Wednesday, December 13, 2017

The Art of the Good Life #1 : Mental Accounting and the "Tai Ko Kia" fund.

Let's move onto the next book. This is great book that has so many tools, it is best digested slowly.

Mental Accounting is supposed a bad thing to do in finance because it creates inconsistency in the way we handle money. This happens quite a bit for folks who have inherited money versus earned money.

For most of us normal human beings, inherited and earned money are placed in separate buckets. Earned money belongs to us because of the personal exertion we made to earn that money. Inherited money is a lot more complex, we might just want to preserve it because it is something given to us by a loved one. This is why, when a person develops a margin account, I bet he is more likely to invest his earned money into the margin account. Inherited money may be put into something safer, like a broad based ETF or bonds.

A similar argument can be make for a lot of crypto currency fans who read financial blogs. I acknowledge that cryptos has had a really good year, but it's best to use just your spare change to buy them.

( Ok Ok, I know that many of you are now sitting on a heck of a lot of spare change )

This book views mental accounting as a good thing. We evolved to create mental accounts to protect ourselves from psychological pain.

The author sets aside a sum of money to make donations to charitable organisations every year. When he gets a traffic fine, he will deduct from that account so he does not feel that its cutting into his hard earned money.

Singaporeans can benefit from this idea from instituting a "Tai Ko Kia" fund.

You might ant to consider setting aside perhaps $2000 every year to deal with bad luck like fines or, in my case, when my son decides to break some of my equipment at home. If there is some amount left in your Tai Ko Kia fund after the new year, you can have a Tee Kong Kia barbecue celebration or simply buy more toys for your kids.

Monday, December 11, 2017

How did 2017 pan out ?

We have less than a month to go until 2018, so I decided to look at my first post in 2017 to see whether I managed to fulfil all the promises I made to myself as well as review whether my predictions were accurate.

Here's what I missed out on :

a) Predictions on financial markets were thankfully quite wrong.

It's obviously better to be rich than to be right.

I wrote that 2017 would have been a flat year. I was glad that I was wrong, and I was able to emerge from 2017 with a lot more assets than when I took my last pay-check. My investment performance could have been better over the past 4 years, but considering that my family needs at least $60,000 a year to maintain, to be able to emerge in a better shape than before is a decent feat.

Moving forward my portfolio has developed some capabilities for leverage and I was personally hopefully to introduce a small amount of short-selling in 2018.

b) Career in portfolio management did not materialise... so far.

Another example of making all sorts of bets against myself. I was feeling quite down in January this year and thought my grades would not make me an employable lawyer by the time I graduated which was why I tried to hedge by considering a career managing money.

I am in firmer ground with my legal career now since I am done with my bar exams, things can still go wrong but I am a lot more optimistic than before.

Here's what worked out so far :

a) Less drama at home

2017 had much less drama although my parents are still not getting any younger and I need to be careful as we've just lost our domestic helper.

b) So far there's still hope of becoming a lawyer in 2018

My legal career is gaining more momentum and I have a lot more confidence with my skills now that I have gone through the bar preparations. The actual legal work is a lot more interesting because it is practical and can impact people's lives in a dramatic way. I did not enjoy some aspects of university schoolwork because academic work can sometimes be too distant from reality.

I also have much fewer hang-ups about being older and slower than my peers. What I lack in mental agility, I make up with experience. Thanks to a short internship I am more confident about using my engineering and financial skills to assist in dispute resolution. 

c) That satisfying work with BIGScribe

Lastly, the work with BIGScribe has been the single most satisfying work I have done for the past 2 years. I have made around 7 or more speeches and thanks to the coordination of the directors of the company, we've managed to sell out all the tickets for these events. I also enjoy being a fanboy when some other person is giving his talk.

I think that interacting with readers and other presenters who are smart and have some really great investment ideas of their own is the real pay-off when I make my prepared events. As you guys might already know, I don't sit still when presented with a good investment idea, I will backtest it and add a personal twist to it before using real money to back these ideas up.

My margin portfolio was first inspired by Brian Halim's idea that sometimes it is better to invest in higher quality REITs rather than stick to risky high yielding counters, it was modified again after I attended Marubozu's talk in the middle of year after I tried to backtest and formalise his claims. The leverage came after I became much more confident of taking risks after becoming much more comfortable with the lower volatility of higher quality real estate assets.

In 2018, I will provide some further directions on how my career and investment portfolio will pan out.

Sunday, December 10, 2017

Upcoming BIGScribe Financial Bloggers Moot

This coming week, a select group of extremely elite and exclusive financial bloggers will be meeting up for a friendly gathering. Over the months leading to this event, I have been trying to sell the idea of a financial blogger's "Unconference" or TEDx like conference to the directors of Bigscribe.

I can't really say that I have been successful, because it is quite a counter-intuitive idea.

Why would financial bloggers, generally wonky introverts, be willing to speak for about 5 min to 10 min on one investment idea for almost negligible pay? The resulting event would also lack a central theme because folks may talk about anything under the sun so we cannot even predict how much value add this would bring to paying customers.

While I have difficulty understanding why others might be motivated to do this, I do know that I will happily jump into any speaking opportunity given that I'm possibly one of the rarer "flaming extroverts" in the finance blogosphere and having more than a decade of public speaking experience helps too.

But here are some reasons why another blogger should consider making a 5 min pitch:

  • First of all, if you speak in an "Unconference", you get to participate for free and you get to home with 20+ new ideas from the other speakers.
  • Secondly, this is a great opportunity to get new fans of for your blog. 
  • Thirdly, some of my ideas are incomplete and instead of talking about back-testing or quantitative alpha, a 5-10min talk can only accommodate perhaps just one new concept. So I need audience participation to shape your ideas further.
So this Friday, we are doing this at a super-miniscule scale so only four of us have volunteered to speak on a pet topic of our own so far. 

My topic is something I have been promoting since my bar exams ended last week. I created a minor stir suggesting that financial independence could not preclude someone from becoming a loser and I will be building up this subject matter into something bigger. I can tell that this issue is something other bloggers are deeply vested in.

I will be talking about "Mid-life Crisis and how it impacts Personal Finance" :
  • An overview about mid-life crisis and some science behind it.
  • What coping mechanism are there for mid-life crisis.
  • What it means for folks who are planning our finances.
Rest assured that there will be an AAR after the talk and I am guessing the other bloggers will probably not give me an easy time for this.

I do not know the full list of invited bloggers for this Moot, but I do hope that if you are invited, you can volunteer to speak on a pet topic that can be shared with fellow financial bloggers. This is not a formal event, even if it's just sharing a formula for a new facial cleanser or a book review, it will be very much appreciated.

Monday, December 04, 2017

Can you be financially independent and be a loser at the time ?

Personal Finance is to Finance the same way English Literature is to the English Language. While financial problems may be resolved by mathematical formulas or a backtesting exercise, there are many ways to interpret problems in Personal Finance. Some might be right and some might be wrong but most are somewhere in between. 

I always find value in interpreting someone’s situation in a novel or unexpected way, because let’s face it, looking at it from many points of view is probably better than just looking at it from one. In English Literature, I’d like to give a D7 answer in Secondary School ( although it might well give me an expulsion or A+ answer at the Univerisity level. ) Needless to say, I try to avoid the Humanities when studying for anything after secondary school.

Recently, someone shared a story of a financially independent single male in his 40s and I kicked the hornet’s nest by declaring that he is weak. Some folks supported my thesis but quite a few disagreed with me. I thought I would pen some thoughts on financial independence and argue that it is completely possible to be a big fat ass loser in spite of your financial independence.

A) Honesty and Deceit

I think this is a genuine problem FI folks face. This FI dude has to lie about his status because people either do not understand him or might take advantage of him. I think honesty is not the best solution as well because very few people may understand how the process works and some folks do come from families where there are relatives who are always out to take advantage of you.

There are some answers that are not completely honest that does not involve deceit. 

Calling yourself a private investor is one. Another is saying that you are on a sabbatical but do not know when you can recover from mid-life crisis or burnout. 

My solution is to go to law school, which eliminates not just this problem but the other two which I will explain below. 

B) Loneliness

This section deserves a philosophical lesson of its own. 

Some things have ameliorative value - they meet crucial needs in society. An engineering, finance or law degree has amerliorative value, it earns you a living and performs a crucial service to others. Society just needs legal advice even though I expect a lot of executives to hate dealing with lawyers in
the workplace ( I know, because I studied law because I want to give myself legal advice and stop being led on a wild-goose chase at work ).  Some things have existential value - they do not meet crucial needs but may provide meaning to a person’s life. A degree in the Arts, Philosophy or Literature or some personal hobbies have immense existential value. 

Your financial know-how and discipline are skills with ameliorative value, but they not contain very much existential value. You can derive existential value from Hobbies, Great literature and Art but getting into the right cryptocurrency at the right time will not make your life meaningful or deal with your intense loneliness.

To deal with loneliness, you need to hang out with other people. But more importantly, you need to be interesting enough for others to want to hang out with you, which comes back to appreciating things with existential value. 

And in my portfolio of existential assets, a large part of it is invested in Dungeons and Dragons. I should add that fantasy role-playing is on a huge bull run all thanks to Stranger Things and live-streaming. 

C) Lack of structure in your life

I think this problem does not plague those who FI-ed by personal exertion because you need to lead a pretty structured life to attain your independence at a reasonable age. It is a serious problem for those who inherited their money because they simply do not understand what it means to accumulate wealth on their own so they drift endlessly from moving into one silly and pointless project to another.

It is this point that hits FI losers the hardest. 

You have already won a battle that perhaps 95% of the population would lose in Singapore, and yet you have no structure in your life, might even have problems engaging with other people, and boring as fuck.

But unlike 95% of the population, you can’t blame it on lack of wealth, networking contacts or family support.

The problem lies genuinely with you.

Anyway, I just want to impress upon the FIRE community in Singapore that in light of our successes in Personal Finance, we can still become losers so a does of humility will be helpful when we deal with those who have yet to complete the FI journey. 

Perhaps, with our newfound financial resources we can double up and put in more effort into promoting our hobbies. And achieve the next step in our personal evolution - Existential Independence. 

Sunday, December 03, 2017

Before Happiness #5 : Positive Inception

In this last article on Shawn Achor's Before Happiness, we talk about scaling happiness.

This is also a very practical chapter and I think fresh law graduates should pay attention to this article as they are going to very possibly end up in a fairly negative workplace. There has always been reports that the depression rate amongst lawyers are one of the highest amongst all the professions. I remember visiting a fairly prominent legal outfit and one grizzled associate got us all into one room, and when none of her colleagues are within earshot, whispered to us :" You know all those horrible stories you have heard about this place ? It's all true. "

a) Scale your positivity

Managers might be able to create simple rules of thumbs to create a more energized workplace. The books proposes a really nifty 10/5 rule - When a customer is 10 feet away, achieve eye contact and smile. When a customer is 5 feet away and not engaged with anyone else, greet him.

I still find the courts rather intimidating, but I think I will try to smile every time I am there to do my traineeship.

I just hope that this will not be interpreted as a weakness.

b) Power Lead

The first loud mouth who talks is always perceived to be more credible.

This is why being an extrovert amongst mostly introverted financial bloggers is fun even though most of them are better investors and smarter than I am.

Be the first to lead a conversation and make sure that it always begins in positive territory. Start the conversation with a compliment to the other side and talk about something positive that have occurred in your life lately.

I think the second part will be a struggle in the Asian context because it might be misconstrued as bragging.

Still, do it anyway.

c) Create a shared narrative

Perhaps among ourselves as trainees and associates, it might be helpful to start thinking about the kind of help we are providing for our clients and what our advice means to them. We need to construct a story of why we do what we do. But I know myself to be of a fairly cynical bent and will find it hard to see beyond billable hours when I start work next year.

( For quite a while, I kept thinking that engineers exists to cut operational costs, so I think  the problem lies with me rather than the environment I work for. )

But the practical benefits of having a shared narrative are astronomical - Salespeople who find meaning in what they do can increase sales by 700% !

This principle can be used in reverse. I now believe that the grand mission of unbiased financial bloggers is to band together to put up truthful articles on the problems with ILP investing and shed light on unrealistic financial products because the finance industry has found to way to motivate their personnel through expensive motivational programs.

The psychological truth is compelling - An insurance salesperson who sells products just to earn a commission can harm society in small ways. A salesperson who is motivated to believe that his work is helping others and is meaningful in the grand scheme of things can do seven times more harm to society !

Thus, we need to have a shared narrative to disrupt the shared narrative of others !

Saturday, December 02, 2017

Personal Update - Just Finished the Bar Exams

Wow ! I am finally free ! For the next one month, I have no obligatory readings that I have to do and papers I need to prepare for. Beyond some projects which I have promised myself that I would do, I am practically free to game role-playing games the entire month. 

A) Bar Exams

Completing the Part B exams is not as euphoric as I thought it would be. This was a tough but enjoyable series of papers because it was set by pretty cool geeks. I had to crack cases inspired by characters in Futurama, Rick and Morty and even Wonder Woman. It made doing a tough paper much more enjoyable. My regret is that my answer could have contained pop culture references of its own. One answer should have said “In contravention of ethical guidelines, Rick could have gotten himself into a Pickle” But 16 hours of exam over 4 days is stressful. I hope I will pass.

I made my contacts with the LLB folks and really enjoyed engaging with them. The young and upcoming lawyers to be have one thing we Gen X folks lack - a future life that is full of possibilities. While they will be entering a hyper-competitive marketplace that has, in my opinion, has too much talent, there is at least a possilbility that they will become industry leaders one day. For us Gen X folks in our 40s we’re more likely to be stuck at our current life circumstances. 

This closing of possibilities is one of the reasons why many of us get a mid-life crisis. I will not say anymore because...

B) Bloggers Moot 

BIGSCribe is still arranging a closed-door affair for the creme de la creme of the financial blogosphere. If you are not in the know, you are not likely to receive an invitation. For this event, I proposed the idea of a TED like conference for us to speak for about 5-10 minutes on any topic we think bloggers would like to hear. I will be sharing some the latest on mid-life on mid-life crisis and will working out with the expert crowd what this means for our personal finances.

For those who are not invited, rest assured that I will share as much I can about the event when I do an AAR here.

C) Special Projects

Just because I no longer exams does not mean that I no longer have projects. My first priority is to get put some SEO magic into this blog and try to push for more book sales. More will come later. 

Beyond serious stuff, I expect to be doing as much gaming as possible.

D) Travel and Leisure

This exam season has been psychologically draining. For some strange reason stretching exams to early December is painful because a lot of folks are travelling and putting smiling pictures on Facebook while I am trying to figure out how to help a hypothetical guy ensure that his mistress can get something in the event that he dies. 

This year it’s particularly bad because we had a good 2017 and folks have some disposable cash to burn. I will be going to Johor Legoland next Monday with my family but so far, it’s only to Malaysia for me. 

E) Financial Markets

My portfolios are not doing all that well because of the correction in local Tech counters. Fortunately I have built my margin account to minimise the damage as hospitality trusts are still doing ok. There will not be too many market movements in December.

F) Books

I will be shifting my focus to fictional works. During Part B, I completely missed out Dan Brown’s Origin and Brandon Sanderson has released his next book in the Words of Radiance series called Oathbringer.

As the year comes to a close, in another personal update, I will talk about leaving retirement. On January I will begin my training contract and will likely find ways to survive in the legal industry moving forward while keeping my mind open to any interesting offers from the IT industry. 


Sunday, November 26, 2017

Before Happiness #4 : Increase Signal to Noise Ratio

Ok, managed to squeeze in some time to post on this blog. Exam preps are really insane this week.

This section of the book is the hardest to achieve for me because I take on a lot of information sources and, combining my blogging hobby with my legal career switch, I am almost always swamped with information or crazy ideas.

a) Identify the signal from the noise

Noise is unusable, untimely, hypothetical and distracting. I consider The Independent a website dedicated to noise. 

Otherwise, I struggle with this section a lot because the book explicitly says that a lot of financial predictions are noise and Jim Cramer was even singled out as one of those information sources that an investor  better off without. The more important differentiator between the signal and noise in investing is that, for me, I am more interested in the working than the answer. I read a lot of broker reports and what is important is the reason why someone is recommending whether we buy or sell. 

As I have been generally profitable after reading these reports, I doubt they can be classified as noise. Macro-economic predictions are also hardly noise since the justification of the predictions make interesting reading and highlight important trends investors can follow. 

For non-investors, I think if you tune out the motivational bullshit that always say that you will succeed if you put your mind to it, it should save enough bandwidth for you to really figure out techniques to help you achieve you goals. 

b) Reduce noise by 5%

Once you identify the signal from the noise, you can reduce the noise by 5%. This comes from reducing the intake of TV and Radio. On the internet, installing an Ad Blocker will also help. If you are me and rely on an RSS feed, maybe you may want to trim the blogs that you are subscribed too. 

The author has also managed to convince me to start considering the purchase of Bose noise cancelling head phones. 

The hardest part about making this work is the fear of missing out. I subscribe to almost every financial blogger because I am so worried about losing out on a great investment idea. 

But these days, I just read the headlines and then decide if it can improve my bottomline. 

Otherwise I move on.

c) Eliminate pessimism

This last idea is very useful and I urge you guys to try it. Pessimism is something that we've adapted in our brains due to millions of years of evolution but too much of it can prevent you from achieving greatness. You can reduce it my adopting the following three maxims :

a) Keep your worries in proportion of the likelihood of the event.
b) Don't deny yourself 10,000 good days just to be right a few times when the days turn bad.
c) Worrying should not be equated to being loving or responsible. 

I think there is too much pessimism after my talk about leverage but if you were a PAYING CUSTOMER, you will know that I advocate responsible leverage with a view of always being aware that there is a chance you can go completely bust. ( In fact, I even show my working to everyone. )

But if the projected chance of going bust is going to be less than 2.5% and the extent of the bust is capped at 60% of the margin account, I doubt it's rational to refuse leverage at all considering that I already limit the margin account to below 20% of my total net worth. 

Of course, markets being hardly normal, critics may one day be right, but I will not ruin the possibility of many good years ahead just to feel smug when there is a rare market collapse. 

Maybe by then, I may have already pre-paid my mortgage and no longer have a margin account.

Thursday, November 23, 2017

After Action Review : Supercharge your REITS investments.

Ok, as I am preparing for my bar exams next week, I would only start writing about yesterday's session only after I am done with all my revision work today.

Here are some points of interest from last night's "non-debate" between myself and Teck Leng :

a) The lack of real debate last night.

The event was promoted somewhat as a debate between an ETF-driven approach versus a DIY approach to REITs investing. When we did the event on the ground, Teck Leng and I probably had much more points in common than actual disagreements. This is what happens when put engineers together, we're more keen to cooperate to find better ways of making money for everyone. Also I really liked his guts because he is quite an earnest guy.

[ If you really want a fight, put me against a legally-trained or marketing-trained ETF fund manager because I know the gloves can get off without things becoming too personal - then I'll thrash him with my superior numbers. ]

You can definitely leverage the Phillips S-REITs ETF and my current Maybank broker offers it at the lowest rate.

b) That 17% tax on REIT ETF dividends.

Even if there was a debate, the biggest elephant in the room that is in my favour is the 17% tax that is levied on trust income. This effectively lowers the dividend yield of the REIT ETF from 5.5% to around 4.6%.

But, let's be reasonable here, it's not the fault of REITs ETF issuer. I was told some readers of this blog forwarded what I wrote about these taxes to some bigwigs at Philips Securities and accused them of pocketing 17% of dividends. This is really unfair to these guys who created a relatively cheap product for investors who want to spend less time micro-managing their REITs investments.

Readers should be glad to know that the industry is lobbying hard to waive these taxes so that less sophisticated investors can benefit from higher yields.

c) Someone shared with me a better way of obtaining leverage.

The cool thing about unbiased bloggers giving talks is that some attendees may have better ideas on investing. After the talk, one cool dude came up to me and proposed a superior approach to getting margin financing from a broker.

He proposed using proceeds from a home mortgage instead to buy equity.

According to him, you can get funding at less than 2% (my current home loan is SIBOR +0.68%). After some thinking, I figure out that if the funding came from the mortgage bank, you can practically buy any stock you want or even buy cryptocurrency with the proceeds. The downside is that you will end up servicing a bigger mortgage instead of trying to pay a mortgage down like me.

I need every reader's help to verify whether this strategy would work or might even be legal in the first place. Banks, for sure, would not give a mortgage above the market value of the property and employing home equity as collateral actually attract higher interest rates towards the tune of 4-5% based on what I know.

But I think this is a good share regardless.

Thursday, November 16, 2017

Before Happiness #3 : Goal Accelerators

The third section of the book is also the most practical component of the written work because it summarises in one chapter what most motivational books would take entire volumes to do. Tips offered in this chapter are useful and backed by heavy-duty research. If you can practice this on a daily basis, you would save thousands of dollars on motivational seminars and get ahead much further in life than your peers.

The first strategy is to get as close to your target at the earliest opportunity. Once people perceive that they are closer to their goal, they work faster and harder to wards achieving it. In your quest for financial independence using the dividends approach, one way to push closer to your goal immediately would be to take your upcoming year-end bonus and start buying dividend counters with it.  Just begin with a bang and don’t wait for the new year to set your new year resolution. If you can immediately attain 30% of your first financial objective, it would be easier for you to save your next paycheck to hit your target of financial independence.

The second strategy would be to find ways to convince yourself that it is easier to attain your target. In fact, it is recommended that you shape your goals to have at least 70% chance of success within a resonable period of time. One way of doing this would be to break your financial goals down into micro-goals. Financial independence is a daunting goal that takes decades to achieve, but attaining $100 per month of dividend income is fairly easy. At 7% yield, you will only need a portfolio size of $17,500 to get $100 a month to offset part of your utility bills. This is something that can be achieved within one year of graduation for most local graduates. Having $100  coming into your bank account will create the motivation to save more and attaining the next $100 per month would be very much easier.

The third strategy is to manage your personal energy so that you can focus on attaining your goals much faster. This is powerful approach towards achieving greater focus on goals that truly matter in your life. We are all limited by our willpower that gets sapped when we are forced to make decisions. The key is to routinize as many decisions as you can and focus only on a few important decisions every day. One advantage of my new vocation is that men have really one work uniform and I have already started wearing only black and white for my lectures and tutorials. I do not have to agonize over what to wear everyday. Amazingly, uniformity in the way lawyer’s dress is more extreme than in IT. We had one day when all WINTEL engineers in my team came to work in a blue shirt and the admin staff can’t stop harping about it. Great engineers think alike, get over it !

Similarly, I try to use simple heuristics for food, such as choosing vegetarian for every breakfast whenever possible and plain black coffee. 

This third strategy can get really complicated in practice. Some issues like minimizing regret when searching for a home to buy can be resolved quickly through an algorithm like the solution to the Secretary’s Problem. Other issues can be resolved via economic Tit for Tat strategies. The more mental models you develop and internalise, you reduce the mental burden required to process the issue. 

Anyway, my willpower is saved for decisions that only matter - like whether to unload my Religare Health Trust in light of the discussions of asset disposal that was announced today.

After a day of painful consideration, I decided that there is some way to go for the counter if the negotiations succeed and we our well deserved exit. 

And what a tiring decision that was !

Saturday, November 11, 2017

Before Happiness #2 : Mental Cartography

[ I am slowing down my blogging as I am 2 weeks away from my Bar Exams. It is quite harrowing as we have to complete 8 papers within 4 days. It will be a struggle to have one update a week with an exception made when I complete my next talk with BIGScribe. ]

The mental cartography component of this book also composes of three strategies.

First, you need to find your true meaning markers which is just another way of figuring out what your goal are in life. In my own example, a lot of engineers start out in their career wanting to solve interesting technical problems because this is something they are passionate about. Others may simply be hedonists and want to extract as much pleasure out of life as possible.

Second, you need to reorientate your map around these meaning markers. For this same engineer, this creates an interesting dilemma in Singapore because if he focuses on a meaningful career solving interesting technical problems, he would not be able to take on better paying roles in project management or leading teams. Singapore is just not a place for interesting technical problem solving although genuine effort is being made to correct that. I actually believe that if you solid coding skills, hedge funds may be the place to develop programming expertise because you might be able to work on issues like network latency when co-locating servers with those of the exchange.

If money is also one of his priorities, every engineer needs to ask himself whether it is worth sacrificing doing something meaningful and interesting to make more money. For me, I'd just go for the money because financial freedom is more meaningful to me than hammering out cool programming code. The books advises that you set your priorities right before you look at nitty gritty of career planning. Maybe I can hammer all the programming code I want after I retire from the work-force.

Thirdly, you should map your success routes before your exit routes. It just means that a person should be trying to live a life to attain their success and should not live their lives trying to avoid failure. While the scientific evidence is that people who more motivated and aligned with their personal goals get fatter pay-checks and promotions, things would not be as simple as it seems in a conservative Asian society. The books still has a point -  a lot of older project managers or team leads eventually regret their career choices as taking on a management role meant no longer working on interesting technical problems as they get used to higher pay after a couple of pay-checks. 

Singapore exacts a huge penalty on a person when he fails - A failed startup can cost a technical engineer about 7-8 years of his life as he pivots to a more stable career. Even if he can accept such an unpredictable lifestyle, the question is whether his parents will support him. Thereafter, there will be concerns from potential spouses and girlfriends who may just choose someone more stable financially. Even if the girlfriend is willing to make a sacrifice, his potential in laws will have concerns.

If you are a risk-taker, you have my full respect. Just don't underestimate the influence that an Asian society can exert on your penchant for risk-taking.

Tuesday, November 07, 2017

The past is not dead; it is not even past.

[ The title of this post is actually Q1 of this year's AO level General Paper. It has been long time since I have written a GP essay so it's high time that do one given that I am also preparing for the Bar Exams.  ]

The past is not dead; it is not even past.

The past is persistent.

It shall forevermore, be embedded in the present.

It will always influence the future.

This is not merely  a metaphysical assertion for if you, dear marker, have a case of herpes. You should know this fact very well.

The past can be like a herpes infection from your last unprotected sexual encounter - it just keeps coming back. In fact, for herpes, the past is not even past, because herpes is like a trust fund that keeps giving, vital parts of your body that had stopped itching would periodically itch again in the future. Herpes will never die, it is not even past.

Also, no debate on the idea of the persistence of the past should be without the discussion of economic ideas which, also like venereal diseases, are spread between people who don't really know any better. As in turns out, the idea that the past is dead is subject to decades of debate by economists.

Proponents of the Efficient Markets Hypothesis argue that the past is irrelevant. The act of looking at technical charts ,which encapsulate historical price movements, do not lead to extraordinary profits. Entire erections of a theoretical nature were dedicated to the Efficients Markets Hypothesis in academic institutions. It is almost as if the older economists were on a permanent course of Viagra. Phds in economics must have felt their egos masturbated with with each additional citation they receive from another freshly published research paper. In fact, if you found a market anomaly and argued that historical prices can be used to achieve extra profits, you would in for a smear campaign. You would given more tongue lashings than a gimp in BDSM sex orgy if you revivify the past in a thesis defence.

But the past does make fools out of even our greatest economic minds.

People eventually discovered many market anomalies that do exploit past data and they were able to establish very successful hedge funds by exploiting these anomalies. One example is that momentum trades do result in extraordinary profit. A stock that has increased in value for the past 12 months has a propensity to keep on increasing in the markets. This results in a profitable strategy of going long on a basket of stocks which has done well in the past 12 months and going short on a basket of stocks which had done badly. This anomaly is likely to have arose due to the nature by which market agents react to the news. A first, a lot of people under-react to fresh news, but subsequently they overreact to it.

Whether it concerns money or venereal diseases, objects in the rear view mirror may always appear closer to where they are. The past is not dead; it is not even past. Those who do not remember the lessons of history, are doomed to repeat.

Those who remember the lessons of history, will have plenty of great stories to tell in the VD clinic.

Saturday, November 04, 2017

Before Happiness #1 : Choosing the most valuable reality

The first skill in the book Before Happiness by Shawn Achor is the skill of choosing the most valuable reality.

This skill is broken down into three specific strategies.

  • The first strategy is to understand that there are many alternative realities you can have. 
  • The second is to keep shifting your vantage point so that you generate alternative realities. 
  • The final strategy is to pick the most valuable strategy.

This is useful in finance.

Many academics adopt the reality that markets are efficient and there is indeed a lot of academic literature that reinforce the efficient markets hypothesis. This effective rules out Technical Analysis as a means of earning extraordinary profits from financial markets. But somewhere along the way hedge fund managers like Victor Niederhoffer and Kenneth Griffin found objective evidence that the contrary is true and they took steps to build a fund to exploit these inefficiencies in the markets. By shifting into a more profitable reality, it became possible to find new and interesting ways to make money from financial markets.

Similarly, you can notice that the realities of some people around you can certainly be improved.

During my reservist days, I met a lawyer who claimed that saving money was impossible because of his ridiculously high family expenses. He probably makes twice as much as what i made in those days. Even during my Part B training, I was stunned when a very senior lawyer told my class with a straight face that it is impossible to become a millionaire doing legal work. Ideologically, he must come from a different planet from me. If I accepted his reality, the situation would have been hopeless for an engineer who is facing a low pay and the risk of getting outsourced on a daily basis.

So I choose a different reality - I believe that making a million is not only possible but may be easier if you do not have a five figure monthly income. An engineer has nothing to prove about his economic status and can wear Decathlon from head to toe and dumpster dive for free organic food. Other professions have to keep up with personal appearances.

Some realities I adopt are admittedly hard to accept and this is especially so if you lean to the political left.

For example, I believe that Singapore is a very generous welfare state.

If you make $100,000 in dividends annually and dividends are not taxed at a personal level, isn't that some form of welfare for people who train themselves to save and invest money well? ( Feel free to disagree, tax professionals ! )

There are certainly some points which I felt are interesting and should have deserved deeper exploration in the book.

The book exhorts the reader to choose a reality - this is in essence an objective evaluation. The question as to what reality is available is should be determined empirically. We have to constantly remind ourselves that the book does not ask the reader to choose their own delusion, which is what other books like The Secret and various religious texts seem to espouse.

The other point I wish to make is that powerful people and public policy can warp your reality - that's why we have laws. Some bosses and corporate environments can be so oppressive that even if you try your best to put a positive spin on things, it would be hard not to be depressed by the happenings around you.

It is probably not realistic to think that the choice of reality is something completely within your control.

Sometimes you just have to work for in a horrible environment because you need to pay your bills.

Thursday, November 02, 2017

New Series : Before Happiness by Shawn Achor

Starting tomorrow, I will start talking about this book called Before Happiness by Shawn Achor. The last series of articles on Efficiently Inefficient was rather complicated and, as a result, attracted attention from fewer (but more hardcore) readers.

I thought it might be appropriate to not just shift to a lower gear and discuss issues which are a lot more accessible to readers of this blog but to also try to interpret Shawn's ideas from the perspective of someone who is trying to seek financial independence. After all, I'm quite sure that the freedom to pick and choose what you want to do with your life that is unfettered by financial obstacles could result in a much higher level of happiness.

Of course, the other reason why I chose this book is that Shawn Achor is a Harvard-trained researcher and whatever he says is backed by research. This is vastly superior to majority of motivational books that tend to have dubious support or, worse, rely very much on the wishful thinking of their readership. 

Monday, October 30, 2017

Titles Culture : A Demon of our own Design.

I think it's going to be quite vogue to talk about "Titles Culture" in Singapore today. "Titles Culture" happens when Singapore yuppies get together. The first thing they try to probe are the schools that you have attended. In this other article on Today, this is repositioned as an act of probing for weaknesses.

Like many things about Singapore society, it's easy to point out our problems and then try to appeal towards a "mindset" change. This always sets off alarm bells for me because it smacks of not really trying to solve the problem at all. Mindsets will only change if there are underlying socio-economic reasons for reform - otherwise the status quo remains.

I did not experience "Titles culture" when I became an engineer 20 years ago. The idea of a JC/University student doing tech willingly was sufficiently rare in the face of IT Outsourcing and the usual Senior IT engineer was an NCC Diploma holder or someone with a Private degree. There is also no need to probe for any weaknesses when any degree holder can volunteer to leave IT to get a better paying job in Banking or even Real Estate.

The "Titles Culture" really started to hit me when I tried to enter the legal sector.

Law students are cows.

Law students are really graded like Kobe Beef in the workplace, a summa cum laude or First Class can be as expensive as grade A4 Kobe beef with A5 grade reserved only for the Oxford BCL or Cambridge tripos graduate. I found myself probed right up to the subject level and my interviewers were really interested in my JC and secondary school experience.

[ A classmate just corrected me. An Oxford BCL is the equivalent of a Masters. A tripos is an exam name. I will leave the mistake here for the reader's edification. Cambridge Law degree is a BA Tripos Law. I also need to get my knowledge of beef right. Only Wagyu is graded like what I described. ]

Being probed did not annoy me, but here are some uncomfortable thoughts about "Titles Culture".

a) What if this is really a better system of meritocracy in Singapore ?

One of the things I picked up in Part B is that Law Students are actually quite well-rounded and smart.

I tried to start a negotiation session by asking my opponent when he did A level maths and then worked with him on turning the legal case into a maths problem involving the Binomial distribution and was pleasantly surprised that he understood the maths perfectly. At the end of the session, I felt a tinge of sadness because my opponent would have made a decent engineer and could have created quite a number of jobs in Tech. In fact, every single decent engineering student who could have build a unicorn in Blk 71 have gone to Law or Medical school because of our society's priorities.

You can hate Titles culture but what if it is really what we have been working towards in the past 20 years ? If 40% of the population can enter Universities and there is already a route to the top from Polytechnics and ITEs, then there are fewer excuses for not getting a degree in the first place. Furthermore, as more late bloomers no longer find themselves disadvantaged, people no longer feel elitist when they probe the schools you come from.

It becomes culture. A habit adopted by everyone.

It might actually be a fair and objective benchmark.

b) It begs the question as to what can replace Titles Culture ?

As much as I dislike Titles Culture, I'm not sure what can possibly replace it.

Older European cultures still have aristocratic titles like Duke, Viscount or Baron. Is this the kind of culture we want ? What if like some countries we want to know whether someone is related to someone in the ruling party ? Twenty years ago, the status symbol is the company you worked for. You get a lot more credibility if you worked for a international bank or an oil firm.

The major question for any reformer is how should HR change its practices in the future ? I agree in part with the Startup community that a skills based meritocracy is what we really need to build a vibrant ecosystem but is this realistic? If the startup community wants to do this, it has to actually pay for skills and get their HR to set an example by not using paper qualifications.

Why is this not being done? Why are our startups not trying to headhunt our Poly and ITE graduates ?

If you you pay a top flight programmer from Poly the same as a CS grad from NUS, we will get the skills meritocracy we deserve.

c) So should we make your net worth your report card ?

The issue at the end of the day is how to really stop feeling like shit if you don't meet up to other people's benchmarks. I don't have a comfortable solution as well.

As far as I know, markets don't look at your qualifications when they decide to give you a dividend. Perhaps your net worth can become your report card.

Personally, I don't really like this approach as well because most ACS alumni start out with much more than I do. Some financial bloggers struggled with a working class existence before becoming financially independent, I think they deserve more credit than those who have a push from a posher background.

d) Maybe we really need a mindset change after all - specifically, yours.

Our education system, being Asian, does not really put an emphasis on self-esteem. There has to be science behind building a set of beliefs that allow us to keep our confidence up when some asshole starts asking you what school your come from and how many H3 subjects you took during your A levels.

( Although in my opinion, the last thing you need is to have someone in a school or government to bestow a "title" on you to make you feel like a human being. In the US, you can get a trophy for coming in at 6th place - we should not build a culture that celebrates mediocrity. )

I'm not a trained psychologist but I recommend that we seek a "confidence target", a major win in life that can form a bedrock to buttress our personal esteem. This can be running a successful business. Becoming famous for a worthy social cause. Making a big social contribution. Being a champion in a sub-culture. ( Like being a Grand Prix Champion for Magic the Gathering although many of them are pretty big assholes too ! )

Unfortunately, many will go through their lives without ever winning a major milestone to give them enough self-esteem to resist a Titles Culture.

But we owe it to ourselves to give it a try.

Just don't let the assholes win.

Sunday, October 29, 2017

Next BIGSCRIBE Talk #2 : The fear of leverage.

I was supposed to be pushing for my next talk but ticket sales picked up over the weekend and we're down to almost single digits worth of tickets left. If you have not bought your tickets, this is your last chance. Click here.

As I'm reading Andrew W Lo's Adaptive Market, I will begin this post by talking about an mental experiment that some of you might be familiar with.

Which pay-off would you choose ?

Would you prefer a $240,000 pay-off with 100% certainty or a 50% chance of making $500,000 ?

Intuitively speaking, most readers will choose the 100% payoff of $240,000 even though the expected payoff of the second option is $10,000 higher. We are much more interested in a guaranteed $240,000 because we cannot stand the idea of risking a 50% chance of winning nothing. Loss aversion is a natural part of human evolution.

For years, I refused to touch leverage because, even though I was aware that my gains can be multiplied, the idea that an event that could wipe me out completely made me afraid of committing my funds into a margin account. During the depths of the Great Recession, I walked into Maybank's branch in Shenton Way and then walked out without doing anything because I just did not have the guts to go ahead with my plans to start playing with a margin account. Even then, I had information that recessions seldom last longer than 1.5 years and we've almost facing a downturn of 2 years. That could have been my millionaire (or multimillionaire) moment.

I finally got into leverage recently only after I convinced myself that my financial independence would not be threatened by an event that would wipe out my entire margin account. From this safe vantage point, I have recently created a small account that is designed just to help me pay-off my mortgage.

For my next talk, I will imagine what it is like to use leverage to speed up the attainment financial independence. I am backed by a brilliant and controversial work by Ian Ayres called Lifecycle Investing who was also behind some legal papers I had to read when I was a law student. I then took the approach in Lifecycle Investing and adapted  it to be used locally in the REITs sector.

Like all my talks, they are focused on how you can attain financial independence with all the mathematical backing I can muster from my Bloomberg backtesting.

Even if you fail to conquer to your fear of loss aversion, you will find my very conservative approach of matching leveraged assets to personal liabilities ( With yields possibly reaching beyond 10+% )  refreshingly novel.

Thursday, October 26, 2017

Next BIGSCRIBE Talk : Getting more from REITS workshop.

My next talk will be held on 22nd November 2017 at Raffles City Tower at 7.30pm.

To buy the tickets, please follow this link.

My next talk is going be highly dangerous but exciting. So right now, I am putting enough disclaimers onto my slides.

The first part of my talk would be updating my findings when I was tweaking a REITs portfolio to create a reasonably diversified mix that can backtests over 12+% for the past 10 years. Previous attendees if my talks might wish to see how a refined strategy looks like.

Ordinarily, the first half of the talk should give you your money's worth, but intermediate investors want more because anyone can do backtesting if they have the right tools to do it.

In my next talk, I will be talking about leverage the first time and will talk about how to responsibly create a margin portfolio for yourself. This is highly dangerous for the uninitiated but I will specifically discuss two specific applications of leverage :

a) Applying leverage to speed up your journey towards financial independence.
b) Applying leverage to offset a specific liability on your personal balance sheet like a mortgage.

The moment you get into leverage, you are risking your portfolio and net worth towards absolute ruin. During this talk, I will be discussing the ways and means to minimise the possibility of this occurring.

More importantly, I try to also paint the Doomsday scenario that awaits any leverage investor.

Over the next few weeks, I will be discussing the major points leading up to this talk.

Do give us your support and pick up the tickets before they are all gone !


Tuesday, October 24, 2017

Efficiently Inefficient #15 : Event Driven Investments (Last Installment)

Going through this books slowly has certainly aided my attempts to be a better investor. I have some academic basis to the leverage portfolios that I am currently building and am beginning to see the benefits of at least starting a new portfolio involving momentum next year after completing my leveraged portfolio. Hopefully, I would have finally mastered the science and personal courage of shorting counters using CFDs.

This late installment is about event driven investing. 

When you engage in event drive investing, you are not really profiting from the direction of the markets but from an event taking place. Executed properly, a great events driven investor can have returns that are uncorrelated with the markets.

a) Merger Arbitrage

This is a bet on a merger and acquisition actually taking place. A really exciting opportunity which happened recently was when Croesus RTrust was about to be taken private. The offer was made at around $1.17 with a potential dividend of about 0.04cts. 

When the offer was declared, a lot of investors took their money off the table as they have already made a decent 10-15% from the announcement. This actually brought the price to $1.165 the next day. This was a mouth watering deal for the merger arbitraguer. There is a 4.5 cts gain if the taking private of the counter succeeds once we include a 4+ cts dividend was declared. This is a 3.86% return which can be consummated in 3-4 months or annualised close to about 10%+ per year. A savvy investor might be able to buy this on margin and leverage at 300% to lock in an annualised return of 30%. 

This can be stressful way to invest and risk-sizing and I'm glad that some amount of legal knowledge on delisting and merger and acquisitions can come in useful when dealing with merger arbitrage investing

b) Distressed investments

I expect a new class of hedge funds to emerge in Singapore that may specialise in distressed securities investing. We've recently reformed our insolvency regime to become more similar to that of the US. One feature is the introduction of debts with super-priority that allows a creditors to lend money safely to distressed firm to assist them in recovery while gaining priority over creditors if the company would somehow fail to be saved anyway. 

The the events driven investor can take provide financing at a super-priority and help the company have a good start towards recovery. He can also buy the bonds at a great discount rate while shorting the company stock at the same time.

For the retail investor, events are fairly hard to come by. You have to wait patiently and take tactical bets when an opportunity arises. At least for me, having a lowly leveraged margin account gives me the option to take on such opportunities as they arise.

Lastly. one special event would have happened today :

UMS declared a a bonus share issue of 1 share per 4 shares owned. When a company does so, there is no ordinary business event or good news that warrants an increase in price. Therefore, mathematically you would expect UMS shares to drop about 20% this morning. That, in fact, did not occur. The stock dropped on 14% which meant that if you had bought the counter yesterday, you would have made 5% over the bonus issue,

This is a consistent pattern you will observe whenever a stock splits ? As of now I would not really bet on that happening all the time.

Anyway, it has been fun going through this book Efficiently Inefficient. This book has changed the way I look at my personal portfolio and in time to come will affect the seminars I give on investing. 

The current books I am reading are quite brisk reads, I should be reviewing entire books on investing moving forward.

Friday, October 20, 2017

The Origin Story of Growing Your Tree of Prosperity

[ I wanted to share this story because I just read Chris Guillebeau's Side Hustle. Guillebeau was never really an author that I respected in the past, his earlier works glorified financial independence a little too much and reminded me of MLM programs and the kind of rotten insurance agents that I troll on a regular basis on this blog. His latest book, however, was extremely useful and highly accessible. The stuff he brought to the table was quite intuitive and often based on common sense, but he had a lot of interesting examples from folks who managed a side hustle.]

I did not get into writing because I wanted side income.

My finances were doing ok and I was just discovering dividends investing. The primary motivation for writing my first book was just to prove that I can get shit done when some folks around me are just shuffling their feet and just talking about their grand ambitions without shipping a single product despite talking about it for yonks. In fact, my parents were somewhat against me writing a book and spilling the beans on how I invest. I mean, why share anything if it work surprisingly well on the family wealth right ?

Truth is, I always had some friends who were always talking about finishing a published work. I never figured out why was authoring was so hard. I finished my undergraduate thesis fairly early and spent most of my final semester refining my algorithm so to me, a published work is simply a thesis that people would actually find use to read.

Just to say that I can finish-off what other people can only talk about, I looked for ways to hasten the process of getting a book into the bookstore. The manuscript was strangely the easy part. Once I finished up my table of contents,  I can sustain a lot of writing for hours once I got off work - a lot of it was actually done in Bangalore when I experienced outsourcing destroying engineering jobs in Singapore.

The original aim was to lose all my allocated money on this project, get the book on the shelf, and possibly act smug because of my quick time to market. I hired a consultant, ponied up about $6000 and passed him my manuscript. Within a few months Growing Your Tree of Prosperity was on the shelves of major bookstores.

The book was initially a shit-storm of a product.

I had listened too carefully to my consultant. He advised me not to hire an editor to keeps costs low so it turned out to be badly written. The feedback was also negative from some folks I  met in the writers guild, some author said that my grammar was unforgiveable. Some friends pooh-poohed this product because it was self-published and lacked the cachet and pedigree of a real published product. The book has also gone through two distributors. I pulled out from the first one because I felt the owner did not have integrity and the second distributor even gave up because of the disruption the book business was facing from e-books at that time.

Then, amidst the horrible feedback and brickbats, something strange happened.

People clicked with the contents of the book.

Maybe the bad grammar made the book more intimate.

I was featured on Me and My Money, got a radio interview and the book hit no. 10 for just one week on the Straits Times non-fiction bestseller lists. The fact some people thought I was an attention seeking troll who claimed to save 70% of my take home pay helped. Turns out bad publicity is awesome publicity.

I also cannot escape this new found attention at work, management began to see me as a possible asset to be deployed in financial institutions. Of course, the biggest benefit was that in writing a book on personal finance, I have to really get rich because I would not be able to live with the cognitive dissonance of not making my first million before I retired.

In conclusion, I'm not sure whether there is ever a moral to this story.

My first book was a pissing competition. It was basically the length of my dick against the length of the dicks of everyone else I knew who had literary ambitions. I wanted to show that my dick was longer. I even had money to make it happen. On hindsight, I did not even win this pissing competition properly, I self-published and neglected to hire an editor.

But this pissing competition took me to quite a few places.

  • I have this blog. It's not a big deal, but you're reading this, right ?
  • I quit the workforce and took a 4 year holiday to argue with Millenials over some finer point of Constitutional Law.
  • I can conduct a segment in a financial seminar and get a 100% full house record in all my talks given so far. ( No one ever paid me to talk when I spent 10 years with the Toastmasters movement. )
  • I have awesome friends who are truly investing experts. This has rubbed off on me to take bigger risks with my portfolio and share with everyone new ways of making money.
  • My awesome friends even offered me shares in their company that will be paying dividends this year !

As a side hustle, Growing Your Tree of Prosperity was a failure on many counts. But failure sometime pays its own dividend.

If you are an artist who is always criticised by other, why not put it up on Etsy and see if you can do something good for your personal cash-flow.

Or like me, you have friends who were dreamers and can't seem to take the final step to ship a product, why not just finish the job for them? It sure beats criticising other people. Show, don't tell!

Anyway, my stock of Growing Your Tree of Prosperity is about to be sold out, I might have only a few copies left.

Tomorrow, I am going to find whatever copies I have left and will sell each copy for $88.88. Whoever buys my final copies will get my two other books for free.

[ Ok, I just salvaged 8 copies and have updated my store-front. I guess at this stage, I don't really mind if they never get sold.]

Thursday, October 19, 2017

Efficiently Inefficient #14 : Arbitrage

The final section of the book discusses arbitrage. The formal definition of arbitrage is the achievement of guaranteed profits by simultaneously buying low and selling high.

In practice, a guarantee is almost impossible.  Traders buy and sell securities that are almost the same to achieve a profit, sometimes incurring massive losses when their trades fail to diverge.

Arbitrage is too mathematical for a retail investor blog.

I will just briefly describe the sub-sections of this book under the Arbitrage trading section :

a) Fixed Income Arbitrage

Fixed income arbitrage covers the buying and selling of bonds of make a profit. One approach is based on trading the slope of the yield curve. If long term yields are expected to drop but short term yields are expected to rise, one form of arbitrage would be to simply buy 10-year bonds and sell 2 year bonds. Mathematical formulas employing bond duration calculations will be used to determine that proportion of long and short term bonds to buy. The best way to get a good handle of such trades is doing the CFA II exams.

b) Convertible Bond Arbitrage

I am not even sure if it is possible to perform this form of arbitrage here.

First you need a convertible bond. This is a bond that can be converted into the stock of a company. If the convertible bond is considered underpriced, the trader will buy the convertible bond and short the stock. Executing this trade requires the use of sophisticated programs that crunch option mathematics as a convertible bond consists of an underlying bond instrument embedded with a call option.

Let me know if you have any experience doing this.

c) Event-Drive Investments

I will jump into this form of investing next week as it is definitely possible to do this here. Suppose a counter is going to be delist and $1.00 will be delivered to investors per share in 3 months. If the current price is $0.95, this is a 5% return over 3 months. Event-drive hedge fund managers will buy up this stock with leverage to magnify their returns.

If the delisting fails, this trade can explode in your face.

Tuesday, October 17, 2017

Cutting through the bullshit when assessing investing stories.

I certainly did not like Narrative and Numbers : The Value of Stories in Business by Aswath Damodaran because it takes a while for his framework to sink in and become monetizable for local investors. In fact, upon closer reading,  the book is actually solid evidence that narratives can be quite dangerous for investors as even experts don't have a clue and have to run with multiple assumptions. Nevertheless, Damodaran is open-minded to criticism and a master of his art and possibly the best guy to ask when assessing companies with no credible cash-flow.

Ok...About narratives... why do we read a financial blogger and decide to jump in and support his story?

I am usually quite trigger happy when a story involves dividends but I, too, exhibit a personal bias when I jump into the markets after reading about a good investment. A lot has to do with whether I see the blogger as a person of substance or a bag of hot air. Sometimes I jump in if I like the blogger and do a double-take if I "see him no up". It's not an objective process at all.

I think we can do better in this regard.

Damodaran has a framework that allows us to assess how good a story is. I have tried to create a very rough outline based on his book.

To have a credible investment story, we may need to consider the following elements :

  • Does the story address the total market size of the investment opportunity ?
  • Does the story talk about the market share of the company in question ?
  • Reality check - Revenue can be derived from an assessment of market size and market share. Is it realistic ?
  • Does the story talk about future trends in operating expenses ?
  • Does the story discuss trends in operating margin capital which can be obtained from operating income by revenue ? ( Operating income = Revenue - Operating expenses )
  • Does the story discuss future trends in taxes ? ( Might be less important for local stocks )
  • What are the reinvestment opportunities - Typically the story should have a credible sales to capital ratio which is how much revenue can be generated from $1 of reinvestment. But, accounting-wise,  this is complicated as it involves dividing (change in revenue) to ( capex + working capital ).
  • The entire story will need to be discounted based on the discount rate and probability of failure.
  • Reality check - Do these financial characteristics fit with a company in a particular phase of its growth cycle ?

I thought perhaps this list may be refined to form a checklist that can be used further to "audit" any investment recommendation and assist the investor to ask further questions of the blogger.

For example, a person who is very bullish about Banyan Tree over tourist arrivals may be focused on the market size over the next year. Series of good questions from an investor would be whether Banyan Tree can capture more tourists or market share over the upcoming year and whether the added arrivals would increase their operating expenses ? Otherwise the thesis that profits would increase may not be as strong as what the person claims.

If any financial blogger wants to volunteer to have an article "audited" in a friendly manner, do let me know !!!

Otherwise, I might just "volunteer" someone to test it out !

Saturday, October 14, 2017

The Electric Toothbrush and the Vibrator

Imagine an electric toothbrush.

It is a stick-like object.
It contains a motor.
You stick into a sensitive part of your body.

What other device can you think of that has the same general features ?

A vibrator.

It is also a stick-like object with a motor like component. You also stick it into a sensitive part of your body.

From an engineering perspective, it is possible to invent a device that is both an electric toothbrush and a vibrator at the same time. Components and form factor are very similar.

But we don't think generally about an electric toothbrush being a vibrator at the same time.

In the finance industry, however, people sometimes do not make such distinctions.

ILPs perform the task of protection and investment at the same time.
It is a toothbrush.
It is also a vibrator.

The one of the group of anonymous insurance agents who tried to declare war on the financial blogosphere told a story where he met an MBA and CFA during reservist who was rendered speechless when confronted as to why he felt so strongly that insurance and investment should be treated separately.

What justification do we have to separate investment and protection so vociferously ?

This is a common defence against "buy term and invest the rest" philosophy that clearly makes a distinction between insurance and investing that we tend to support in the financial blogosphere.

The anonymous insurance is unfortunate because he did not meet me during his reservist training.

I will ask him whether he would like to back my project to kickstart an electric toothbrush that can also serve as a functional vibrator.

And then I will ask him to shove it up his arse.

[ This is my first attempt at financial comedy. Other bloggers have been asking me to consider financial stand-by comedy in future talks. ]

Wednesday, October 11, 2017

Efficient inefficient #13 : Managed Futures

Today’s article is about managed futures but this strategy is really about trend following. The result of this strategy is very credible, with Sharpe ratios going as high as 1.8. Bershire Hathaway’s supposed ratio is about 0.76 and my usual backtests struggle to hit 0.6. According to the textbook, a diversified trend following trading strategy can return 19.4% with only a volatility of 10.8%.

My primary interest in this strategy is figuring how I can apply these learnings to the build-up of my momentum-based portfolio which would proceed sometime next year. As it turns out, looking at long term trends lasting about 1 year is optimal with weekly rebalancing taking place, but equities provide the lower returns than fixed income and commodities.

If you believe in market efficiency, it would be hard to accept that you can make money from trends, but the return drivers come from two main sources : 

A) People react too slowly to information

One theory is that people anchor their views to historical data and adjust their views too insufficiently to new information. Another reason is that people tend to sell winners and ride losers for too long. Central banks also exacerbate the process as they focus on reducing exchange rate and interest rate volatility. Also, market friction, prohibitions against short sales do not allow arbitrage to take place instantaneiously.

B) After a time delay, people overreact to information

Once prices move for a while, the bandwagoners start piling onto a stock. People are afflicted with confirmation bias ( Boh Koh Leng ! ) and focus on what they already believe in discarding evidence to the contrary. Investors also add to the problem chasing investments that tend to do well recently which contributes to fund flows.

My leveraged portfolio is only 50% done and it’s already calculated to return about $20,000 a year. A momentum based strategy that adopts some of the best practices by trand following investors will not only provide me decent returns, it is likely to have little correlation with my leveraged or unleveraged yields portfolios.


Monday, October 09, 2017

Manufacturing Outrage in the Financial Blogosphere.

It takes a troll to know when someone is trying to manufacture outrage using the realm of personal finance. Roy Ngerng had a large impact when he spoke about the CPF system even though a lot of reasonable folks wanted to point out that a lot of his arguments were unsound.

Mediacock attempted to so this recently, basically just creating a scenario where if you do the maths, you will become outraged and then proceed to take it out on the PAP or anyone who is perceived as an obstacle to your Singaporean dream. ( Simplest answer when you savings $960 to cover expenses of about $200,000 requires a minimum of 17 years, longer if you factor in CPF contributions. )

Netizens have pointed a lot of issues with this example :

  • Singaporean workers get increments and they tend to be higher in their younger years. Family income settles down to $8,800 a month. 
  • A wedding banquet is normally offset by ang baos. (A 60% offset is reasonable. My ang baos covered around 90%)
  • Photography and Videography is "nice to have".
  • 15% savings rate is a rookie number and really should not be a constraint. Graduate with a job should live like a student and gun for at least 50% savings. 10-15% in American finance books is not contextualised to Singaporeans who live with parents prior to getting married.
But the simplest way to debunk this attempt at outrage is to note that folks without degrees are settling down and doing fine.

For a savvy university graduate couple who can save up to 50% of their income and gain increments of 8% a year, $200,000 can be accumulated within around 5 years. Maybe even 4 years if they pick up some solid investing skills. Of course, very few folks are savvy.

Imagine a different scenario where we exist in a European Socialist welfare system :
  • Maybe 50% of the income of this graduate couple may be taxed to line the pockets of the unemployed Welfare queens.
  • Sluggish economy means that salary increments are almost non-existent and may not even cover inflation.
  • Folks pay rent because it's so hard to be able to afford homes.
  • Welfare economies do not incentivise the development of financial planning know-how.
  • Upside is that families are breaking down so folks cohabit and no longer get married.
Mediacock can try such a math problem and figure out how long it would take to accumulate $200,000 SGD.

I think that's a bigger reason for outrage.

Saturday, October 07, 2017

A Third Class Honours, by any other name...

In today's new NTU has made a decision to re-label the Third Class Honours designation to something more politically correct. The question is whether this will really make a difference to their students or how the industry would view local graduates.

I was in a bad situation myself sometime last year. I was teetering on the brink of losing a cum laude  and started make plans to graduate without a cum laude designation. This was because I was scored bottom in my Civil Procedure and International Moots class. The options do not look good because the industry is going through a tough patch, I have yet to score a training contract, and a 1-1 mapping between NUS and SMU would map a summa cum laude to a 1st class, a magna cum laude to a 2nd Upper and a no-frills cum laude to a 2nd lower even though a cum laude designation within SMU maps to the upper half of a 2nd Upper from NUS. I was also really worried that the older lawyers, many who would not even countenance a second law school in Singapore, would discriminate against us SMU graduates.

The situation was the opposite 18 years ago when I graduated from Engineering. I was in the 1st Class bracket, but in all my job applications, I mentioned that I expected to get a 2nd Upper. In those days, 2nd Upper was a cool grade. Folks were more relaxed about academic achievement with only the government and Anderson Consulting being really interested in paying more to hire top flight engineering graduates. Those days, lying about expecting a 2nd Upper even turned out to be a good move. After I joined P&G for a year when I found out that some of my colleagues take quite a lot pride about rubbishing 1st Class Honours graduates resumes. But the excuses are always that 1st Class Honours graduates may not have developed as a "whole person" and may have sacrificed their extra curricular activities.

These days grades matter. It's not because universities developed funky titles for their best students.
It's because HR departments need it to justify the expense and there are more students vying for those few professional jobs that guarantee a ticket to the middle class. HR department know where you stand on a percentile basis relative to your peers because it take an intern perhaps an hour to generate a table that maps degree classifications to percentile numbers and subsequently to starting salaries. Kids these days just put CGPA on their LinkedIn to erase all doubt about their quality.

Another words, NTU can't outsmart the industry by simply relabelling their product.

I'm also going to burst a couple of bubbles on this blog :

a) The silly idea that your degree classification only matters for your first job.

This is completely untrue from personal experience. If it only matters for one job, no one would regret getting average grades in university, go ask the middle aged uncles my age. In practice, when you submit your resume, you include your job experience AND YOUR GRADES so your interviewer will look at your candidacy IN TOTALITY.

You might have solid grades but if you did your work in a less inspiring setting, grades can save your career. Like my short 1.5 years stint in Government, you might find yourself in a position with no solid contribution to write about in your resume after you leave (Even my 11 months with NTUC netted me one data centre move). In reality, some work is just BAU (Business As Usual) work. You don't get rewarded when things work, but shit really hits the fan when things fail, so if you have done a perfect job, there's nothing to rave about to your interviewer.

Worse, in many cases, the sexier work is just farmed out to the folks with better grades.

In any case, it is highly dishonest to lie about grades or university being unimportant after your first job.

b) The lie that we are moving towards a skill driven society.

This is so dishonest I think we need to install a new hell to folks who are spreading this lie. The move towards a skill based society is not a motherhood statement that is bandied about to make the weak and mediocre feel good about themselves. Degrees contains two sources of value, one comes from skills development and another component comes from signalling.

The signalling value of a degree qualification is quantified by the salary difference between a person who comes from a better university and a person who comes from a less prestigious institution but is equipped with the same skills.

You can shoot your mouth off and say that we're moving to a skills driven society when this salary gap narrows and when employers have decided to pay for skills instead of branded paper qualifications. Until then, Singapore overwhelmingly pays based on the talent and potential of a graduate that is divorced from actual skill-sets picked up from school because MNCs can train their own employees better to give them the skills they need.

In fact, I would even argue that the gap has widened and is widening further because we no longer belong to a society where 20% have degrees and instead are moving to a society where 40% have degrees. Grades will matter even more in a society full of degrees. HR has KPIs to meet as well and don't like to be kept in the dark about what kind of guys they are putting on payroll.

So if local universities really want to make grades matter less, the solution is not relabelling. It's not even better teaching. The solution is to do the politically incorrect thing and limit the number of graduates in Singapore society by limiting their intake. This move must be coupled by a strong apprenticeship system that allows Polytechnic graduates to gain access to the middle class with good jobs that, in turn, allow them to raise families without running away to Australia to get a degree. These polytechnic graduates can then, based on personal circumstances, learn their way towards better jobs through part-time studies.

I think with university graduates being capped at a smaller number, we can have a society where skills matter more !

Thursday, October 05, 2017

Openness to new experiences and regaining cultural capital.

I wanted to write something less hardcore for the blog today.

One of the side effects about reading about entrepreneurship is that you begin to start understanding that some personality traits make much better entrepreneurs. Successful entrepreneurs tend to be more conscientious, open to new experiences, non-neurotic, and extroverted with research actually taking into account actual business results.

Perhaps being open minded to new experiences may have monetary consequences.

For folks like myself who is knee deep into our 40s, we're mostly stuck in the past. Married folks and parents have musical tastes which are stuck in the 1990s and like bands like Radiohead, with Boomers pushed back even further to the era of probably the Beatles or Elvis. For the past two weeks I've been hanging at Wild Market food court and watched as a highly talented but hapless Millenial performer struggle with coming up with a tune for the folks who want "old people music". She eventually settled with Tracy Chapman's Fast Car which in my opinion, failed to make the request.

I don't think there's anyone should be proud of being stuck in the past. Even amongst geeks, there is somehow a generation gap between the folks who follow the latest anime storyline compared to those whose cultural capital is stuck to the 1980s. Cultural capital can be like money sometimes. If you use an old Banana note from the time of the Japanese Occupation, it's the same as being conversational about Evangelion and Macross when the world has moved on to anime One Piece or Attack on Titan. People won't conduct a cultural exchange with you if you just know the cultural artifacts of the 1980s.

Openness to new experiences can also be about brands.  

I discovered the Quechua brand when I started shopping at Decathlon. It definitely does not have the cachet as Nike or Adidas but it does have the virtue of costing me only about $15 for a pair of sandals. The price point was so cheap, I actually decided to ditch my brand loyalty to BATA.

There is a quick way to regain the cultural capital lost when you started a family or started having kids. It will not be easy and requires some effort.

One particular magazine I like that oozes with cultural capital is 1843, a lifestyle publication from the same folks who publish The Economist. What I do is that I take some time to engage with their cultural articles in spite of not having any affinity with it.

I choose music as my primary means of engagement because music relaxes me and I don't really have to turn all the songs I like into an intellectual exercise. You can choose to read some serious fiction or watch some movies.

This week I learnt of a talented new artist called St. Vincent. I even picked up information on an old chinese song called Da Hai by Zhang Yu Sheng which is recently seeing a resurgence due to the death of political dissident Liu Xiao Bo in China. Coincidentally a local artiste Chen Wei Lian has a fantasy cover on this song.

Tuesday, October 03, 2017

Efficiently Inefficient #12 : Global Macro Investing, the Rojak of Investing.

I find Global Macro Investing super confusing because you can't really distinguish the good investors from the bad ones.

The Warren Buffett-level guru for Global Macro is none other than George Soros himself. I attempted to understand his theory reflexivity a third time and have no idea how it can be used for trading my portfolio. It still appears to me that George Soros trades on his own gut-feel but had the time and luxury to create a philosophical framework around it so it seems more intellectual. Global Macro investors strike me as being very intuitive in their approach to money management which is fine so long as it make s money.

Some Global Macro investors make money by carry trades.

This is when you go long on any asset with high interest rates and short any asset with low interest rates. In the 1990s, a lot of boomers used the Australian fixed deposit as a means of getting 6% yields every year. Imagine borrowing Singapore dollars at 3% to invest in Australian dollars at 6% - that's a basic carry trade for you. Global macro investors are not limited to currency carry trades and they can find the equivalent carry trades in equities, bonds or even commodities.

Other Global Macro investors can spend their careers just monitoring and predicting the behaviour of Central Banks so that they can make directional bets on the markets.

What is possibly more useful for readers of this blog are Global Macro investors who trade on economic developments who have a simpler framework to assess what works best when investing in a particular country.

You need to know whether the GDP growth and inflation of a country is strong or weak relative to its historical record before you can apply this framework :

a) Strong Growth + High Inflation = Overheated Economy

In an overheated economy, the central bank may be compelled to raise interest rates so Global Macro investors will sell bonds. Stocks tend to do well at this stage. The US economy right now seems to be overheating.

b) Strong Growth + Low Inflation = Goldilocks economy.

In a goldilocks economy, both stocks and bonds do well but volatility drops which would lower the price of options. I think Singapore is currently in a Goldilocks situation.

c) Slow growth + High Inflation = Stagflation economy

This is a nightmare scenario because stocks do badly because of slow growth and bonds flounder because the central bank may need to raise interest rates to fight inflation. In this kind of economy, Gold and commodities do well. I would venture to guess that Bitcoins would also thrive in situations like this as well.

d) Slow growth + Low Inflation = Lost Decade economy

Japan might still be trying to get out of this rut and if Singapore does not leave a door open for some foreign labour, we will enter this phase and stay there for many years. Only bonds do well in this economy.

If you can chart which stage a country is in you can theoretically invest in a basket of ETFs containing stocks of overheated and Goldilocks, for example.

Sunday, October 01, 2017

Should you rubbish your business diploma from a private institution ?

My last post on private education has received many eyeballs. Unfortunately, it had zero engagement or comments. One possibility is that it's relatively well argued and so hard-hitting that readers probably spent more time contemplating their personal life choices rather than pick a fight with me to disagree on details.

For today's bombshell, you can relax.... As of now, I have YET to be able to conclude that a business diploma from a private institution deserves a better place in the rubbish bin.

But I think I'm objectively closer to that goal this week.Remember in my article on private qualifications that a business qualification is possibly the stupidest decision you can make :

  • 48% of private degrees are in business administration, making those with a private business qualifications a dime a dozen in Singapore.
  • In the US, there is already conclusive evidence that such a qualification can be a "negative signal of value".
Last week, the Economist delivered another bombshell that is so juicy, I have to share it with blog readers. A group of academics (one with ties to NUS so I'm super proud) performed an experiment in Togo Africa, it divided a large number of entrepreneurs into 3 groups. 
  • One was a control group. 
  • One group was given traditional business training such as those found in marketing, economics and accounting training programs.
  • A final group was given psychological training. 
It was found that for the entrepreneurs that received business training did not experience any significant gains in the running of their small businesses. However, those that received psychological training had such massive gains that the cost of training can be covered by increased profits within 2 years. Note that small business in Togo only generate revenues in the hundreds of USD a year.

A clear conclusion can be made about the value of psychological training over business training for  entrepreneurs. But the results do raise interesting questions :
  • Is business training and skills really useful for entrepreneurs ? 
  • At which point of business growth do these formal business skills become useful ?
  • Are MBAs being hired purely based on their talent and innate intelligence and not for their skills in business administration ? ( Remember that companies that hire MBAs can put them on management associate programs that train them in actual work tasks. )
  • If those with business diplomas are going to be hired by an SME, would their skills make a difference in their jobs ?
Of course, the big elephant in the room now is what constitutes these psychological skills that made such a huge difference in an entrepreneur's business results. I actually dug out all the original research papers with the training outline and I then mapped training objectives to some books I have read before so you can read up on your own to develop these skills in your spare time, so do enjoy  :

  • How to be a Self-starter - Stephen Covey's Seven habits of Highly Effective people. Anthony Robbin's Awaken the Giant Within.
  • Innovation and Opportunity Identification - Blue Ocean Strategy by Chan Kim. Another book on creativity but avoid Edward De Bono unless you want to cure your insomnia.
  • Goal Setting -  Try something by Brian Tracy. This comes so naturally to me, I don't have a book to suggest.
  • Action Planning - Getting Things Done by David Allen
  • Feedback - Thanks for the Feedback by Douglas Stone
  • Overcoming Barriers - Adversity Quotient by Paul Stolz or Grit by Angela Duckworth
  • Bootstrap Financing - $100 Startup by Chris Guillebeau. I personally do not like Chris Guillebeau even though I read most of his books. I don't think this book is good enough so appreciate any other suggestions. This topic is super important so I made it a section on its own.
The original training is, of course, way better than just merely reading books because you get hands-on practice, networking and even a capstone project on how you can enhance your current business.

If you read until this point and you are absolutely fascinated by ideas here, I actually think that entrepreneur training that is based on credible research data will be a killer app in Singapore and I might even want to either receive this training myself or even make money training others. 

If you are also interested and may even want to back this idea up with money of your own, drop me a line privately because I think we're onto something that is not just big here, it can have a massive impact to our small business ecosystem in Singapore.