Wednesday, May 18, 2016

Is Grit Overrated ?

Bully the Bear has a great article on finding meaning in suffering. I'd thought I would build on this idea by critically examining its ancestral concept of Grit because grit has become the buzzword of the day.

Grit is the ability to take punishment and roll with the punches. People with grit find ways to persist through hardship and self-help literature claimed that gritty people become more successful in life. Because of very persuasive speakers like Angela Duckworth, grit is slowly creeping into the public narrative and it is certainly expected that the best bloggers do talk about grit or its derivative concepts every now and then.

I want to propose that instead of looking at Grit as one true trait of worldly success and financial well-being, it may be more instructive to view grit as a framework of similar ideas in the past on the qualities which leads to success.

Before World War II, the desirable trait to have was high IQ. People with high IQ are faster at grasping new concepts and IQ tests were developed by the US Army to assess the cognitive strengths of new recruits. Singapore took this one step further by creating the gifted program in the 80s as attempts to find better ways to harness our human capital. Unfortunately, with criticisms of elitism, IQ has fallen out of favor in Singapore. While I'm not really a gifted person, I find it ludicrous that intelligent people are made to constantly apologize to the masses for not being able to fit in. I think they can do better by hanging out with normal guys like me who appreciate their quick mental reflexes.

Which lead us to the popular trait of emotional intelligence or EQ which was bandied about in the 90s after becoming viral all thanks to a speech by Goh Chok Tong on a book by Daniel Goleman. Since that event, I bet no GEP student ever gone through their lives without an idiot yelling "You high IQ, but low EQ." at them without realizing that demonizing scholars is itself an act which hints at the lack of empathy.

And now we have Grit. A single measure of persistence which the magic pill to all our personal inadequacies. If a person has grit, he will overcome all personal obstacles in life. If he fails, well, he's just not gritty enough.

I want to caution against the tunnel vision of viewing one single trait for success.

[ This is the same reason I don't think you can become a billionaire by simply  spouting the pithy wisdom of Jack Ma. Jack Ma is a unique human being. I'm sure he did not build Alibaba because he spent his younger days spouting the wisdom of some older billionaire to other people. ]

The problem with IQ is simply that not all high-IQ people do well in life. Some whose IQ exceed 200 spent their entire lives being misunderstood and being unable to monetise the millions of ideas floating around in their heads. In the book Peak by Anders Ericsson, a study on Go masters in Korea, Japan and China discovered that their mean IQ was actually only 97.

The problem with EQ is even worse. People who are full of empathy and who develop very powerful control over their emotional awareness are found to be more gullible and tend to fall for scams.

There is currently very little literature on the downside of grit. But I can imagine that a very persistent person may pursue an idea so aggressively that he would either go bankrupt over it or spend a large part of his limited lifespan pursuing a dead end business.  As there may be a correlation between grit and conscientiousness, I am guessing that people who are too gritty may even have OCD.

My final argument that we should not be overly obsessed with one trait is based on a study on London cab drivers. Scientists find that those who get a license to drive a London Cab has had significant changes to a certain part of their brains such that they can excel at mental tasks which are similar to that of navigating their cabs. However, some tests done for other mental tasks actually showed that the driver performed worse than average person.

When you try to develop a strength at something, are you doing it at the expense of something else ?

Coming back to the essay Bully the Bear, I agree that framing your suffering as a meaningful task will allow you to overcome more obstacles and lead a more fulfilling life.

But life sometimes throws all sort of problems at you. You might work with complete assholes. Your pay grade may not justify the volume of work that you are given.

Your first question should be : Is this suffering necessary for me to commit so much willpower on this issue?

We're back to facing an investment problem again.

Instead of determining your allocation of financial assets, you should be thinking about allocating your attention and willpower to the problem.

Saturday, May 14, 2016

Before you eschew kiasuism...

I was having breakfast with the folks of BigFatPurse and Jon complimented that I would never take the risk of running a business because it's just not something a guy like me would do.

Jon is right.

I would take enough risk to generate the returns I desire but not more than necessary to become financially free. My family's well-being is at stake.

If there is no need to take any more risk, I would prefer to farm my excess funds into the most consistent form of arbitrage that I know of - that of knowledge arbitrage. The cheapest trade-off which has the largest returns is to monetise your knowledge and skill. Knowledge, unlike property, cannot be misappropriated or taken away, so once you have the ability to trade knowledge for wealth, it becomes a fairly consistent means of earning a living.

These day you seldom get really philosophical arguments in Parliament because the government, by and large, works, which is why we need Nominated Members of Parliament in Singapore. NMPs do not need the support of the people and can spout as much irrational nonsense as they want so long as it fulfils the agenda of the tiny minority of people they represent.

NMP Kuik Shiao-Yin has recently sparked a debate on whether Singapore should kill its Kiasu culture.

I have not determined whether on the whole I agree with Kiasu culture but I can say that I am quite exposed to it right now being part of this neurotic system of legal education in SMU.

Kiasuism explains why law students work so hard. But kiasuism without an understanding of the effort and risk it entails can be tiring, stressful and even result in the loss of precious lives.

Right now, I can imagine my batch of classmates graduating into one of the worse markets for legal practitioners in recent memory. My guess, backed by some credible folks in the industry, is that half of them would not be given permanent jobs after their pupillage. The bar exams are also getting harder and there has been talk that standards for Parts An and B have been tightened recently.

A problem is that we did not delve into definition of what a truly Kiasu person would do.

To deal with new economic realities, some of my classmates are pushing themselves harder to game the system.

Just today, I learnt of a brilliant new strategy of applying for a leave of absence citing some personal reasons immediately after a bad exam episode to game the system. The problem with this strategy is diminishing returns if more people execute this stunt. If too many people do this, HR departments would catch onto this.

Or instead a Kiasu person would activate Plan B or look for a Blue Ocean industry elsewhere. This person can do more networking and look into alternative industries which pay better. Another valid way to play the game which requires some hard work and lateral thinking.

The problem is that we don't know whether a Kiasu person would do the former or the latter, and we are now trying to shoot it down in Parliament almost like it's an STD which all Singaporeans have.

I think the most disingenuous application of NMP Kuik's argument is that it is always applied in a school setting. This argument is always about the unhappiness of our children.

I'm going to offer a politically incorrect version of what actually happens when we are Kiasu.

If you are Kiasu and the people around you are not, you are very likely going to be happy at the expense of others. It worked for me during my first semester, I got $4,000 pre-reading my textbooks and giving myself  a 6 month head-start in law school. I was a happy sociopath at the expense of my classmates. But what else is new ? If you have two streams of income when your peers and some bosses have one, you are one happy SOB. Wealth is relative.

Now I have just completed Semester 4. The game has changed.

In school, if everybody is Kiasu, then everybody is unhappy. Eventually a person's lack of talent shows over the long run. My subsequent grades became average once everyone started to pick up on how to excel in class. I end up working harder and getting shittier grades. Now everyone is miserable and angry.

My concern is that NMP Kuik is harbouring a special fantasy of every Singaporean where everybody's foot is off the pedal. Then just pushing yourself a little bit will yield great results. People who harbour such fantasies are no better than guys like me who openly admit to being the class of super-Kiasu rent-seeking aspiring-super-managers of the new economy.

A person who wants a life in Arts, Music or Literature is free to pursue this life path. But they want to take offence because somebody else is into Law, Engineering, Accounting or Medicine.

Which is why I argued that a start-up founder takes an irrational position when he starts a business. If he fails, he will have a problem getting a spouse who prefers a government service engineer. But is it fair to then accuse everybody of being so kiasu and wanting to become a $4,000 civil service engineer ?

NMP Kuik is trying to boil the ocean.

If some Singaporeans ever decide to believe her and become artists, poets, sportsmen or social workers, I bet my last dollar that the other proportion of Singaporeans will exploit the wider gap left open to people who desire the more profitable professions the economy has to offer.

So, in short, if you want your kids to be happy, let them play. It's your right to do so.

But don't cry to the government when you discover that other guys are not only not letting their kids play but sending them to cram schools because they want their kids to be your kid's supervisor in the future workplace.

Tuesday, May 10, 2016

Discussion on my China Merchants Pacific Holdings Maneuver...

This year, I have been making great judgment calls with other people's money but not my own.

The markets have been very bitter-sweet of late with offers being made to take a staple yield counter China Merchant Pacific Holdings private at $1.02 per share.

Unfortunately, I did not own this share in my private portfolio as I am still struggling to sock away savings without an earned income as of late in the face of multiple personal emergencies. I had initially wanted to get into China Merchants in a serious sort of way at the end of May when the bulk of my dividends arrive. This was sadly not to be.

In the end I was lucky that I have noticed that this stock has become very attractive as of late and as a follow-up to my Saizen REIT maneuver I shared a couple of months ago on this blog, I actually told my dad to farm almost all his proceeds from the sale of Saizen into the China Merchants counter because it was a great way to get consistent 7-8% yields at around 81cts then.

That maneuver really paid off today an we exited 80,000 shares today at around  $1.01.The pay-off has been significant in the face of the May sell-off because we can start farming it into other yield counters which are on the cheap which I have been monitoring of late.

To be fair, luck played a bigger role than skill. Ascendas Hospitality Trust was also rumoured to be about to be taken private as well when I sold the Saizen shares and if I had advised my dad to farm the money into that counter instead, we would be sitting on losses instead of gains. I  ultimately chose China Merchants because it was an equity counter instead of a REIT and thought that tolls would not be negatively impacted by the Chinese down-turn.

As usual, we do not have a habit of enjoying our capital gains, so over the next few weeks, we will be farming the capital back into SGX but I am no longer looking at buying just one counter.

Instead I am looking several equity and REIT counters rather than that one counter which I have so much conviction for.

One should not get cocky and start believing that he can get third time lucky.

Nevertheless, it is sad that SGX has lost a stalwart dividend counter which may never be replaced.

Saturday, May 07, 2016

Smart Beta - Learn about a future investment strategy today.

Singapore investors are are very much behind the curve when it comes to better investment products in the market. The aim of this article is to look at this very modern buzzword called Smart Beta and start everyone thinking about how to react when this this new trend arrives in Singapore.

Smart Beta is the next evolution of the ETF. It employs a formula or algorithm to determine the composition of a portfolio and transfer cost savings to the investor.

What Smart Beta tries to achieve is to create a new range of offerings which simulate how a fund manager would manage your money. Fund managers typically invest and diversify your stocks the same way as his benchmark index would be designed, buying a basket of stocks similar to an ETF but then he would vary the composition of his stocks by exploiting well known market anomalies. One example is that by simply holding an equal weighted basket of stocks, the fund manager can perform slightly better than capital-weighted index.

[ This is very similar to an old idea called fundamental indexation. Perhaps a practitioner can advise me on what's the difference between that and Smart Beta. ]

Six strategies have since been packaged in the form low cost ETFs :

a) Liquidity - ETFs which give more weight to liquid stocks.
b) Momentum - ETFs which give more weight to stocks which previously did better.
c) Quality - ETFs which give more weight to more profitable companies such as ROA and accruals.
d) Size - ETFs which exploit the idea that smaller stocks tend to do better in the markets.
e) Value - An ETF which overweighs higher yielding stocks fall into this category.
f) Volatility - An ETF which gives more weight to stocks of lower volatility.

As of now, there are no Smart Beta ETFs in the local stock exchange but understanding this new instrument is useful to us in many ways.

As Smart Beta ETFs fall into 6 strategies, we can reverse engineer each strategy to find out what most fund managers think. Imagine how vulnerable fund managers are one an ETF can be designed to put them out of a job. Within a year or two there might even be ETFs which hold a basket of Smart Beta ETFs which feed economic data into an AI which determines the ETF allocation.

The question I want to ask myself and readers is whether would it be possible to design a around Smart Beta, mapping an allocation to economic situation of a country.

Eg. When the economy turns around after a recession, you should over-weigh Momentum. When a market has peaked, you over-weigh Value.

This exercise should be done now because the rise of Smart Beta is inevitable in Singapore.

Just like an ETF for S-REITS.

Tuesday, May 03, 2016

Planning a talk on funding a child's education.

I'm currently working with WDA to give a talk at the Lifelong Education centre on 14th July 12.30pm.

Right now the details are still quite sketchy, but I thought that blog readers should be able to pitch in and suggest what they want to hear.

The working title is "Finding your child's university education".

Here's what I have so far.

  • Paying for Education is about increasing a child's human capital as opposed to financial capital. It should be treated like an investment.
  • Why is it naive to see a university experience purely from the viewpoint of a love for learning. 
  • University qualifications have two effects of signalling and skilling. Signalling remains the more important concern in a highly competitive meritocratic society.
  • The result of investment in human capital should result in employment and higher wages.
  • Comparisons will be made between local and private universities.
  • A very brutal assessment of private universities will take place using the theories explained to the audience.
  • Details on CPF loans.
  • Details on Education loans.
  • Details on private loans
  • Where to get information on scholarships.
  • Investing to fund the education.
I also expect very lively debate in this talk because I don't intend to pull any punches about how gritty our education system is. 

Do share with me what you would like to hear in such a talk. 

Friday, April 29, 2016

Cherish the slackers in your life !

Yesterday, my network of law students and lawyer friends are spreading news about the suicide of a legal trainee who was recently not retained by a reputable law firm and dumped by his girlfriend. Beyond this piece of news, I am unable to verify the information further because if it were true, it should have been all over the mainstream media by now.

One question I ask myself about my law school experience in SMU is that why is it so different from my time in NUS Engineering and Business school.

In Engineering school, we were generally left alone to pursue our own interests, the biggest problem is that there is too little drama so most of us have little to talk about beyond circuit diagrams and equations. To seek trouble I did public speaking and hung out with the bohemians from the other faculties.  In Finance school, there was no academic pressure because we all worshipped money. Grade were secondary to passing the levels of the CFA.

Law school is a new beast. The experience is overwhelmingly negative and I think we cope by becoming sociopaths. Group work has plenty of politics and, without providing details, some people I know do stupid things which may affect their reputation after they leave.

There is too much drama in Law School and I want to propose a reason for this.

There are insufficient slackers in Law School ! The folks who drink and party from Law School are not real slackers. They are well read in their cases and can argue even in a drunken state.

In Engineering and Business school in the 90s, there will always be a bunch of students who do not prioritise Engineering in their lives. Often they might spend a lot of time on CCAs. Others party and drink. Slackers, if anything, are probably more intelligent than the hard workers like me during my undergraduate days. It's not easy to get into University by slacking off when only 15% of the population could get into NUS in those days. So I believe that slackers just have other priorities in life.

In the modern University, slackers matter a lot.

For the folks who put in decent effort in school, we occasionally get bad grades but because of the existence of slackers, we don't really fall very far down the curve. A friend even claimed that his academic achievements were not by virtue of his brilliance, but by the fact that his peers were so bad.

The situation changes in a place like Law School. There is no room for error. Put in 99% of effort as opposed to 100% of everything you have, you may slip from 75% percentile to the 40% percentile because everyone has already figured out how to do well.

This is not a healthy environment.

People become neurotic and anxious. In SMU, there are rumours that  some students conceal red-spot textbooks in the libraries.

Perhaps the anxiety is the reason why the trainee just decided to off himself. From his perspective, his world has ended. There are so many folks who can't even get into a local University. Some can't even get into a Secondary school. Being a parent myself, I am very sad for his parents.

While I have yet to get a training contract, I will avoid that rumoured law firm. Once a life is at stake, I cannot but wonder as to the kind of corporate culture which can lead to this tragedy.

For the folks who are in University like me but in other faculties, I hope that you would cherish the slackers amongst you. Don't write them off. They are probably just as smart and capable as you are but subscribe to a different life philosophy than you do.

Without them, your lives are going to be a lot more dramatic with no room for error.

This can warp your perspective.

And it can cost you your life.

Wednesday, April 27, 2016

We are better off being a Transactional Society !

This week is a good week.

Some dividends showed up in my bank account and it was running dry after I overspent during the 5 days between my last exam paper and the start of summer term. I set aside all my family expenses during the early parts of a three month dividend cycle. What remains in my bank account is a bare minimum I have to pay for my personal entertainment, food and transport.

I have spent over 30 months without a pay check and managed to do this without touching my capital and living entirely on dividend pay-checks. My family has no earned income. In the process, I have also paid 30 months of my mortgages and my entire school fees.

No other society can make it so easy for someone to able this with only 15 years of working life in IT.

But I'm also not a romantic about our society.

The low income and non-existent dividend taxes I needed to build up my portfolio is almost unique to Singapore. The price we pay is that there is no welfare. Every negative externality like cars and alcohol are taxed aggressively. The primary stance towards a person who is seeking help is for them to engage in self-help. Compared to Socialist Europe and all those countries Singaporeans flee to, we can be harsh indeed.

It becomes disturbing that there are now calls for Singapore to become less transactional, to be less kiasu, and to be less optimised with our policies thinking that it would make our society better.

What do 'Social Democrats' and liberal brownshirts want to achieve when what they truly desire is to tax everyone to pay off a smaller proportion of the population which might consist of some needy fellow citizens, but would in reality consist of mostly citizens who are trying to game the system.

If they succeed, I expect the investment community to be the first to suffer.

Liberals in attempting to get rid of the "no free lunch" approach in Singapore will, in the process, eliminate the "cheap lunches" we've had for the past 50 years.

Let me illustrate with an example of unemployment insurance, a hot by-election topic which, ironically,  would have benefitted me greatly when I transitioned into law school.

We can actually create a very rough estimate of the cost of unemployment insurance to the tax-payer. Suppose there are about 3.5m citizens drawing $3770 as median income. Suppose this policy will increase the number of folks leaving work to about 5% of our population every year. If each instance of unemployment will result in a total pay-off of about 6 months of salary in total, the price tag to the tax-payer will be close to $4b, about half of our personal income tax collections in 2014. And this does not include the cost of hiring social workers to administer this payment.

The income tax of everyone working here must increase by 50% to cover the price tag of this unemployment insurance !

Now suppose you create this insurance yourself as a median income salaried worker, all you need to do is to save about $23,000. If you can save $500 of your earned income every month,  4 years of work will secure a contingency plan for your unemployment, not to mention a small investment income stream if you were to keep working.

Of course, my solution cannot cover the weakest members of our society. I wrote this article to illustrate to everyone is that there is a communal solution or an individual solution to every problem.

I've done my small part and have overclocked my community service hours in 2015 to help one disadvantaged family by giving math tuition to their two kids. It remains my most cherished memory in SMU. I see more pro bono hours ahead when I return to the workforce in 2017.

I propose that liberals do the same so that they can assist and gain exposure to the weakest members of our society using their own personal time and resources instead of harping on why Singapore is such a cold, transactional society.