Saturday, October 31, 2015

Thosainomics for fun and prosperity !

Somehow I know that you like my Thosai postings...

Last week was intense but I just completed all my group presentations. We're going to start slow but over the next few weeks I should be able to come up with more postings for investors. I might book a Bloomberg terminal again and I would share my results with you guys.

SMU has changed quite a this year which I suspect was probably due to a larger student intake. Because of the increase in student volume, it became a lot more challenging to find seats at the basement Koufu canteen.

Because of high rents, the price of food has become ridiculous expensive. In the Indian stall, I ordered two samosa and a piece of tandoori chicken and it cost me $6.90. ( As I am quite an old fart, when I was in primary four, the price of a Set Lunch which includes a steak at the restaurant The Ship at Shaw Centre costs $6.90. )

As a consequence of that, I have been eating quite a fair bit at uber-hipster cafe Kickstart where for about a dollar more, I get fairly high quality fusion food ( The kong pao pork belly is awesome ! ) .

But prices had become fairly ridiculous, as I would expect that not all SMU students are well to do.

So one morning I decided to stray further from campus early in the morning at 7am and went to Waterloo Street, and found an Indian stall which sold Thosai.

The result was a nice Onion Thosai with Vadai at $2.60 shown above. With my standard Kopi-O kosong, I was able to have breakfast for $3.60. Not bad by price standards in town.

So I call my set of insights from this simple lesson Thosainomics :

a) Experiment with your hunger

You need to experiment with your hunger. When I started out, I went for a plain Thosai which was not filling enough but two Thosais or a Thosai Masala made me sleepy after the meal.

The sweet spot is an Onion Thosai at  a median price point which would last me until 12pm lunch break.

b) Go Vegetarian

The price of local food has discontinuities.

The price of economic rice or zhi char goes up quite a bit when you move from standard meat to fish to prawns and to crabs. Similarly it goes down by a fair amount when you downgrade from meat to vegetables. Tofu and beans provide proteins at a fraction of the price of meat.

You can reach your budget easily if you train yourself to downgrade accordingly.

c) Go Indian

Not sure if readers agree, but Indian food is the cheapest among all the races.

While a roti kosong is about $1, it has to be made fresh and requires a lot of labour. Chinese economic rice is hardly economic these days but the effort is made prior to the sale and the work can be batched early in the morning.

In second place is Malay food as I can't eat Thosai everyday. I look for Bee Hoon Soto Ayam every morning as well but as it is not filling enough, normally supplement my meal with a Begedil.

I am avoiding Chinese food these days due to price. A bowl of Wan Ton Noodles is actually cheap compared to Economic Bee Hoon. Just try supplementing your economic bee hoon with a chicken wing and it stops being economic fairly quickly.

The only cheap option is the industrially manufactured Chee Cheong Fun from the drink stall.

But I say yucks to that !

Sunday, October 25, 2015

Prosperity should be a technique, not a theology !

If you have been following the news and social media, you might come to the conclusion that the problems which arise in our society is that people tend to conflate technique with theology when it comes to material prosperity.

a) What is the theology of Prosperity ?

Prosperity as a theology is dangerous idea. It means that belief and faith becomes a sufficient condition to attain material prosperity in this world. It comes in many guises, not necessarily in the form of a religious group. Some authors like to sell the idea that by simply thinking and locking yourself mentally to the idea of abundance, you will achieve material wealth.

This is the a very misleading but sophisticated manifestation of wishful thinking.

It's not just faith that creates the idea that God will make you rich. We adopt faith in projecting the returns of unit trusts, that some of life insurance will make our children rich after we leave this world. That buying a Brazilian property would result in yields and passive income exceeding 15%.

In my personal world of engineering, finance and increasing law - faith is almost worthless. You can make an iron-clad will and your crafty children may find ways around it, challenging your mental capacity if it suits their case. Laws need to changed to protect husbands who get incapacitated during their marriages, worse, some feminists on social are attacking the idea quite aggressively.

And faith in easy answers is getting stronger. Easy answers sell better than complex ones.

Most of us don't want complicated answers because it gets into our way of living the lives we enjoy.

b) What is the technique of Prosperity ?

Not everyone is ready to pay the price to learn a new technique. It requires time, energy and most who understand the technique would not part with that knowledge so readily.

Techniques are hard truths which an investor needs to confront. Many of these are economic or mathematical in nature and requires decades of study.

The risk-free rate is 2.7% about exemplified by returns of the Singapore Savers Bonds. Buy anything with lower yields and you might end up looking like an idiot. Anything which offers higher yields will contain hidden risks such as shifts in markets or the default in the provider.

Buying many different assets generally would not make your richer but can keep your performance closer to the average, but it certainly prevents you from looking like an idiot when the market starts to turns against you.

c) Separate your spiritual and material desires.

You may share your spiritual desires with God, but you are better off trying to meet your material needs via Science/Social Science. It's not the easiest path in the modern world, but it's worth putting effort into studying marketing and scams just to find out how to react when "well-meaning" people present their ideas to you.

20 years ago, I fought a pitched battle against evangelists in NUS on the bulletin board systems, and I held the record of being sent to the NUS Office of Student Affairs thrice in during my undergraduate days.

Today, I celebrate being alive, financially independent and finally getting vindicated.

Keep the Faith Against Faith, because Reason will win over the long term.

Keep the fires burning !

Flame on !

Wednesday, October 21, 2015

Cost of having a child is way overblown !

A few prominent bloggers like Budget Babe have started talking about the costs of having a child. Quite intimidating for married couples planning to have kids and singles is the infographic of the price-tag of $1,000,000 to have a child.

I think this number is blown out of proportion, even if empirically true, the $1,000,000 payment does not happen up front but over the the life of the child but it creates an illusion that $1,000,000 is a pre-requisite to being a parent.

I am pretty sure that our birthrate would be zero in such a case.

Let's mathematically perform a very crude  net present value analysis on the cost of having a child :

Based on the infographic :

Maternity ward expenses : $7,000 - $24,000 [ But can take from Medisave ]
Age 0 - 6 : $1,200 - $1,700 per month - Average of $1,500
Age 6 - 12 : $100 - $3,500 per month - Average $1,600
Age 12 - 18 : $500 - $1,300 per month - Average $900

I've projected up to age 18 because beyond this age, the child get a loan to get a degree.

( A problem occurs when he can't get into a local degree program, then it's up to the parents to determine whether it makes sense to put their kids into Australia. I think by then ASPIRE would have been refined to make this unnecessary and an Australian qualification by then may actually send bad signals to HR anyway.  )

If you observe this analysis, the most expenditure occurs at ages 6-12 which is $1,600.

If you go by my 8% portfolio yield idea, an investor who invests at a yield of 8% would need only $240,000 invested in the markets to completely cover the costs of having a average child from ages 6-12. That is interesting because the yields from this portfolio covers all child expenses on its own without requiring the parents to dig into their earned income, freeing them to save more money or pay for their mortgage.

I think this information is a lot more valuable for couple who want to do some family planning before having kids. Suppose you are a married couple and both husband and wife are working. If you can commit to saving $40,000 a year together, 6 years of savings can fully support one child and maintain your previous life as a dual income couple with no loss of quality of life. Based on my previous blog postings, another $300,000 may even allow mum to stay at home and be a full time mom.

Of course, real couple will never be so deliberate when it comes to family planning but prudent individuals should have some savings before getting married. No point blowing everything on an event you wouldn't even care about 20 years down the road.

This number is also useful for getting the right perspective when planning wedding expenses. Best approach is to keep everything low key and ensure that the couple can keep $240,000 after the wedding is over if they want to have kids immediately, otherwise they can always hold their horses until the finance is right.

Of course, by following the advice from this blog you would always be erring on the conservative side, but having kids which are free and paid by dividends is something every parent should give it a try every now and then. ( Just don't start naming your kids Croesus or Sabana because of that. )

Saturday, October 17, 2015

How to be a gold-digger ?

This article is a follow-up of the previous article which provided dating advice for financially independent men. It gives dating advice to women who are seeking financially independent men.

I met women who started seeking a better life even while in University in the 90s. I've known girls in the Science faculty in NUS 20 years ago who lingered outside the lecture theatre to wait for the male doctors to emerge from the lecture theatres. I also had a good friend who was a top mooter and NUS debater who once asked me for advice on how to deal with a stalker from a different faculty who liked attending law lectures with him. ( It is as if an engineering undergraduate would have advice for someone who has such a nice unique problem like this. Too bad he had no advice for me on how to attract stalkers while in University. )

Fast forward 20 years, I think the situation is very different today but not necessarily in favour for our daughters. There is a smaller dating pool of eligible men as many boys end up in jail, get addicted to porn or simply choose the path of PS4 asexuality. The remaining pool of men know their value, all thanks to apps like Tinder which gives them hook-ups on demand. ( It's no accident that Match which owns Tinder is working on an IPO soon. )

So what advice do I have for the potential gold-digger ?


I spend 3 hours volunteering at Family Court every week and I witness the bitterness of divorce first hand as part of my JD program. It's not something I think any dad would want their daughters to go through. A man's financial status should form a baseline for a woman to make a choice but it should not be the highest criteria.

The market for men, especially financially independent men, is highly efficient. Apps like Tinder and businesses like Lunch Actually are actually secondary markets for marriages and sexual relationships. Men, being primarily visual, will first rank women by their outward appearance, and then choose someone of somewhat equal social status to follow the trend of assortative mating.

The burden now exists for women of the future, being the more deliberate and wiser gender to choose properly taking into account how they rank against their peers in terms of good looks.

For the most part of it, financially secure men are like blue chips. Steady dividend flows but expensive to buy. In extreme cases, a woman can at best own only a small fractional share of a financially powerful man and may have to settle for becoming a wife-in-common, sharing her husband with different his girlfriends without him running afoul of Woman's Charter if he received good advice.

I propose this rule of thumb for my daughter.

Find a good conscientious and agreeable man for a husband, failing which, its ok to stay single.

Couples can seek financial independence together by working hard and saving for the future. It's like finding a stock with tiny dividends but high potential for dividend growth in the future. I know one thing rich men understand, it is that their wives who dated them while they are younger are the only people who chose to struggle with them when they were poor. They will never find someone like that again for the rest of their lives.

Otherwise, single-hood is just fine. Just make sure that there's a lot of travel in that life plan.

There is nothing more bitter than seeing a middle-aged woman go to court to seek maintenance arrears from lazy and unmotivated men.

My turn comes up again next Monday.

Wednesday, October 14, 2015

Dating advice for financially independent men.

I do not need to really blog anymore. These days, a fellow blogger might just refer some readers here and all I have to do is to react to their article.

Investment Moats put up a really hilarious article today.

Before I start, a little bit about my dating history. I was NOT financially independent when I was dating, but I was a bona fide cheap date in my early thirties struggling and failing every month to live on my dividends. But me and my missus were happy. We ordered a $7 Nasi Briyani from Shami Banana Leaf restaurant and the portion was large enough to be shared. I was cheap but I was able to assure my wife that I have the ability to look after her.

So back to the story from Investment Moats.

So a girl dates a really simple guy, then dumps him because she felt that he could not give her financial security, only to be told later that he is a rich heir.

I actually think that the heir was doing it wrong. It's one thing to avoid gold-diggers but it's another thing entirely if a rich heir acts like a hipster. Women would generally not find hipsters particularly attractive. Even if they do, in the Singapore Context, the heir would not pass the father-in-law test. No way I will let my daughter date a hipster, if the hipster turns out to be financially independent, I would still have concerns and think that he is being perverse.

That being said, if you are a financially independent and a single male, consider the following advice :

a) Even Superman has a day job as Clark Kent.

Have a fricking job that attracts good, single ladies. But what's a good wife ? Someone conscientious, agreeable and non-neurotic.

If you can choose your vocation because you shit gold, do engineering or accounting. Jobs like these exude security and does not pay decently enough to attract gold diggers. It also passes the father in law test with flying colours.  

Let's face it - Society is not prepared for men without jobs. It signals laziness and redundancy.

A savvy financially independent man may need to sever the idea that being financially independent means not having a job at all. I know, I spent 30 minutes explaining my income sources to an ICA officer for my wife's citizenship application. Even the government does not know how to deal with dividend income. Exasperating because the officer kept asking me why SGX pays me money every year and why is it not taxed.

I expect a many financially independent men to be cut down in dating circles in Singapore because most folks don't understand that it's possible not to work for a living.

b) Hunt in places where great wives exist.

I found my partner in Japanese class. I figured out that the best place to find a girlfriend is not in SDU or some situation that includes hard liquor. A rich heir can, of course, network with his peers in social economic status, that way both him and his girlfriend can avoid gold diggers.

A rich heir can easily enroll in an academic program to go spouse hunting. I would only advice that he should avoid law school, because the women know their Women's Charter well ( and would insist on joint ownership of property and would find creative ways to imply a resulting trust if you get a girlfriend after marriage. )

c) Joining a religious organization can be helpful in this regard

Even an atheist like myself would have to admit that churches are great places to find a spouse. It's almost like cell groups are designed for young people to meet each other and create more devout children for bigger tithes in the future.

This rich heir can ply his guitar skills for his cell group and then find someone who is not a gold digger.

d) Don't worry so much about the technicalities of law or finance. Just go date someone !

I know I transferred my CPF-OA to CPF-SA before I met my girlfriend because I don't want Singapore woman compel me to take on too big a mortgage. If a rich heir needs a way to mark out his non-matrimonial assets, set up some trust, it's best to do it while single before finding someone that he can be with for life.

I read so many cases in property law and all these legal problems boil down to failures of communication and trust within the family which money cannot really resolve.

Find someone you can love and keep for life, raise kids who can stand on their own and would not have to kill each other for your money and you can avoid becoming a case authority for the next generation of law students.

Did I mention that you should avoid situations with alcohol just now ?

Sunday, October 11, 2015

How to beat the STI index ?

A lot of other blogs talks about the virtues of the STI ETF index ( ES3 ).

For most beginners, buying the entire index makes sense. As ETFs generally have low management fees, holding the ETF for a long term yields solid dividends and you get to make a general bet on the Singapore economy. 

But what if you are an intermediate investor and want better performance on the STI index?

One way is to understand that the STI index is a capitalization-weighted index. This means that the position of an individual stock when you buy the index is proportional to its market capitalization which is its (stock price x number of stocks). Anyone who buys the index is in essence always buying a larger proportion of stocks which has done well previously as its market capitalization has gone up before. 

One possible winning strategy is to buy individual STI stocks in equal proportions. You undertake a slightly higher risk for better returns because you refuse to overload on  a stock which has already been bidded up by the markets. 

The evidence can be found in the performance of two indices : The SPY index is the S&P 500 index which is capitalization weighted. The equivalent equal-weighted index, with code RSP based on statistics in Yahoo Finance, currently outperforms the SPY index by an annual rate of 0.18% over 5 years but over 1% over 3 years. This out-performance can be large if you hold your portfolio over several decades.

The problem with creating an equal-weighted STI portfolio in the past was that 1 lot was 1000 shares. These days, with 1 lot being reduced to 100 shares, your largest stock position would be 100 shares of Jardine C&C which would cost you about $3,149. With 30 stocks in the STI, you might be able to create a crude equal-weighted STI portfolio with just $100,000.

Considering that you also avoid paying a 0.3% management fee of the STI ETF, this strategy may be worth a try if you already have $100,000 in that STI ETF counter.

NB : Do watch your brokerage fees which would amount to 0.75% so make sure you can hold at least 3 years for your savings in management fees can offset the brokerage payments. 

NB : Unfortunately, I did not have the time to test whether there is outperformance on a Bloomberg terminal for local stocks. Readers who backtest please share your results on this blog.

Friday, October 09, 2015

Law versus Chaos in Personal Finance.

I just completed 90% of two research papers and started by mid-term holidays ( Lectures resume next Tuesday ) and have only a few minutes to create this update.

Recently a really horrible piece of financial advice came out from Elite Daily which was immediately pounced upon by by my friend and uber blogger Budget Babe. I would like to add some context and nuance about personal finance in general.

We need to think about our adult lives as battle of Law against Chaos.

On the side of Law is our desire for security. To meet our goal of security we need to be conscientious. Saving our money and carefully managing our careers put us in the side of Law.

On the side of Chaos is our desire for variety. To meet out goal for variety, we need openness to new experiences. We are not robots. We need to spend a little money, develop interesting hobbies and make new friends to stay sane.

Financial bloggers are generally on the side of Law. Elite Daily is generally on the side to Chaos.

But as psychology students might know. Conscientiousness and Openness to new experiences are orthogonal to each other. We can save, work hard and have fun at the same time.

Maybe a way to proceed is not to see a disciplined life of savings and investments as one being quite drab and no fun at all. For me, the bulk of my books sales and dividend earnings do go into buying role-playing games.

Case in point, I have suffered enough to put out two research papers.

I am now meeting my family and then I should be out partying with my classmates later.

Catch you guys this weekend where I will be sharing an article on beating the STI index.

Sunday, October 04, 2015

How to deal with the idea of 15% yielding "unicorn" yield stocks.

Investment moats struck blogger gold again with an article on keeping cash around for that 15% yielding stock. To me, this article borders on financial pornography, but it does so in two good ways : Firstly, Driz'zt did not insist that 15% yields exists, he merely suggests that a prudent investor hold some cash in reserve should that day arrive. Secondly, he referenced my blog, so I would need to put in some effort to build on his ideas.

The main idea of my article is that a 15% yielding stock which would pave the way for your financial independence is a mythical animal much like a Unicorn. Most of the time, these yields are not sustainable and you are likely to be burnt if you build up a solid $50,000 just to plonk it on a yield stock that would collapse within the following 2 years.

Here are some of my points :

a) Don't wait for that Unicorn to arrive, it might turn out to be a Nightmare 

Ok, this is D&D reference.

Driz'zt's idea is brilliant. You will need a cash reserve for reasons other than investments. But 15% yields is a rare event indeed. I was able to pick up some REITs at about 12% on average during the Great Recession which probably is the main reason why I am in Law School and not some harried Service Delivery Manager for a tech firm today. Some stocks which exceed 15% yield are like that for a reason - investors hate them because the yields are not sustainable. Investors remember various investment disasters like Omega Navigation, Macarthurcook Property Securities Fund, Babcock and Brown and FSL.

Investing into these disasters always starts with an intention to capture ridiculous yields. I have plenty of scars to show as I remain quite a yield pig myself even today.

b) Better to save your cash for a general bad economy rather than wait for a Unicorn to arrive.

One way to improve Investment Moat's central thesis to consider when the markets are bad and then capture a number of cheap stocks to ride the downturn.

But what is a bad economy ?

I have some concrete suggestions for the retail investor. You get a bad economy : When banks are yielding  6% or when telcos start yield 7%.

These are good signals to act even when there are no 15% stocks in your radar.

c) Buy many warhorse stocks, don't wait for unicorn stocks to appear.

A good warhorse can give an investor plenty of mileage and looks almost like a Unicorn. It just does not have a magical horn.

When times are bad, what is a warhorse stock ?

You can observe a solid yielding counter like Croesus which other bloggers have been talking about. It current yields about 9+%. In a really bad market, it might yield 11%. This is a solid warhorse stock if that scenario occurs.

A fallen angel counter like Sabana REITs which yields 11% would also be a rare and positive market event.

I would even say DBS at 6% is a steal. The trick is to take your capital and buy all these warhorses at an average yield of 8-10%.

d) Employ some fundamental indexation when you build your portfolio.

The beauty of 100 shares per lot is that individual investors can start to weigh a stock based on market fundamentals. One idea to slant your portfolio warhorses is to weigh each allocation based on dividend yields.

Example : Market crashes - Cambridge REIT yields 12%. DBS Yield 6%.  Your allocation to Cambridge should be twice that of DBS because it has a double it's yield.

This idea is consistent with the Kelly Criterion article I mentioned earlier. Bet more when there are more dividends but don't avoid low yielding blue chips in a downturn.

What is the result of adopting this article ? In a downturn, you get to lock in a more realistic yield of perhaps 8%. A $100,000 cash hoard would have a sustainable yield of $8,000. Enough to pay your electrical bills and lunch expenses.

Not exactly pornographic but would give you a reasonably happy ending.