 08, 2020

MBA in a Nutshell #19 - Accounting and Finance : Risk management

We're opening a new year to discuss Chapter 2 of the book MBA in a Nutshell. As it turns out the accounting and finance section of most MBA sections are structured very differently from the CFA syllabus. CFA charter-holders assess an investment as an outsider looking in whereas MBAs use their knowledge to manage a company from an insider's perspective. The author also disclaims that the book focuses on the managerial aspects of accounting and not the financial aspects of accounting that focuses more on compliance.

The chapter opens with the most important tasks performed by Chief Financial Officers or CFOs - Risk Management. As it turns out, doing risk management for a company is a complicated task requiring the support of a multidisciplinary workforce.

Risk Management covers the following :

a) Business Partners - How dependent is the company on them ? This requires knowledge on legal aspects of the relationship as well as an understanding of their culture.

b) Adversaries - What is our competitor's market share ?  Do we have intelligence on them ? Are they spying on us ?

c) Customers - What credit risk do they pose ? Do we have product liabilities ?

d) Intermediaries - Can the intermediaries deliver ? What is their cost of distribution ?

e) Financial considerations - How much forex risk are we exposed to ?

f) Operational - This occupies a lot of time as it covers issues like systems downtimes and physical security.

g) Human Resources - What are our staffing needs ? What are HR policies like ?

h) Political - Is there a risk of terrorism or war ?

g) Legal - How do we protect our intellectual property ? Is there ongoing litigation ?

h) Reputation risk - Is the corporate image vulnerable to attacks ?

i) Strategic considerations - How are resources planned and allocated ?

I was actually quite surprised at how broad this subject matter is. In fact, it is plain unfair to make risk management under one CFO - the whole company should play a role in risk management.

Another way of looking at this list is that the more anal investment analysts can use this framework to cover all the bases when analysing the future prospects of the company. But if you resolve to analyse the company using this framework, at what point does an investor stop and conclude that data gathering has ended and a decision needs to be made ?

Sunday, January 05, 2020

Readers need to stop doing this in this new decade !

Image result for booger

With 2020 in full swing and anti-goals being in vogue, maybe it is time readers of this blog stop doing the following :

a) Gawk at the CPF interests earned by other bloggers.

Incidentally, Brian Halim was the first to call people out on this.

I think it is a great practice to check your CPF statement first thing in the new year. If we emerge from a bear market, your CPF will be the only account that will give you something to smile about.

But waving your CPF statement on the Internet like it is your big giant 12-inch penis is dumb. Some folks start out at higher salaries. Others had the benefit of compounding over many years and are old enough to remember Fitzpatrick supermarkets and the grisly Sunny Ang murder case.

Also, as much as I like a nice payout from my CPF as any other Singaporean, having $1 million in your CPF means money to spend only after age 55. Maybe you should find a way to have a million before you are 55...

b) Whine about the revision of T&Cs of the new-age bank deposit accounts

I think the bloggers who shared this news are doing a great public service, but I have been very leery of these deposit accounts for a while. In my opinion, signing up for these accounts is like buying a curry puff, and then finding out that it has no filling inside.

First of all, Interest rates on SSBs have been dropping throughout 2019, it is no accident that banks will tweak the T&Cs of these accounts. Secondly, banks clearly want control over your financial destiny so they can offer you a higher interest on deposits if you buy insurance or invest with them. Thirdly, these interest rates are de minimus compared bigger issues on your plate - the rest of your investment portfolio and your human capital that comes in the form of your day job.

So use your common sense - Higher interest rates are a rebate for paying hefty management fees.

Instead, buying a bank stocks can easily fetch you 4% in dividends. If dividends get slashed, you can even KPKB at the AGM or even get more food during the buffet.

c) Stop bothering about your miles or cash back schemes

While I do pop into some apps before I buy from Amazon to get discounts. I do not take a lot of pains to optimize my purchases. The financial equivalent of  improving your aim when flicking your Pi Sai is thinking about miles and cash back schemes.

When I discussed this issue with a friend, he said that a lot of Millenials actually think that finding out loopholes to optimize miles and cash back is a significant component of personal financial planning.

It is not.

Stop majoring in minor things.

You are better off not spending in the first place.

So what should we think about ?

Let's just start with one thing to think about this year for most blog readers who have yet to FIRE.I don't want to get into a discussion on investments because it largely depends on the size of your portfolio. Also, after a great year, I doubt defensive investments would repeat its performance this year.

So I googled "wage increase in Singapore" and the projection for 2020 is 3%.

If you draw $50,000 a year, that is $1,500 more money every year thereafter. What if you find a way to get an increment that is twice as high as someone else ? If you find a better job that pays an additional 15%, that's a $7,500 increase every year hence. This will significantly increase the the flow of money into your CPF.

Maybe in the grander scheme of things, you might want to take steps to make yourself more valuable to an employer. This can be farmed back into the markets to make even more for yourself.

Thursday, January 02, 2020

My talk on the Seedly Personal Finance Festival 2020

Time and date of event: 7 March 2020, 10AM-6PM

The venue of the event: Suntec Hall 405 & 406

The following topics will be explored in this event :

This time round, I have been invited to speak on FIRE during the Seedly Personal Finance event this year.

As you can see the working title is still a little generic at the moment as I have yet to start planning my presentation. I expect the final material to be totally new and different from my usual course previews. Maybe one way of predicting the material I will present is to read this blog and see where my literature review is heading over the next few weeks.

You can now book your tickets here : 

There is even a promo code to get a 50% discount here.

Details on the specifics can be found here.

Just remember that last year, tickets were sold out very quickly so get yours as quickly as possible.