Saturday, March 26, 2016

Personal update and short break from blogging.

Here's a personal update from me just before I begin exam preparations.

a) Financial markets

I think my financial situation is much better than a couple of months ago. Markets have recovered a bit, but may dip downwards over the short term. The end of March would see a round of dividends coming in which would be applied to my next three months of living expenses, with all the medical emergencies behind me, I should be able to park some money back into the markets.

But the better news for folks with home mortgages is that SIBOR is flat. My belief is that the Fed would not raise interest rates as much as what the pundits would like. China remains the biggest risk for investors.

Of interesting note is that the financial media is starting to talk about this thing called Smart Beta ETFs which have yet to appear on the local scene, maybe I will get to talk about it in further detail after my exams.

Another piece of good news is that Singapore just launched two equity crowdfunding portals. Unfortunately, I do not qualify as an accredited investor yet so perhaps one reason to get back to the workforce would be to work towards that second million in investment assets.  My position is that its high time regulators stop protecting retail investors and allow perhaps us to invest $50,000 into an equity crowdfunding platform - some investing is emotional and aspirational and some folks just wanna own a tiny slice of an aquarium. ( Even I wanna own a game-shop one day but don't want to hang out with smelly Magic Players. )

I do hope to do one more research paper on this topic.

b) Law School 

I was very lucky to clinched one internship for the holidays so I was at least able to fend off some anxiety over graduation requirements but my studies this semester is a huge mess as the subjects I've taken are perhaps one of the hardest in the JD program (Equity and Trusts is giving me a headache).

So I started preparing for examinations early and have been spending some time mugging in the library. This is perhaps the lowest point of my JD experience with nothing working out for me so far.

If I survive this episode, things will start looking up for me.

c) Books

Beyond the usual periodicals like The Economist, I am stuck in the middle of Humans are Underrated by Geoff Colvin. So far, I am not really convinced that it has any useful insights. Books have been talking about creativity, empathy and design for decades but sky rocketing salaries are still reserved for software engineers in the US and the hardcore professions elsewhere. At best, books of this genre can convince me that all professionals would need to develop soft skills to thrive.

But then why are 40-50 year olds with experience and soft-skills driving Uber taxis instead of keeping their jobs in the corporate world?

d) Hobbies

I just watched Batman v Superman and almost wanted to put in a full posting about taste. Critics panned the movie, but many of my friends found it entertaining. There were some unnecessary slo-mo scenes but overall I had a good time and the movie did not seem boring at all. I really look forward to the Justice League movie now.

Growing Your Tree of Prosperity remains my best-selling and most embarrassing product on this blog. It was not edited because I let the publisher convince me that it was not necessary and some money could be saved. Some folks slammed my poor grammar ten years ago. But book sales remain high and more importantly, folks are accumulating $100,000 on the advice from the book. My other works never made the best-seller lists despite solid editing and more sophisticated advice. Maybe the poor grammar allowed me to click with fellow Singaporeans.

Perhaps I am not a beautiful "English Literature person" who insist that every movie must be a rarefied experience with a fabulous plot ( I am the kind of guy who enjoyed The Mermaid and White Chicks ). I carefully cultivate my indifference to good taste in wine, movies or fiction because when you juggle law, an investment portfolio and keeping up with technology, you need to enjoy any crap that is being shown in the cinemas with the limited time you have.

Of course, "numerical people" often have to endure being labelled with bad taste by people who are more sensitive to aesthetics.

This is not the fight we should be striving to win.

Perhaps in between mugging sessions I can catch the Brothers Grimsby.

Catch you guys in about 3-4 weeks when the exams are over.

Wednesday, March 23, 2016

How to think about a basic income in Singapore.

Some societies are starting to think about implementing a basic income. A basic income is a form of unconditional welfare that gives everyone a basic salary to live regardless of whether he has a job or not.

This idea is attractive to both sides of the political spectrum. The left obviously want some more ways to narrow the rich-poor gap. The political right thinks that it is a form of welfare which does not require a lot of social workers so it keeps the government lean and mean - everyone gets a small wage so long as he is alive and kicking.

Singaporeans are probably not at the stage to consider a full basic income because it would rob Singaporeans of the will to go out and do some solid work for the country. But done at a very small scale, a fixed amount of funds going into every citizen's spending account every month may possibly incentivise someone to take bigger entrepreneurial risks. It also provides home-makers a small allowance. It would certainly benefit the folks in my age bracket who is facing structural unemployment.

Suppose we start at a very reasonable $100 a week or $400 a month for all citizens. There are 3.27M Singapore citizens here, so the price tag will be $15.7B a year. To put a perspective on how much that is, the value is twice that of the Pioneer Generation Package. For the entire FY2014, personal taxes collected is equal to only $8.9b with GST collections being about $10.2b ( From here ). As part of this mental exercise, everyone must be willing to double their income taxes and GST to put $400 into every citizen's pocket every month. Of course, in this exercise I did not cover changes to corporate taxes because the whole point is to get Singaporeans to become more entrepreneurial.

This arithmetic exercise can result in different conclusions. Some readers will interpret this as the Singapore government being able to afford a $400 basic income - just increase personal, GST and corporate taxes. Others will argue that it's not worth levying so much taxes on the middle class so that everyone can get a pittance every month, it is more effective to use the money to improve the transport or education system which has a better impact on citizens.

Of course, you can roll your own basic income. To generate $4,800 of income a year, you would just need $60,000 invested at 8% yields or $70,000 at slightly less than 7%.

But perhaps subtle change will allow all Singaporeans to attain this without levying a cost on tax-payers.

There is still no such thing as a SG-REIT ETF. It's such a simple idea that I'm sure some folks have thought about doing this.

If SGX can approve a simple product which is a fund consisting of equal-weighted REITs listed in the Singapore stock exchange, everyone will have access to a highly diversified real-estate portfolio which currently yields 7.3%. Singaporeans don't have to be very sophisticated to get their basic income of $400, they just need to accumulate $70,000 and have an account with a local broker.

But I can imagine why this would be a nightmare scenario for professional fund managers.

Sunday, March 20, 2016

Harshness against unemployed manager is unwarranted.

The Year of the Monkey continues to bring a hodge podge of surprises to me. Markets are apparently up.

But this article should have been up two days ago as it has been a fairly demoralising week. I botched a group presentation and I spent most of my time looking for an internship to no avail.

Which is why amidst the rejections I am getting, I am quite sympathetic to Mr. Chua GC as featured in the Straits Times but was sadly subject to some brickbats from some corners of social media.

a) Mr Chua is not addicted to an expensive lifestyle.

Some parts of social media accuse Mr Chua of being unable to downgrade his lifestyle. I beg to differ. While his family was quite high earning in the past, hitting about $14,000 a month, he currently lives on his wife's income and can even save $1,000 for his family. That's actually less than my personal expenses. My fixed allowances to my parents and wife plus my mortgage, telco, property taxes and conservancy fees is about $5,500.

b) He's trying hard to sell himself.

Just because he acknowledges the awkwardness of trying to sell himself on any job does not mean that he is not doing that. It's awkward for me too. As I'm gunning for internships right now, companies try to interview you remotely as it is logistically too much to interview so many law undergrads. I had my first attempt and was surprised by how difficult it is because you can't assess the interviewer's body language.

Amazingly I used to chair meetings on conference calls but never really felt much stress in the past. It's always awkward to sell something.

c) He did not save enough when times were good

One brickbat which I have to concede is that Mr Chua did not save enough when times were good. This is a teachable moment for all knowledge workers in their 30s who think that everything is fine. Had he saved an income portfolio, at his age, it would easily be equal to his wife's income and his family would still do fairly well on $12,000 a month.

If you examine this case carefully, I might even guess that Mr Chua did save by pre-paying his mortgage as, otherwise, it would be difficult to even save that $1,000 every month in his current situation.

If someone is stuck in their 40s and suddenly jobless, the number of things which can be done can be quite limited. I have some suggestions but perhaps some readers can provide more solutions :

a) Avoid trying to invest your money in such times.

Markets have a tendency to betray you when you need them the most. The worse thing an unemployed PMET could do is to play with forex instruments. The best way to invest in dividend stocks was to do so a few years ago to build it up before you become unemployed.

Rushing into investing thinking that its a panacea is a bad idea. Using your home as collateral to get a loan to invest is an even worse solution than unemployment.

b) Go for a low-barrier to entry job

The most obvious option is to become an Uber Driver. I'm waiting to have some folks tell me that they can really make $5,000 a month.

Other people will become insurance and real estate agents but bad economic conditions would also make these options untenable.

c) Look for a franchise business.

I guess the best way out is to use some of your savings to get into a franchise business. FLA conducts an exhibition every year which I have been going for quite a while but haven't got the guts to risk my own capital so far. Just make sure you avoid the MLM scams out there.

A franchise is a tested business concept but profit margins are razor thin. The risk is your capital and there is definitely a probability of business failure although it is very low compared to starting your own business. Some folks are turned off by the idea of paying someone to give you a job but, heck, you are a PMET in your 40s and should be mature enough to do what works.

I think the downside is that hiring and maintaining a workforce is a nightmare so you might want a partner to split the work so that you can have some work-life balance. It always amazes me that unemployed 40-something PMETs are the last to hire their own kind once they have a business running.

For the folks of my generation, it might be useful to ask yourself how different are you from Mr Chua. For me, the difference is very slight. Mr Chua was retrenched when his company decided to shut down his plant. I was unemployed for two years because I tried to retrench myself in the fear that one day, some company would do me in anyway.

This year, there will be plenty of sob stories in the news of mid-life PMETs losing their jobs.

Better start saving while is going is good in your 30s and keep your family expenses lean.

Sunday, March 13, 2016

Beware of False dichotomies when investing.

I don't have much to say this week as I spent half my weekend stuck in traffic heading towards my brother-in-law's wedding on Saturday. The other half was spent catching up on readings after missing a lecture on Saturday this week.  I did squeeze in some retail therapy just now picking up some books on Kindle and a new armoured Batman action figure.My daughter asks me why I still buy toys for myself but not her uncles on her mother's side. I tell her that I'm still a kid like her.

I don't have a very heavy article today. Instead I will build on something by BigFatPurse on lifestyles of some of the top financial gurus in Cyberspace.

In this article BFP compares the different approaches between two gurus and asks the reader to choose which one they prefer. Mr.Mustache seems to be more popular among financial bloggers because of his down-to-earth background and focus on frugality. Ramit probably has more mass market appeal as he not particularly big on frugality and wants his followers to go for big wins.

I want to appeal to readers that personal finance is both an art and a science. Some elements of investing can be very precise and run off complicated analytics but often you need to draw upon your  knowledge of world economy and political science when making buy and sell decisions, as such it's not profitable to see the world as a binary between two finance gurus.

When you analyse Mr. Mustache, frugality is really the art and science of keeping your expenses low. It's only half of the equation of getting money to invest into markets to generate your dividends. The other half provided by Ramit is about expanding your revenue and top-line.

Both ideas are fundamental to producing savings to be pumped into the markets. The other local finance gurus like Kyith of Investment Moats and AK71 are crucial reads as they provide some direction as to how to maximise your investment returns.

Recently, I've been contemplating a new book as I am working with WDA  ( very tentative right now ) to give a talk on financing a child's university education in July and I have to update the model I proposed in Sowing the Seeds of Prosperity.

My older model revolves  Earning, Saving, Investing, Protecting and Gifting your capital.

This older model may need some overhauling in that Learning has become serious enough to warrant a write-up on its own. IT innovations have started destroying the careers of knowledge workers and the literature is turning towards lifelong learning but right now there is no rigorous science behind picking up skills to survive a future where an algorithm can be written to defeat the greatest Go Champions of the world.

( It utterly fascinates me how software in the US is destroying legal careers. But that is another posting after I am done with the literature reviews. )

Some piece of management literature focus on empathy as the next big thing but books promoting right-brained creativity, emotional intelligence and design thinking  have been written for the past decade and we are not seeing a lot of gains in salaries for people who focus primarily on soft skills ( Are English majors expecting a raise anytime soon ? ). Instead, most gains are made by world-class technocrats who take the time to develop some soft skills to make themselves more accessible to normal people.

With Learning as a cornerstone of my personal finance framework, I have to provide space for the best teachers ( the likes of Scott young and Cal Newport )  to be put on the same pedestal as the best investing gurus.

This means finding space for contradictory ideas to exist by creating an accommodating framework in future writings.

Wednesday, March 09, 2016

Saizen's Defence - Results from my arbitrage attempt.

Chess and wargames have a lot in common in investing. Wargamers are familiar with ancient tactics such as Scipio's Defense. Opening chess moves are loosely classified into gambits and defences.

I attempted a nifty defense maneuver using the Saizen REITs in the face of poor market conditions a few months ago. For the technical details, you can refer to Bully the Bear's article on what he did for Saizen stock.

The strategy is to put money in a safe place with a guaranteed exit time and then exploit the market for more opportunities later. This is a good for folks with a cash reserve and want to fight off inflation.

The generalised strategy is as follows :

a) There has to be bearish market with great uncertainty over the next 6 months.
b) One stock is being taken private at a fixed date with a projected price.
c) The exit should be around 3-6 months away.
d) The gap between the current price and exit price will give you at least 5% profit.

If your cash hoard can be invested in this counter, you are in essence getting a fixed deposit yielding an annualized 10% yield with a 3-6 month tenure. Some popular finance books actually recommend leverage when you make bets like this and you can engineer a 20%-30% yielding position if you like playing with fire , but I do not recommend it because sometimes such purchase attempts fails and you can be hit with 10%-15% losses.

So I was able to put about $50,000 of family funds to lock-in this interest rate for my dad, most Saizen investors expect to have a major exit at the end of this month, with the remaining proceeds coming in before year end.

So far, I think results are mixed and we cannot conclude that it is a superior investment technique because the money has not been fully returned yet.

Just before CNY when things looked particularly bad, I created a tiny position of stocks and REITs which was centred around Mapletree Greater China Trust, I thought it was a good time because it was beaten down quite badly and my wife's portfolio can benefit from a portfolio which gave more than 8% and provided more diversification for her account.

Right now this other MCGGT portfolio is winning.

The problem with the Saizen defence is that in a bearish climate, Saizen itself never drops low enough to become a bargain while other stocks in the market became very cheap as the markets got worse.

After buying Saizen and locking down $50k, I was unable to exploit MCGGT later which was beaten down by bad news coming from China. MCGGT has already rebounded quite aggressively and I'm not sure if the returned proceeds from Saizen should be farmed into MCGGT,

But I'm quite there will be plenty of stocks being taken private this year. If you are precise with your calculations and can diversity across such opportunities, you can make a decent profit running an arbitrage desk from the comfort of your own home.


Sunday, March 06, 2016

Why engineers and technology professionals become road-kill at middle age.

I thought I'd write another article which is a follow-up to my previous post advising the folks who might be considering an engineering career.

In this post, I want to explain the reasons why engineers and tech professionals wind up becoming road-kill at middle age. Why is the old engineer is always the bitter one who laments about how much higher their less academically brilliant sales counterpart is earning twice their incomes when they are still grinding in data centres.

As it was recently said on social media :

Retired bankers play golf, retired engineers drive taxi.

First of all, I did work with some engineering managers in their 50s. A lot of them are stuck in their old ways having worked in major MNCs for decades and then finding out that they are retrenched when the company decides that their services are no longer required. These are pleasant people but they are stuck in the old world of mainframes when the IT department is rapidly moving into the cloud. Being retrenched workers, they are also unable to tap into their deep networks in their old companies. One case I worked with have a tendency to keep repeating themselves using old cliches and I think this turned off their younger subordinates who consider themselves better than they are.

Over in school, I was also able to experience working with people in their 20s and 30s as peers and I can empathise why some of us folks in our 40s are disliked as team workers in Law School. We can be overly directive and some of us like to  repeat ourselves over and over again. A few of us are just not as good as the younger guys, our analysis can be sub-par and lacking in substance. It's something I feel bad about because law firm HR departments are going to mark us down for the actions and tendencies of some of us.

So my experience allows me to take a stab at answering the question as to why engineers end up being road-kill at middle age but not other professions.

The key insight is this :

Our schools choose engineers based on their proficiency of physics and math subjects - subjects which require constant grinding and solving new problems using 10 year series assessments. This ensures that only the most conscientious students wind up joining engineering school. Because of the rigorous content of a technical subject, there is also a bias towards introverts when assessing academic excellence.

More importantly are the kinds of students engineering faculties fail to attract - Openness to new experiences is crucial to technological work because it affects how much a professional is able to learn new programming languages and find innovative ways to solve technical problems.

So here are the results - local universities produce introverted, conscientious professionals  and average or below-average openness.

This is fine for the first 15 years of an engineer's life. But due to changes in the human brain of a person in their 40s.  The engineer becomes less open to new ideas and lose the ability to learn new things. Furthermore, while introverts are still very smart at middle age, they would not have built the weak networks to sustain future careers as the extroverts would have done.

The older tech professional starts become set in his ways - And you always know such an engineer if you work in a real IT environment, the guy who makes $8,000 a month looking after the AS/400 who talked about how robust and reliable the iSeries IBM servers were even they are being displaced by Linux machines. Some even claim that the cloud is marketing jargon and just a new way to market server racks in a data centre.

How can you retool this guy into Data Scientist ? How can he even learn AngularJS or NodeJS ? Graph databases ? SDKs are now being released and deprecated at a ridiculous rate.

In the past, operational IT folks fight aging by becoming process folks covering ITSM to remain relevant only to be displaced by wider changes in the ITSM software and new frameworks like DevOps.

The case within the legal and accounting profession is different. Changes in the legal world are rarely earth-shaking, any abrupt confirmation in case law has been hinted at by the House of Lords a decade ago. Ditto for accounting, because one can only imagine what earth-shaking consequences there would be if we overhaul GAAP. This is why even though accountants take on the same kind of students as the engineering faculty, you don't see so many bean counters driving taxis in their 40s.

As it stands, engineering schools are quite far behind the tech industry. This latest article by Tech In Asia hints at how far behind engineers of my generation who are currently teaching in local polytechnics are ensuring that a fresh polytechnic student graduates with obsolete skills.

The government is already doing the right thing to absorb graduate engineers. It generates baseline job guarantees and the narrow minded ones can always do government procurement at middle age. The government needs to realise that $500 in a learning account is not enough for tech professions.

The solution to this is not to just look into a student's extra curricular's record when selecting candidates for engineering programs. The system has to ensure that openness to new experiences is a criteria when hiring an engineering lecturer. I will not trust an engineering lecturer who is precise and dogmatic in his ideas, I would rather pick one who has some geeky interests like RPGs, music, cosplay, or arcade game programming because it subtly hints that he has multiple and varied interests.

At a personal level, some of my other articles already provide the general advise for engineers reaching middle-age.

Start saving, investing and networking with other because, beyond 45, it may be too late.


Friday, March 04, 2016

Lessen the psychological impact of a home mortgage though asset/liability matching.

I just ended hell week. Two paper submissions this week and a team presentation has made me lose sleep over the last few days. My body still aches after having a nap and I wonder if I am actually falling sick.

Today I will talk about home mortgages and psychological strain I have been receiving from my home loan for the past two years. The current state is that I pay my home mortgage with my CPF-OA and I have enough to do this for another 4 years at the current SIBOR rate. But this is psychologically straining because I worry that at the end of the year, I am unable to save enough of my dividends to offset the drop in my CPF-OA (given that its been a year of medical emergencies for my family). The other problem is that having a REIT and high-yielding portfolio, I also experienced the double whammy of increasing mortgage rates and a decreasing income in a bad year like 2015.

( Banks probably won't let me refinance as I have no income right now. )

This could mean that my retirement is not as sustainable as I thought it would be. And my loan has over 30 years more to go !

So I thought I'd return to the roots of this blog by toying around with the idea of matching an investment asset like a different kind of equity portfolio with a liability like a home mortgage that goes beyond simply farming dividends back to pay off a mortgage loan like I am doing now. The idea of asset/liability matching is to set aside or create a satellite portfolio which can offset the psychological impact of my home mortgage.

In effect, you are buying a peace of mind when you create this portfolio.

Currently, my home mortgage is about $530,000. After paying off my mortgage regularly without earning an income for the past 2 years, I barely have about $105,000 in my CPF-OA. Most of my money is locked down in my SA account anyway but I suppose between myself and my wife, we can pony up $150,000 to immediately reduce the loan to $380,000 if I do not touch my other assets.

One answer would be to simply buy $380,000 of Singapore Savings Bonds because it currently yields a rate which is higher than my floating rate loan. But that would be problematic because floating rates can increase faster than SSB yields and I would prefer to set aside a sum which is significantly less than $380,000.

So what I have to do is to hunt for investment assets with two attributes :

a) Investment must generally increase in value when interest rates rise.

The biggest problem with Singapore is the lack of floating rate bonds. But reading a brokerage report a while ago, I know that Sheng Siong's net profit increases when interest rates increase. The other obvious choice are local banks like UOB which profit from mortgage loans.

b) Dividend yields must be higher than my floating rate. 

Both Sheng Siong and UOB yield more than my current floating rate loan which is around 2.2%, so this allows me that peace of mind without needing to accumulate $380,000 with my new rookie income.

So suppose I blend a simple portfolio which yields 4.5% using UOB and Sheng Siong, I would only need a portfolio size of only to $186,000 to match dividends with interest rate payments of my mortgage.

This satellite portfolio will need to be rebalanced annually to maintain my psychological well-being.

Suppose, I start with a mortgage loan of $380,000 at 2.2% and a satellite portfolio of $186,000. After a year of work, I reduce the loan to $360,000 at a rate of , say,  2.4% and the satellite portfolio increases in value to to $190,000 and yields 4.8%. The satellite portfolio required to yield the same interest as the mortgage loan is now $180,000. I can release $10,000 back into my REITs portfolio for more income while maintaining a greater piece of mind.

For now, I can only start this project when I return to the workforce but my biggest issue is to find stocks which do increase in value when interest rates go up. Articles are very vague when they describe stocks which have this property. The ideal scenario is to find 6-8 stocks with this property.

If you are a reader and can offer some suggestions, do comment on this blog.

This may be potentially a better idea than simply paying-off a SIBOR floating rate home loan prematurely which did cross my mind last year.