Tuesday, May 23, 2017

Equity Management #13 : How to think about leverage.

We are at Chapter 27 of the book even though this is the 13th installation of the series. For the reader's sanity (and mine), I have skipped over the mathematical components of the book to try to generalise some of the ideas on this blog.

Leverage is something I intend to try out over the next few weeks.

During my last talk, Maybank was kind enough to sponsor a room for BigScribe which would have the effect of improving our razor-thin seminar margins. In return, I signed up with Maybank for a brokerage account which allows me to leverage some of my REIT and business trust investments for a very low rate of 2.88%, in effect guaranteeing them at least one customer for that free room rental.

( I've been meaning to dabble with leverage since the 2009 recession but never had the guts to start until I learnt about the 2.88% interest rate. And this is not a sponsored post BTW. )

Once my account is opened, I will create a very small leveraged portfolio to experience what it is like to trade with leverage. It starts at a small size of $10,000, but I will buy about $20,000 worth of REITs and business trusts. This arrangement is expected to yield about 13%.

As I start my new career, I intend to farm my entire pay-check into this leveraged portfolio moving forward and see how long it will take for me to (a) Accumulate a pay-off high enough to off-set my mortgage payments, thus, giving my CPF-OA a well-deserved rest. (b) Actually pay off my remaining mortgage.

As I have a main portfolio of stocks feeding my family, this is still using money that I can afford to lose.

Back to equity management, the text-book has a few philosophical things to say about leverage.

There is an equation which measures an investor's utility function which incorporates leverage and volatility which I will not show on this blog.

In English, it basically means this :

An investor is always hunting for active returns but this greed is balanced by his fear of portfolio volatility and leverage. Because every investor has a different tolerance towards volatility and leverage, the optimal leverage and volatility of his or her portfolio is something unique to every investor. Traditional models employ only the investor's tolerance of volatility. Newer models incorporate someone's tolerance of volatility so an optimised portfolio may have a degree of leverage in them.

With this small portfolio of income investments, I hope to discover my own tolerance towards leverage. Of course, if my portfolio collapses within weeks or faces a margin call by the end of 2017, it might turn me off leverage for good !

Sunday, May 21, 2017

Some insights from Psychology - More loose ends from the previous talk.

There is one loose-end from the last talk.

Apparently, my presentation slides were not the latest version which I sent to the company admin. This turned out to be a good thing because, this way, my talk ended on time and it might turn out out to be more draggy otherwise.

Just thought I'd share information about the missing slides and in the meantime showcase to the more intermediate readers the depth of research we go to prepare our slides. This is not something you can read about even if you combed all the Wiley Finance books or read all the self-help improvement books on Amazon.

The material is from KB Chan's "Work Stress among six professional groups : the Singapore Experience" written in 2000 in the journal Social Science & Medicine.
  • The most stressful profession is Teacher followed by Lawyer followed by Engineer. Maybe after a couple of years you will find me getting a diploma in NIE. ( Just kidding !)
  • Generally speaking,  folks hate a workplace where the boss does not support your work and you have horribly political colleagues. 
  • The year 2000 was 17 years ago and, therefore, ancient by social science research standards. In those days, the general trend faced by working professionals is the de-professionalisation of knowledge. We respect professionals less now because we can google answers prior to consulting them. I've constantly switched doctors for my diabetics treatment until I have an awesome Associate Professor who advises me knowing that I show up prepared for my appointments. ( I think he will have concerns over the Montgomery test for negligent medical advice in our next meeting, haha ! )
  • Doctors and insurance agents remains the happiest professions in Singapore. Yeah, yeah, you guys know how I feel about the latter. 
  • Both professions are happy due to the high locus of control experienced. So if you can't switch professions, find a corporate culture which gives you the highest level of personal autonomy if you want to reduce stress. This may rule out the public sector and some uniformed services.
Ok, that's it !

We're back to regular programming next week and look out for out next talk in July.

Saturday, May 20, 2017

JD Aftermath #6 : LLBs

Interactions with LLBs are the fundamental difference between SMU and NUS's approach towards legal education for mid-career professionals. SMU prefers that mid-career professionals interact with themselves first with limited exposure to LLBs to come later. NUS would thrown their JD-equivalent to swim with the sharks from day one.

JDs will generally begin to have encounters with LLBs when they start picking up elective modules in SMU. Its generally  a great experience.

On the surface, LLBs are the ideal children of Singapore Tiger Moms. Perfect in every way. Straight As for their A levels. Future lawyers and bright shining lights of the legal industry.

The Elite of the Elite.

That's until you get to them better.

The cynical will say that SMU has a dual-track system for LLBs. You know which 'caste' an LLB belongs to after just talking to them for a short while.

a) Tee Kong Kias 

Hokkien for Heaven's Child, the Tee Kong Kia are the true beneficiaries from SMU's brutal legal education system. These guys are excellent in class and also have plenty of options to represent SMU in Moot competitions. They are mature, articulate and intelligent.

Half of the time I think their lives will be wasted in the Law because I imagine how many jobs they can create if they go the way of the Razer's CEO who was also a law undergrad.

Nevertheless I expect their impact on the legal system to be large in the future.

b) Tai Ko Kias

Hokkien for a Leper Child, I was so glad to have buddy LLBs who are  Tai Ko Kias.  ( I use this term in an affectionate manner which shows my appreciation of them. )

They are still brilliant because its still Law School, but they are chill and prefer to use their high general intelligence for things other than beating the shit out of other Universities unfortunate enough to face SMU in competition. ( Recently, we beat the crap out of Oxford. )

It is the Tai Ko Kias who remind of my days in Raffles Hall 20 over years ago and my Toastmasters days when somehow most of my friends were Law Students. The lecture tutorial system in NUS gives more room for slackers who typically pick up tempo only a couple of weeks before the exams.

LLBs are simply better than JDs because, unfortunately, the JD program accepts graduates with no working experience allowing others to cast the JD programme as a 'second chance' for those who do not qualify for the LLB the first time round. This is why in previous posts, I propose provisionally alloting a seat for JDs but insisting that they use their first degree for two years in the work force before admission.

Advice for JDs is to avoid classes with many Tee Kong Kias when you choose an elective.The shift in the grading curve is brutal and two of my modules International Moots and Civil Procedure took a nasty hit because my classmates were too brilliant and can survive on 4 hours of sleep a day.

[ Tip : Tee Kong Kias take the more substantive and litigation driven modules because they are damn zhai and want to kick everyone's ass. You should avoid International Moots, Civil Procedure and super-hard modules like Insolvency.

Tai Ko Kias take the modules which my friends claim are more relaxed and gentle like anything related to Mediation and Arbitration. Subjects with low legal content like Project Finance also attract Tai Ko Kias. ]

Do enjoy working with your Tai Ko Kia buddies because they are possibly the only students who don't mind giving JDs a chance to work with them as they are friendlier and less grade optimised. Take into account that they have just completed JC or NS so may not be as conscientious as full working adults.

Due to the generation gap, you can really benefit from trying to understand how they interact and use their apps. It's not what we 40s do, even if we are tech savvy.

That being said, I really benefitted from studying alongside young people : Yesterday in my office, I schooled the 20-something associate on the latest album by Harry Styles.

Friday, May 19, 2017

Personal thoughts after last night's talk on Stress-free investing

Ok, I've finally recovered from last night's talk. Let's talk about what happened last night from my perspective.

Last night, Lionel gave passionate speech about automating one's investments using ETFs and Alvin Chow spoke about implementing the permanent portfolio.

As for me, I was barely sticking to the original intent of the company directors when they set out the topic for the event. I really wanted every single talk I give to feature unique material that cannot be found in financial blogs and popular books on personal finance so I tried to craft a talk which attempts to link a person's financial capabilities to psychological well-being, fortunately there was a study made in the UK which allowed me to conclude that raising one's financial capabilities will also improve a person's psychological health.

The second component of my talk was about insurance. I reminded the audience that risk is almost synonymous with stress and can be active managed by either tolerating, avoiding or transferring it to someone else. Then I shared my minimalist framework on how I manage my personal insurance.

The third component is about dividends investing.

What was really amusing during the talk for me was Alvin asking the audience whether they thought my approach to investing was stressful and about 80% of the audience raised their hands.

I don't really have a defence if someone thinks that my approach to money management is complicated. If you are a regular reader of my blog, my approach to Life is complicated. The important thing, however, is that the audience acknowledges that dividends investing is the reason why I can be financially independent today. I have been feeding my family without a day job for almost 4 years while paying a full home mortgage and my net worth has even gone up since the day I entered law school.

The only thing I might add is that life sometimes demands that a certain amount of attention need to be paid to managing money. This is a cerebral exercise and can be very stressful.  If you do this earlier, it can give you a much more comfortable life in your 40s. If you choose an alternative which is less stressful during your 20s, you might have to pay more attention to money when you get older. The problem is that for Gen X, by the time they really start to think about managing their money, their main income stream becomes threatened by economic disruption. It gets even worse when you are sandwiched between two generations and have to support your parents and kids at the same time.

One final point.

I think we did not address a good question last night.

The question is whether are there are simple ratios that can be used for bond valuation that resemble the P/E and P/B ratios. The short answer is no.

This is a complex technical question which we could not answer last night.

To get an idea of how this is done at the professional level. You may click on this link here.

Bonds are valued relative to each other by looking at different spread values relative to a fixed benchmark.

I would be surprised if any financial blogger were to employ one of these approaches to determine whether a particular bond is over or under-valued.

Sunday, May 14, 2017

Personal Update - Turned down monthly 5-figure job to pursue my legal ambitions.

If you google the word "decision" and you will know that the roots came from an old Latin word which literally means "to cut off". This is the central theme of my personal update today.

a) Just crossed the Rubicon - a legal career it is !

Two days after my final exams, a headhunter contacted me to look at some fairly attractive IT roles in a large MNC. I was willing to look into it because I have yet to begin work on my internship. I thought it may be interesting because I have been out of touch for 3 years and do not expect an attractive offer. I tried to prepare for the interview and just for fun, tried to enrich my previous IT audit experience with some of the stuff I learnt in school about MAS regulatory practices. From a compliance perspective, I walked the interviewee through areas of a MAS compliance which would benefit from legal analysis.

I did not expect the interview to turn out so well. The job which was originally being put on offer was set aside for a larger regional role with a full team to manage.

At the same time, things started out rather well in the law firm I interned in. I troubleshot financial spreadsheets to assess a divorcee's assets, resolved IT problems and researched on fairly cutting edge areas of a law and was actually listened to when strategising litigation with my boss ( All within 2 weeks ! ). It was hugely positive experience and the opposite from the horror stories from many of my peers.  

So I have a dilemma in my hands. I can take on a 5-figure job and would be able to hold out for 3-4 years to resolve my condo mortgage decades ahead of time. Or I might be able to build a legal career and be able to solve complex multi-disciplinary problems every day but at a fraction of my IT salary.

So I crossed the Rubicon and submitted my application for Part B. Having consulted a few friends, I realised that no matter how things turned out, there will be regret either way but my family's wisdom makes sense. An MNC can let me go anytime, but a legal practising certificate belongs to me and follows me wherever I go.

I credit my financial independence for allowing me to make this decision. Every single financial blogger I consulted would have taken the job rather than stay on with legal work.

b) Inflicted with buyer's remorse.

Talking about decisions, I was hit with buyer's remorse lately.

The Onyx Boox Magna Carta reader is a large 13.3" e-reader that is loaded with an Android 4.4 operating system. When a ready set was available on Carousell, I plonked two months of internship salary to buy the device up and was almost immediately disappointed by its performance.

Moral of the story - You can't really graft an Android OS onto an e-reader becare e-ink screens have a lower refresh rate. The system feels very slow and key android apps like Adobe reader and Dropbox are not compatible with the system.

Still I am in the process of getting it to work better. I managed to put Kindle on the system and can now read my Feedly RSS news on it.

c) Prepping for the talk this Thursday 

I'm really hyped up for the talk this Thursday.

We have novel material that just can't be found even if you pay $5k plus to other financial gurus. I bet you cant even find a book on the information I will share on Thursday because they came from social science research papers.

Hint : Once and for all, I will tie up all the scientific evidence which shows that improving your financial capabilities will reduce the psychological strain in your life.

Of course, I also will be talking about getting more dividends.

Saturday, May 13, 2017

JD Aftermath #5 : On Foreign Students

And I am not done ! 

Today I will do an article on foreign students and tomorrow I will talk about LLBs.

My JD experience would not have been such a positive experience without foreign students. Older candidates tend to be minority and tends to get sidelined due to the generation gap. This makes them excellent partners with foreign students who can also be marginalised but for different reasons.

a) Group work grading makes it hard for a foreign JD student to fit in.

The problems faced by foreign students are institutionalised into the SMU education system. Singapore students who get into law school are straight-A students (in both Universities) who have high expectations on themselves and others. 

Coming from a different culture and university, foreign students are unlikely to be used to the dedication and fervour that locals are used to so over the years have developed a reputation for being slackers. Foreigners from particular countries might also be prejudiced for not having English as their first language.

It does not help if some seniors advise juniors in any program to stick to locals because the locals still have a better reputation for getting shit done. The Russian hacking scandal in SMU which affected my exam scripts does not help because locals might just lump all foreign students into the same 'slacker' category.

b) Foreign JD students do buck up after a semester or two. 

The problem is that locals are too quick to condemn and a bad reputation sticks for foreign students. It's actually quite hard for a foreign student to qualify for the JD and every batch has only around 4-5 of them. 

They do catch up after a while and do so in fairly remarkable ways because they are quite smart and streetwise to begin with. 

Most group collaborations I have with foreign students are successful because we are able to come up with novel solutions to unconventional problems. The dividends paid by having group diversity will pay off if someone is patient enough to tap them.

c) Fortunately, the foreign JD students will get the last laugh in the legal industry

Life is unfair and will continue to be so regardless of the wishes of the rigid, neurotic Generation Y local. 

The economic downturn for lawyers does not affect foreign students. They are prized for their language skills, rarity and possibly the ability to attract more business for their companies. Many are able to join the more prestigious law firms with moderate grades. 

Before I end, I'd like to give out some not-so-nice comments on Foreign Exchange students which can be a nightmare for our LLBs to deal with. Not all of these students come from reputable universities and many are here to party in Bali and Phuket. I have never heard of a happy or successful collaboration from my LLB friends and University administration really needs to look into the academic disadvantages of being paired with a foreign exchange student in campus. Perhaps those who who only need to pass a module should be segregated for marking purposes so that local students would not be so terrified of them.

NUS was the same 20 years ago. A bunch of foreign students were unable to take their final exams because they lost their passports in Thailand, got a failing grade and were sent home in disgrace.


Wednesday, May 10, 2017

Equity Management #12 : Enhanced Active Equity Strategies 130-30 Portfolio.

If you can imagine a long-short market neutral portfolio, it would be quite easy to imagine a 130-30 portfolio.

The first step is to find some sort of a prime broker.

[ Some helpful folks pointed me to foreign brokers Ameritrade to see if it is possible to construct such portfolios which facilitate the shorting of stocks. Based on I have been told,  prime brokerage services are not available to local retail investors but coming with something similar might be possible with some leverage and using CFDs. ]

1. The first step is to put in say $100 with the prime broker.
2. You then sell $30 of stocks short, creating $30 from the proceeds of the short sale.
3. You can then buy $130 of stocks.

You have net exposure to the market and will tend to do well when the market does well but some extra earnings can come from selecting the right stocks to buy and sell.

This form of enhanced active equity strategies relies heavily on the ability to pick stocks and value can come from ignoring, underweighting or even shorting stocks which are expected to do badly over the medium term.

Prime brokers generally do not provide stock lending services for free, but in the US, there are tax and regulatory  advantage to this arrangement.

Personally, I think it would be nice if Singapore can find ways to facilitate such trades in the local stock markets. Professional investors should have the ability to find new sources of outperformance given that we retail investors are really leveraging on what we read of the blogosphere to make our own investment decisions. It's also a great way for the better retail investors to start pushing their portfolio management to new levels.

Over the next decade or so, I'm not even sure if fund managers would have a place in the investment ecosystem once robo-advisors start to be adopted by a new generation of investors.

First investment knowledge has become de-professionalised of late.Second, retail investors might soon be armed with pseudo-Bloomberg like capabilities to build up their wealth their own way.

If you are an investment expert who found a way to establish a 130-30, do share your wisdom here. I am thinking of ways to up my game as well.

Sunday, May 07, 2017

JD Aftermath #4 : Generation Y Lower Division ( 20-something year olds )

A lot of what I'm going to say about 20-something year olds might be coloured because of the ridiculous generation gap between myself and them.

And this often leads to hilarious interactions when I work with them in a team :

In one instance, when a classmate's boyfriend showed up to pick her up, I told her that her "BAE" is here. She told me to stop using that term because it's very mushy and she feels like vomiting when hearing that term. In response to that, much to her irritation, the other Gen-Ys in the team started using the term Bae to describe her boyfriend.

[ Much later, I found out that BAE is not a Korean term but an acronym "Before Anyone Else" ]

a) Gen-Y lower division are the best performers in the cohort.

Academically the Gen-Y lower division folks gets the best academic results because they did not lose any momentum from completing their previous degrees. Those from SMU are also very seasoned with SMU's class participation scoring system.

b) Gen-Y lower division are, unfortunately,  the most unnecessary part of the JD Program

I am not saying this because I want to show disrespect for my classmates - Many of them deserve to be in the course more than I do.

I say this because I feel very strongly that JDs are not meant to compete against LLBs but to complement the legal industry with a separate set of skills. Having working experience prior to the JD programme should have been made compulsory for the good of the industry.

While I certainly admire and respect my younger classmates, I would have derived so much more from the program if the administration were to require two years into the corporate world before letting them start the course. Alternatively, those without working experience should be allowed to pay lower fees and take up a legal education as LLBs.

c) Gen-Y lower division is an uptight,  neurotic and anxious mess.

I really blame the Singapore education system for making our youths so uptight. These poor guys gotta survive PSLE and the A level system before getting their first degree. If they mess up any of paper qualifications, the work place can be very unforgiving and they can lose access to the best jobs in the market. ( That being said, I also blame myself for occasionally being swept into this fervour, but those were not my proudest moments in SMU. )

The lack of experience in the real world creates the most neurotic and uptight bunch of classmates you can possibly have. For example, it is ok to start building a study group early but to do it the previous semester prior to the exams is clearly insane. Some working experience might  be able to teach some students the value of "chill" and remove that piece of mahogany wood which is shoved up their asses.

This generation is also very quick to condemn others with foreign students being generally at the receiving end largely because of cultural differences which on hindsight, should have been celebrated rather than something which polarised and plagued my entire class.

d) Gen Y lower division will regret not changing their ways.

I sound like a really bitter uncle when I say this but I have backing in the form of the book The Complacent Class by Tyler Cowen.

If you think about it, my generation was the one which started out creating this mess. We were ultra-competitive and we knew that examination results have an implication on our career and life outcomes.

Youngsters today are different.

The proliferation of search tools and web apps now allow the younger folks a chance for more curation and customisation which unlocks different and more varied lifestyle choices. So a 20-something year old is not constrained by societal expectations as much as Gen X.

For example, in my generation,  as an alpha-male, you want bag hottest chick in campus because that is what winners do. Most capable guy gets hottest chick. Today, you don't aim to bag the hottest chick, you use Tinder or any dating app to get something which suits your fancies. If want a chick that digs Overwatch and cosplays Zarya ( if you have actually a weird thing for Zarya *wink* *wink* ), there is an app to find chicks that look like Zarya.

The ability to live your life as a niche is a feature and not a bug of Gen-Y living. A customised career can be found with the right search portal.

One conclusion from Tyler Cowen is that a lifestyle of competing to be the best would eventually be supplanted by finding an ideal niche that suits your personal inclinations.

This is my final beef with my youngest classmates.

If my generation can be out of touch, it can be forgiven because we are in our 40s.

If folks in their 20s were to still act like the old fogies of my generation and be competitive as shit over getting the "best" jobs in a sunset industry where they might end up using their 3.7+ GPA to do electronic discovery, audio translation or end up photocopying documents.

The final joke is on them.

Saturday, May 06, 2017

JD Aftermath #3 : Generation Y - Upper Division ( 30-somethings )

My post for today is about who the JD course should really be intended for - 30-something folks who have a wealth of experience who want some legal training either to supplement their professional careers or wish to bring their professional expertise into the legal industry.

This is a very wide demographic so my comments are going to be fairly general. The good candidates are highly sought after in team projects and the bad ones are avoided like the plague because it's such a large population the variance in quality of 30-somethings is rather high.

a) They are super-vested in their studies

If you are in your 30s, there is no business or portfolio to back up your standard of living, so this category is moderately enthusiastic about the course. Getting a good grade may still net them a decent increment if they can get a training contract with a top law firm. Even if they return to their old jobs, their companies will welcome them back as their last drawn salary is not particularly high.

These guys have a reason to excel in school.

b) Good ones are "chill"

The biggest lesson I learnt in law school is the concept of "chill". It is somewhat like "ease", either you have it or you don't. A chill classmate, unlike academic out-performers, are a lot more well-loved by the rest of the class and a lot of effort is made to maintain friendships with them.

When you are chill, you exude confidence and have less of a need to prove yourself. In a team you excel because you do enough to get the job done without stressing our your fellow team workers.

The problem is that we are in Singapore and Singaporeans are not very chill when it comes to their studies.

c) Bad ones are bad in their own way

Like a Tolstoy epic, bad 30-somethings are often bad in a unique way. Some do really shoddy work and forces you to question the selection process of the course. Others focus on individual work and leave the project group to do the heavy listing for them. Some have really bad communications skills. Some think they own your notes, resources and time and even expect you to double up as their tutor.

After two semesters of study, a class will generate a personal "black-list" of sorts. Everyone has a list of condemned classmates they'd rather die than work with. Some, like me, will speak to other cohorts to trade information on the black-list to avoid working with such folks.

On hindsight, perhaps a black-list would not be truly necessary. Every group project team can survive with one social loafer, but often a group can often be destroyed if it contains two. If a class can agree to share these hopeless team workers,  everyone will do fine. Problem is coordination and classmates are forced into some sort of a prisoner's dilemma situation to monopolise the good workers every year.

d) Things don't look good for 30-somethings in the JD Programme

It is unfortunate for my batch that things do not look so good for the 30-something year olds.

They are on the wrong side of a bet, sacrificing three of the highest earnings period of their lives to get a degree to qualify for an industry that is facing an unprecedented downturn. If it takes 3-4 years for fresh curbs to clear the over-supply of lawyers, my classmates would have written off 7 years of the best earnings years of their lives.

If they can't get a training contract, the joke is that SMU would have been merely a "Kidzania for Adults" moment for them. They would have spent 3 years pretending to be lawyers without an opportunity to carry on with their career aspirations.

Nevertheless, it has been a great honour to study beside them.

Friday, May 05, 2017

JD Aftermath #2 : Folks you will meet at the course - Generation X.

By the time I can write this, I feel a lot better. My grades are finalised and I managed to just squeeze north of the equivalent of an honours classification.

This closes another chapter of my life.

To discuss the folks who you will get to meet in Law School, perhaps it is better to break it down into three separate articles. 

First before I start my fairly candid write-up, I'd just like to say that overall the people in this program are great folks to be associated with. I am honoured to be part of the cohort of 2014 because only a select group of 40 students are chosen to join the JD program. A lot of unhappiness between all of us stems from the fact that people from different age groups are forced to work together to achieve a common grade and we find ourselves under the mercy of someone who may not have the same work ethic as we do. 

Ok, I will start with my own cohort which is Generation X. 

a) Gen X has no rational reason to be signing up for the JD.

The first fact which screams at you is that folks in my generation have no reason to be in law school given the disruption the legal sector is facing. The opportunity cost is ridiculously high at around half a million dollars and training contracts is much harder to come by. We are also saddled with many personal responsibilities at home making it a fairly difficult undertaking. If you interact with folks in their 40s, perhaps it would good to figure out what's their motivation because it is often interesting and even contradictory to common sense.

It is probably easier to imagine folks in their 40s taking an executive MBA because it's just a very expensive networking session with a requisite amount of intellectual masturbation. 

[ If you are mid-career and need some legal knowledge just to carry on at work, seriously consider a part-time LLM instead. ]

b) Gen X may be the hardest folks to work with in teams because of the generation gap.

Because of family commitments and a general lack of a credible reason to be in law school, we may not make good team-mates. This can be very frustrating for folks who really need a degree to get ahead in life. Some of us have different priorities and can't put grades above everything else in our lives. We have kids, spouses and parents. Some of us even continue to have careers throughout law school.

There is also a jaded sense of entitlement amongst us older candidates. One junior was talking about being scolded for not sharing his notes on FB. I replied that it is as if some people have a constructive trust over your hard work ( inside joke ).

Of course, I receive a lot of candid feedback about folks my age across all cohorts.  We 40-something years olds really need to listen more and direct team-mates less. 

c)  But working with Gen-X is fairly rewarding when it comes to grades. 

Older candidates may be harder to work with because of the generation gap but I have yet to actually experience bad grades working with my own kind.

One possibility is that being older allows us to project more gravitas when we make a presentation. Another possibility is that we bring a wealth of experience into the team. Another possibility is that we simply have been reading newspapers for a much longer time and can surprise the professor with our insights.

While it might piss some people off to say this. At least I am proud to be part of the group that does not defer to someone because of their GPAs. We can be outvoted by our peers but, similar to a work situation, respect has to be earned when working in a team. 

[ One of the problem in law school is that it's very hard not to become an asshole if your GPA is high because a lot of folks engage in hero worship. It's part of being a society that is meritocratic and hierarchical. The environment then shapes these people into the guys who were so arrogant, engineers like myself eventually enter law school so that we can provide our own legal support.  ]

Thursday, May 04, 2017

Equity Management #11 : Alpha Transport with Derivatives

First, a short personal update, I am still acclimatising myself to a 9 to 6 routine and struggling with a 6.5 hour daily sleep cycle so I am still tired after work. Given time, I should be able to return to my old blogging momentum.

So far, I am enjoying my internship. At least I can spend my time on public transport reading investing books and not some legal case or textbook. I don't miss reading legal cases because that's what I do in the office all day !

Anyway, today I only have a short insight to share which is the idea of an Alpha transport with Derivatives.

a) Defining Alpha Transport

This is basically the idea that you can combine long positions in equities with short positions to generate alpha which is superior performance arising from better stock picking skills. This alpha can then be transported to another portfolio which is an optimised based on different asset classes.

b) Derivatives

There is this opposing idea that most portfolio returns do not come from stock picking but from asset allocation. For example, you can have a decent enough portfolio when you construct your portfolio using ETFs in a 60/40 proportion in equity/bonds and you will not really make very much more by cherry picking your stocks.

One effective way of constructing a portfolio which gives average index returns is to buy futures or options. For example, a future on DJIA derives it value from how much the index is currently doing.

There is even a way of replicating an index using swaps.

c) Alpha Transport + Derivatives

The book proposes that a long-short portfolio be combined with a series of derivatives which are created to simulated index returns.

This way you can get the best of both worlds. An optimal asset allocation between stocks and bonds as well as the opportunity to select stocks for superior performance.

d) Shortcomings of long-only fund managers

This might be useful for regular readers of financial blogs. Alpha Transport with Derivatives is an alternative to the traditional active fund manager.

The first shortcoming of fund managers and quite a few super-serious financial bloggers is that the work put in to think about just one stock counter is quite labor intensive. Some analysts start with SWOT analysis and look at the industry the stock is in and then they drill into various accounting ratios to determine whether a stock should be bought. The labor intensiveness of this form of fundamental analysis hurt these fund managers because it limits them to a small pool of investible counters. The consequences may also include under diversification. This makes FA quite unwieldy for retail investors.

The second shortcoming is that traditional active management is super-subjective. How do you know that management is great ? What makes you think that the industry is going to survive technological disruption ?

To a certain extent, I deal with this problem by reading second hand research I can find from the web and polling the thoughts of other bloggers. I can possibly comb through 5-6 reports a day. The other way I deal with the problem is to simply ignore reports on stocks which do not provide at east 6% dividend yields.

In my next talk, I will show you guys a quick and dirty way to create a system that generates stock picking suggestions so that you will always have more investment ideas than the money you have for making investments.

Monday, May 01, 2017

Quick Personal Update : Leisure Phail !

I don't really have anything substantial to share today and some readers from SMU Law School may be eagerly awaiting for my "kiss and tell" article on this blog.

Right now, I am not in the right frame of mind to complete that article because our professors are slowly releasing the results of the final semester, as I am teetering on the brink of losing a decent degree classification, my state of mind in a huge mess. For the past two nights, I have been getting nightmares about getting shitty grades but there has been a small measure of good news. Just now, I checked the SMU website and I cleared my hardest subject last semester and I now have only 0.5 modular units of grades to report and I currently have a decent probability of scrapping through.

Still, it's not over until its over and Law School release of results have always been a nasty episode of Game of Thrones for me.

But onto happier things...

Unfortunately I did not succeed in meeting all my leisurely KPIs during the past 2 weeks.

I was supposed to finish two fictional novels which does not have anything to do with law, engineering or finance. I was partially successful and completed Thrawn by Timothy Zahn about who is possibly the coolest villain in the Star Wars Universe. But yesterday I was only able to finish half of Death's End by Liu Cixin. I strongly recommend the Liu's award winning Three Body Problem series of science fiction novels which came from China. It was truly epic in scope and its brilliance is only matched by the TV Drama Serial Fires in Nirvana.

Interestingly, when I face a constraint and have to make a trade-off during a period of leisure, the first thing I drop are computer games, so I did not download and install the enhanced version of Planescape Torment. I also did not manage to start on any anime series even though Gundam Iron Blooded Orphans Season 2 is number one of my list right now. One reason is that I am an extrovert and prefer to hang out and talk to people rather than indulge in manufactured flow. The other reason is probably due to the amount of literature I consumed on how computer games have become the number one drug for unemployed non-degree males around the world.

One of the biggest conundrums of my life is that my best gaming ideas and insights only pop up when I was academically stressed. In more peaceful times of my life when there are no cases to read or exams to pass, I actually am actually quite lethargic when it comes to doing things I enjoy, I only started doing up logistics for my Bangkok trip about 5 days before we flew.

Anyway, sorry for the pointless ranting. Over next week, I will fleshing out the details of my next talk which is shaping out to be quite cool and you'll be bale to read the next instalment of Equity Management.

Tomorrow I begin another round of internship but with a REAL law-firm.

Saturday, April 29, 2017

Next Talk : Investing with Less Stress. ( 18th May 2017 )

Ok, it's time to start promoting our next talk again and this time round, we're happy to say that we're back to talking about investing in the stock markets. You can get more information on how to book your seat by following this link here. This time, you should act quickly because we've consistently sold out for all our talks but we've actually got a smaller venue.

The topic of our next seminar is "Investing with Less Stress".

The slides are still a work in progress so my outline is still a little messy but I will be talking about the following things :

  • What are key sources of stress in our lives.
  • Computer Science's case against overthinking.
  • How risk management as a professional discipline can be applied to your daily lives.
  • Insurance as a form of risk transfer - You can't really talk about stress and risk without talking about insurance. Also, I can't talk about insurance without being candid and disagreeable. ( So this should be entertaining if you are sick and tired of commissioned salespeople from the insurance industry. )
  • How investing can fit into your risk management framework and complement a minimalist insurance lifestyle.
  • Dividends investing as a means to eliminating stress. I will walk you through the steps on how to obtain information to build up a dividends portfolio so that you can attain a stress-free life of financial independence. This is a simple approach designed for novices without a Bloomberg terminal.
  • How is investing in dividends backed by academic research.  
  • Currently, I'm still working on psychological effects of financial independence so, once again, you may expect new and interesting stuff which I hope would even entertain my fellow speakers. 
This is probably one of the most valuable talks that we'll be giving so far with all three speakers presenting extensively on investing with the stock-market. 

In spite of this, we're still trying to lower the price of our talks.

Let's hope that we can sell out after this notice.

Thursday, April 27, 2017

Equity Management #10 : Example on how a market neutral portfolio is constructed.

This is for the benefit of some readers who want more information on market neutral portfolios.

Right now, I still have no idea how a retail investor can get started on this form of investing and would be really grateful if intermediate investors can give me some tips on which brokers can provide this service. My only guess is that if you are high net worth, you might be able to talk to your private banker to start doing this.

The book mentioned that the portfolio manager hires the services of a prime broker who can also act as a custodian of the stock ( No CDP involvement in such a case ).


In this example, the investor begins with $10 Million. He sets aside $1 million as a liquidity buffer in case his short positions turn against him, so he gets to trade $9 million of stocks.

1. Investor buys or goes long on  $9 million of stocks. These stocks are held with the prime broker that also acts as a custodian (CDP).

2. Investor shorts or sells $9 million of stocks at the same time. These are stocks which are not owned by the investor so needs to be borrowed by securities lenders.

3. When the stocks are being sold short, the broker needs to put up $9 million in proceeds to securities lenders as collateral for shares borrowed. If the shorted counters increase in value, the manager is expected to top up to allow the broker to maintain the collateral, which explains why he holds a $1 million in reserve.

How to make (or lose) money

If you have this arrangement, there are 4 ways to make (or lose) money :

1. Stocks you buy increase in value and pays out dividends.

2. Stocks you sell decrease in value. But you have to pay out dividends of stocks you short.

3. The $9 million of collateral posted to securities lenders generates interest which goes to the security lenders, broker and the investor. Unfortunately, the book mentions that this is subject to negotiation between the different parties so we get no clear idea as to how much money is earned here.

4. The interest rate from the $1 million spare buffer.

Arrangement your investments in this manner gives you the opportunity to earn or lose money in an a rising or falling market and everything boils down to your stock picking skills. In this example, I have not employed any derivatives or CFDs to create the long-short portfolio.

Hope that a kind Samaritan can share with us what needs to be done to have such an arrangement with a local broker as well as their personal experience combining longs and shorts in their investment strategy.

Tuesday, April 25, 2017

Random musings about Bangkok.

This is not a lifestyle blog but I spent the last 3 days in Bangkok in a fairly intense but fun trip.

Here are some random thoughts from my trip.

a) Singapore is losing on many fronts to Bangkok in retail and entertainment

The retail situation in Bangkok is really so much larger in terms of scale and variety. The first thing you notice is that there is no "Capital Mall" effect and each mega-mall is able to develop its own character. We shopped at the Siam Paragon which is like a larger version of Takashimaya but had an exhibition which was running a Comics Convention at the same time. Terminal 21 which was located near our hotel had a different national theme on each different floor. One floor is modelled after Shibuya Tokyo and another was modelled after London.

However it is the Night markets that really shine in Bangkok, we went to Rod Fai 2 which feels as if its 20x the size of Bugis Street but had terrific rock bands which played our favourite english songs from the 90s. You can listen to rock music, eat seafood, and have a beer at the same time. At least for me, I would probably not bother with hipster markets in Singapore for quite awhile after this experience.

I don't know what this means for us given that we've been reporting on the impending demise of our retail sector in Singapore for a while. If you've been to Bangkok, I think the death of Orchard Road was well-deserved because retailers and landlord inflicted quite a lot upon ourselves.

b) There are two price-tiers in Bangkok so do spend with proper planning.

[ It was a 3 day 2 night trip and even though there was no "night firing", I managed my finances rather badly spending the equivalent of 70% of my budget buying role-playing games in the first night and then relying on my friend's excess cash for the rest of the trip as they did not want me to use my credit card and rack up miscellaneous fees. I paid them back in SGD when I reached Changi. 

Don't be like me.  ]

Another observation is that there are two clearly distinct pricing tiers in Bangkok. If you stick with what foreigners eat, expect to pay closer to Singapore prices. We've has a fantastic steak meal at El Gaucho Argentinian Steakhouse but it cost us $120SGD each. I also paid around $8 SGD for a simple croissant and coffee breakfast next to the hotel.

On hindsight this is silly because Bangkok street food is so cheap and so good. A teriyaki chicken stick can be bought for 40cts and a bowl of noodles, around $1.80 SGD.

A smart tourist would be wise to mix and match the street food with the high-end restaurant to get a great experience for the trip.

c) Is Bangkok is becoming a cooler place than KL for Singaporeans ?

My last trip to Bangkok was not as good because there was alway folks on the streets harrassing me and asking me to go to some lucky temple or offering "free rides". As such, I always felt that the Bangkok experience has always been inferior  to that of KL.

But after this trip,  I seem to get the impression that the situation has turned around. Public transport over Sky Train and MRT is really cheap and convenient so we can avoid the rude private drivers. Thais are also a lot more orderly and well-behaved when taking their public transport.

The convenience, mega-malls, night markets and cheap eats may push more Singaporeans to choose Bangkok over KL instead. And this includes better security as Bangkok malls now feature security gantries at all their entrances.

Anyway, these are my observations, feel free to comment if your experience differs from mine.

[ Our most hilarious encounter was a taxi driver who refused to switch on his meter, tried pimping some services to us and failing to do so, tried entertaining us with racist jokes about his Indian Passengers and demonstrating how much he knows about Singaporean stereotypes while making an illegal turning.

If you get offended easily, Bangkok is not the right place to be. ] 

Friday, April 21, 2017

My JD aftermath #1 : Was it worth it ?

Ok, I've got sometime to blog before I head to Bangkok over the weekend for some serious shopping and eating.

A couple of days after my last paper, some headhunters have started talking to me and I had a serious chance to ask myself what would be my desired price tag to postpone my legal ambitions. I have since calculated a number and have gotten back to them and they still seem interested.

So drastic changes might be afoot.

It might be a good time to reflect upon the past 3 years.

a) General message for aspiring JDs - Don't do it.

First of all, most professionals looking for legal conversion are probably doing it out of pragmatism so I don't expect most JD aspirants to be financially independent and studying for a degree out of sheer vanity like myself.

Anyway, I caught up with some class-mates last night and we all agreed that our decision to take the SMU JD was not rational in hindsight. None of us would recommend this course to others for now.

I will elaborate further...

b) The headwinds in the legal sector may become persistent.

The largest negative is actually out of SMU's control.

We have no idea how long the legal industry would face this situation of oversupply as families send their kids overseas to get a law degree from an English university. Local graduates have a reason to be angry and disgruntled because these foreign graduates are mostly not from the Oxbridge elite universities and probably never had to do community service to graduate. Also a First Class in a UK University is 70%. In SMU, this nets you a B grade.

Even if the government has tightened the overseas universities that can be accepted into the Bar, the legal industry is also facing a lot of disruption from better search tools and use of AI to reduce the workload of associate lawyers. I think companies are also wizening up and will be looking at cheaper forms of dispute resolution like mediation and arbitration in the future. Collectively, this will hurt law firm revenues over time.

This will be the primary reason why many of classmates regret making this life decision.

If they do not get retained after their training contracts, what would have been the point of the past three years ?

Speaking of which...

c) Three years is a long time.

Three years is simply too long for a postgraduate qualification because the opportunity costs is too high. More importantly,  it is harder to foresee industrial trends beyond a year or two. Had an engineer in my similar situation were to decide to spend 1 1/2 years to become a data scientist, there is sufficient reason to believe that the tide would not turn against data science so soon when he graduates.

Ditto for MBAs because the INSEAD MBA is so short, you can target an industry and move in after graduation with a much lower risk.

Perhaps the JD should be retooled into a 7 year part-time program. This would make more sense to me. Prior to transitioning into legal work, we can remain gainfully employed be roped into working with legal departments to resolve sticky corporate law issues.

d) Some facets of JD life are completely unnecessary.

Overall, the course was, for me, a positive experience. But there are persistent negatives faced by generations of JD students.

I cannot think of another postgraduate qualification which has a pro-bono requirements which has been enforced in such a stringent manner. Me and my classmates have expended a lot of energy to get this aspect of our course done right.

Finally, group projects which should have been designed to get people to work together and build camaraderie has been turned into a process to make people from the same teams really hate each other. As it stands I'm not even sure if we will ever have a full class outing again as we've factionalised so badly over the past three years.

Of course, my personal experience for the past 3 year may be a result of changing trends in adult education in Singapore. This has stopped becoming a joke and anyone who wants to maintain a decent career trajectory would have to keep finding ways to pick up more skills. Skills upgrading, similarly, would need to become more modularised so that students would not enter an industry which has been disrupted too drastically after investing years in a qualification.

In the future, a law degree has to stop being a licence to someone to work in a highly protected industry. Instead, some of us may have to find ways to monetise our legal thinking skills within other industries in Singapore.

Anyway, I am off to Bangkok.

Next week : I will talk about the people I met in SMU and it will be FUN! FUN! FUN!

Wednesday, April 19, 2017

Equity Management #9 : Long-short equity investing.

For the next few years, I will be stretching myself beyond the usual yield investing which has been instrumental in allowing me to reach this current of financial independence. One of the approach I am toying with is the use of leverage, I hope to start building a small portfolio which has a modest amount of leverage to magnify my dividend yields.

The longer plan is to look at long-short investing. There are three ways to do this :

a) Market-neutral strategy

This strategy balances your long and short positions. The dollar value of your long and short positions are equal to each other. When craft a portfolio like this, there is no net market risk and your returns will be your gains from stocks which appreciate in your long portfolio and depreciate from your short portfolio. This is pure double alpha.

b) Equitized Strategy

This takes a long-short portfolio and you overlay this with a stock indexed futures position. So overall, you can get back the 6-7% from the STI index and you also earn a kicker from your market neutral portfolio.

c)  Hedge Strategy

Hedge fund managers enhance the equitized strategy with by varying the risk to market by changing the number of futures held on the stock index.

At this moment, I am not really sure how shorting would work beyond clicking the Contra checkbox when making a sell order but I do know what readers can attempt if they want to explore this option further.

We have a lot of gurus and great investor education providers but they seem only focused on taking up long positions. Ask these experts what they would do if they were made to craft a short portfolio by reversing their stock picking methodology.

Can we backtest a portfolio of low earnings yield, high price to book value stock with negative free cash flow?

This can be a source of additional returns and be the first step towards starting a mini hedge fund operation on your own.

Monday, April 17, 2017

Personal update - Done with my JD programme ( Hopefully ! )

And just like that, I completed my final exam in SMU and I guess I would have met all the requirements to graduate with a Juris Doctor qualification.

While I would have preferred to end my SMU stint in a high, my last paper was brutal and I found myself lacking the time to craft a coherent response to the exam questions. Nevertheless I should be able to move onto the next stage where I start tackling the bar exams.

Perhaps in another post I would talk about my overall experience with SMU but right now, I have several priorities :

a) Internship 

I will go back to becoming an intern again on 2nd May, this time I hope to be able to attract a training contract with a law firm. This process is already fairly hard for a LLB with average grades, it is much harder for a person going through a mid-career switch. I will be following the latest developments on government grants and will be trying to leverage on this support so that I can at least qualify to the bar sometime next year. After all, I have been unemployed for the past 3 years and the government might have some goodies for any law firm that is willing to throw me a bone.

b) Giving one more talk in mid-May

The next talk conducted by financial bloggers will be about stress-free investing and I have once again been given a slot to speak on this event. Slide preparation will begin as early as tomorrow as I need to give an indication to the other speakers as to what areas I would cover.

I try to make all my talks unique and would independently research new material for paying customers. You should expect content which is different from  any other product offering in Singapore as I blend computer science, social science research and finance to talk about the relationship between stress and personal finance for the local retail investor.

c) Rest and relax from surviving one of the most challenging academic pursuits in my life

My immediate priority right now is to simply enjoy myself.

This Wednesday, I celebrate my daughter's 6th birthday after which I will be off to visit what is possibly the largest tabletop gaming hobby shop in South-East Asia this weekend.

I will also not be reading any non-fiction for the next two weeks, being focused on Liu Cixin's Death's End and the latest Star Wars canonical piece on Thrawn by Timothy Zahn.

Computer game-wise, I will be downloading and installing the enhanced edition of an old cult favourite Torment.

Anyway, I am still zoned out from one of the hardest exam papers I ever attempted.

More updates before the middle of this week.

Saturday, April 08, 2017

Mystics Secrets of the Eunuch Sorcerer !

Before I go for my exams and take 10 days off my blogging, I'd just like to address the amazing traction of my Eunuch post by looking at ways for a fresh graduate public servant to rapidly create a portfolio that can facilitate an early exit from stifling bureaucratic environment.

The public service is a lot more forgiving for entry-level personnel and you will find that your early salary trajectories are quite steep to keep you interested in staying on as a public servant. Furthermore. a rookie public servant also experiences much gentler office politics making it easier to keep earning the pay-check.

This makes your earlier years the best time to start creating the early "exit" portfolio. Any delay and your organization will slap the golden handcuffs on you and emasculate you forever.

a) Some generous assumptions

My salary projection assumes a starting salary of $3,500 before CPF for a top flight local graduate with a first class Honours degree ( Salary taken from top end of MOE Education Officers ). He maintains a disciplined lifestyle and spends only $2,000 a month but gets a 2 months bonus every year. Salary increments are projected to be 5% every year.

[ Life is unfair but I have a fairly smart, capable and sophisticated readership who show up on time for almost all my seminars ! ]

b) Target

The target portfolio size is $300,000 which, when invested in high yielding instruments, would generate the $2,000 salary expenses and cover the basic expenses of a male herbivore who lives with parents and wants to play computer games all day.

c) Portfolio is a simple STI ETF

This assumes that the exit portfolio is a diversified local equity portfolio returning a modest 7% a year. This exit portfolio is designed for total returns and only converted to a high yielding portfolio after exit from the service.

d) Results 

If you follow this example, based on my spreadsheet, you are expected to complete your exit portfolio in around 10 years.

( Do try it out yourself on a spreadsheet ! )

e) Eunuch Sorcery : Tapping on the power of leverage through margin financing

I was thinking about whether are there ways to speed up the creation of the exit portfolio and then had this idea of looking at margin financing.

You can check out this link  The Maybank website allows you to enter the name of the stock and it will return the interest rate they will charge you if you borrow from them to buy a stock.

Some of the data points were very interesting for yield investors :

  • Aims AMP Reit (yielding around 8%) is considered investment grade and financing can be obtained at merely 2.88%. 
  • So is Cache Logistics Trust which yields around 8.4%.
  • The STI ETF is considered Grade 2 and financing is expensive at 5%. I can imagine how interesting things can get if this can be upgraded to Grade 1.

So you can leverage a portfolio of yield counters at a low financing cost of 2.88%.

e) What if the public servant leverages 50% of a diversified equity portfolio which returns 7% at a cost of financing of 3% ?

Because the timeline is particularly tight, at least on my spreadsheet, there is insufficient time to compound the additional returns from leverage, this tactic will at best shave off 4-5 months from the time needed to generate $300,000.


A disciplined top-flight local graduate will be able to safely generate a portfolio to leave the public sector and get his modest expenses completely replaced within a period of 10 years. The fastest way to speed this up is by either performing better at work so that increments can exceed 5% or cutting your spending below $2,000 a month ( Spending $1500 can cut the time down to 8 years or 7 years if you are targeting a passive income of $1500 ).

The bureaucrat can attempt Eunuch Sorcery by leveraging his portfolio but the time horizon is too short for compounding to take place and it will at best allow him to exit the public service 4-5 months early. There is also a risk of magnifying losses when introducing leverage into a portfolio .

A  smart, capable and lucky public servant can possibly exit within 8 or 9 years if he attempts to employ all these techniques at once. If he is a male who has done NS and had a 4 year degree, he would be 34 years old - not too late for another career in banking or management consulting, perhaps ?

Tuesday, April 04, 2017

Equity Management #8 : Front-running and factor crowding.

If you follow this series on my blog, one of things you will realise is that it is increasingly harder and harder to come up with actionable ideas for readers as the equity management textbook becomes even more abstract. I was wading through 3 chapters on smart beta investing before I could compose this article. Nevertheless, this column is probably meant more for my own investment education than for the hapless reader.

Ok, back to equity management.

To assist in comprehending this short write-up, you can refer to Dr Wealth's excellent article on factor investing which I will share here. In summary : Factor investing basically means that you are very likely to outperform markets if you focus on low P/B, small companies, high momentum, high gross profitability and low volatility stocks.

Factor investing is ok for most intermediate investors, but something can go wrong if the finance industry gets into the same game and start pumping millions of dollars to the same stocks as intermediate retail investors. In the near future, we might be seeing the launch of smart beta ETFs which will allow investing novices to do factor investing by just buying a few counters on SGX.

This can result in factor crowding. If everyone dog piles into low P/B stocks, there are less profits for everyone else as prices of these stocks rise.

Another problem is front running which occurs when hedge funds become aware of the specific times when these smart beta ETFs rebalance their portfolios. They can drive up the low P/B stock counters just before these ETFs begin to accumulate those stocks which has the effect of lowering the return to these funds and anyone who is also trading those stocks at the same time.

So while it's great to do factor investing right now when the ETFs traded on the SGX are relatively primitive by US standards, things might start to change rapidly once our local finance companies start playing catch up by introducing newer products.

I also can't help noticing that my income portfolio is doing rather well lately as more Dividends and REITs based ETFs are being launched in SGX.

Sunday, April 02, 2017

If you're a eunuch, here's how to grow a pair !

When I left the private sector, I was already financially independent. But I wanted to see if I could get into a career which would stretch longer and give me work life balance. Unfortunately, my tenure out of the private sector was very short and I never managed to get used to the culture of the public sector.

It's actually sad what public servants had to endure in the past few months. One senior civil servant implied that they were paper-pushing eunuchs and then Parliament took turns to take pot-shots at them. Having some experience with bureaucracies, I realise that a lot of civil servants are stuck in their roles and had nothing to do with the red tape they are subject to every day.

When I was a eunuch, financially, I was at my peak. I had great pay, a superb 7-digit portfolio and fairly decent work life balance.

My day job however, meant be treated like an asexual bureaucrat when I engaged the folks in Blk 71. One founder of an up and coming startup I met then was drunk and started going on a tirade about the Singapore government. Another prominent boss, treated me like lesser being and only wanted to engage me through his secretary intermediary when I was 3 metres away from him. Some of those companies which the government eventually tried to support happily made verbal arrangements with my team and then casually broke it off. One guy even wanted to teach us a lesson about making money and capitalism ( when my personal dividends probably exceeded his net profits that year ).

But the work of eunuch meant that we have to grit our teeth and do what's best for the country. I actually take "servant" in public servant seriously. If I am a servant, I serve.

This was what eventually what broke me - SME bosses are polite and deferent when they come begging for the money we collect from the tax payers, but in their eyes we are lesser beings because we eunuchs live in the comfort zones but get the privilege of doling out financial support.

They are the ones begging for tax payer handouts but we are considered a lower caste than they are !

Anyway, eunuchs also want their freedom one day, here's how I think you can break free :

a) Exploit your higher pay by setting it aside

For at least the first 7-8 years of your career, your salary will be higher than your private sector counterparts. The trick is not to be smug  about it and set aside as much as you can to maintain your higher salary glide path. There is nothing stupider than seeing a newly signed on regular SAF officer blow his first lump sum sign-on payment to buy a car just to look cool.

I see a lot of middle management in the government getting overly comfortable and driving big European cars to overcompensate for their lack of mojo and over investing in children's tuition. ( It's kinda funny driving a BMW to attend a 10 hour meeting with a senior director who treats everyone like shit and probably no longer have any employable skills. )

This is a golden handcuff designed to trap you into a the life of a eunuch forever.

b) Equities are the key to an early exit.

The salary of a  civil servant is not only high, it has a bond-like characteristic. This means that unlike the private sector equivalents who face retrenchment all the time, you can go for an equity portfolio with a higher risk.

For officers at a younger age, you may even want to read about leverage and see if you can craft a 130-30 long short portfolio to accelerate your gains further.

c) Go for total returns and downshift to a dividend portfolio later. 

For a person who starts a career with the government, the best portfolio is to optimise for total returns which means targeting various factors like smaller companies, low P/B and P/E values for 7-8 years and going for 2 economic cycles of returns ( a backtest may result in 20% p.a returns on a Bloomberg terminal ).

Once your portfolio hit exit velocity ( $300,000 for a single man yielding 8% and putting $2,000 every month ), you can start plotting your exit into the private sector.

d) You may need to invest in retraining.

Retraining needs to be a priority before you get into the private sector. At this point, good luck, maybe there is a way to use the Civil service college to pick up some useful skills instead of buying an expensive MBA which was the best method of exit in the past.

e) Entrepreneurship is really tempting but...

Some government servants do eventually succeed in business and they come with a better appreciation of the schemes available to build a startup. There is enough literature on the odds of success.

Make sure that you stick with tiny bets and don't touch that $300,000 pair of testicles you worked so hard to develop just to stop being an eunuch again.

Tuesday, March 28, 2017

Equity Management #7 : Taking on more risk from a benchmark portfolio.

Most investors are normally fixated at their returns from ordinary asset classes. You take on the risk of equity for 8% returns and moderate your equity position with a bond position which is stable but only gives you only 2%.

Professionals don't have that luxury.

If market returns from equity are like an act of God then individual returns which deviate from the market benchmark would be the act of Man.

Professionals use Information Ratio (IR) as a measure of their skill - calculated by how much excess return (called alpha) is generated for each unit of residual risk. Most professionals get about 0.5 but an exceptionally good professional manager can get 1.0. As I still am not an accredited investor yet, I have yet to ask professional money managers what has been their information ratio for the past 5 years.

For the other readers, here how you take on increasing residual risk and subsequently have a bigger chance of outperforming or underperforming the benchmark :

a) Hold the STI ETF ( ES3 )

At the lowest level of residual risk, you hold the STI ETF and track is almost perfectly. The only tracking error you get is probably the amount paid to rebalance the portfolio when a new stock enters the index and a negligible management fee. If you just want to have average market returns, this is the best choice and supported by many financial bloggers.

b) Shift to an equal weightage STI portfolio

If you have more capital, you can hold each STI component stock in equal proportions. At this stage, your portfolio will no longer track the STI but you will no longer be over burdened with banking stocks and won't hold stocks based on how large STI companies are.

In the US, the equal weighted RSP index fund has outperformed the capitalisation-weighted SPY index for over a decade.

c) Smart Beta

If you want to take on more even more risk, you may wish to start looking at Smart Beta ETFs which will eventually show up in Singapore one day. One example of such an index is one which weighs each stock based on dividend yields or earnings yields (to exploit low PE outperformance). At this stage even more risk is taken and you stand a greater chance of deviating from the market benchmark.

Until the Smart Beta ETFs actually show up, you can take the counters in the STI ETF, take the reciprocal of the P/E value and own a proportion of stocks based on this earning yields number.

Eg. You will own twice as much stock with a P/E of 10 than a stock with P/E of 20.

d) Personal Active Management 

If you can stomach even more risk than that, you will get back to square one as there is a low of solid analysis on individual stocks in the financial blogosphere. You can just focus on stock picking and ignore the market benchmark altogether.

If you are a reader and an intermediate reader, you do not need to make the jump from buying and holding the STI ETF to owning a portfolio of individual stocks based on recommendations you read about.

There are intermediate means to contain your risk by varying the proportion of STI stock in your portfolio - Too bad the ETFs here have not evolved to that stage yet.

Saturday, March 25, 2017

The Three Faces of Poverty in Modern Life.

In order to become richer, sometimes it is helpful to understand poverty.

When Thomas Piketty published Capital in the 21st Century, it is easy for a rentier like me to dismiss this as a rallying cry of welfare-state socialists. But as it turns out, the book had the effect of deepening my conviction towards my dividend portfolio because it proposes the idea that the growth of capital far exceeds the growth of earned labour income as reflected in the ( r > g ) inequality which made the work antithetical to capitalism. The lesson I learnt is that : Between using your wealth to make more wealth and selling your time to make money, always choose the former.

Today I'm going to propose that there is more than one way of being poor.

Understanding that inequality and poverty goes beyond the lack of financial wealth may be a useful insight in structuring your personal finance as well as planning for your children's future.

I propose three ways to look at poverty.

a) Financial poverty

The most common form of poverty is when you lack money. Without money, there is essentially no way you can buy what you need. Nothing more needs to said here as the combined might of financial bloggers are now at your disposal to obtain advise on wealth management matters so let's move on...

b) Temporal Poverty

More insidious than wealth poverty is time poverty. Some families or communities may not be considered financially poor but they might suffer a form of temporal poverty in that they lack time. A wealthy executive woman can hire a helper to assist with child rearing, but a single mother is not just financially poor, she is time starved as she has to balance a job with child rearing. Even if both women are equally smart and capable, the single mother will always feel more tired than the wealthy executive.

One recent study concerns the lack of sleep which, unfortunately, led to the censure of a popular radio station. This would have been better construed as a discussion on time poverty and its effects on our population. It starts with a constructive discussion on what are trading away our sleep for.

Dealing with time poverty is often very similar to dealing with financial poverty. If you studied harder while you were younger, you might be able to trade off one unit of your time for more money than if you had dropped out. Similarly, time spent planning your budgets in your 20s, can give you more time after financial independence in your early 40s.

c) Social/Cultural Poverty  

It's not what you know but who you know.

Being in the right family, school or church can result in very different life outcomes. My dad and his blue collar co-workers would coordinate trips to buy in bulk that result in substantial savings within the household. At the higher end, being from a particular school along Bukit Timah Road is helpful getting a foot in the door in high finance.

It is much harder to earn social or cultural capital. Sometimes, you can break a social barrier by studying hard and earning a valuable skill. An engineering degree is often the fastest way a working class family can quickly gain a foothold in the middle class.  Some barriers, unfortunately,  simply cannot be breached - for further details you can read Kevin Kwan's Crazy Rich Asians.

In the US, Tyler Cowen talks about the phenomenon of rich, white families gently buying up the homes of adjacent black families so that more of these rich, white can be clustered together. In the US, we have a problem with rich liberals railing about income inequality when they live amongst the most segregated communities in the country. In Singapore, just look at the folks aggressively promoting Singlish - can you figure out which schools they come from ? Personally, I think its the same phenomenon.

Social poverty is possibly better managed with a government mandate. We've done very well when we made sure that our public housing are evenly distributed based on race. We may want to do the same thing with primary and secondary schools.

At a personal level, perhaps along with auditing your financial accounts, you may want to have an honest look at you spend your time and whether your time is really spent on important priorities in your life. Thereafter, you may want to review your family, schools and companies you are associated with to see whether you have a "weak network" in case you need to look for a new career or start a business.

You might be richer / poorer than you think.

Friday, March 24, 2017

Equity Management #6 : A unified approach to engineering portfolios.

Ok, we're moving into a new section of the book which talks about portfolio management. The basic summary is quite simple - a unified approach towards portfolio management trumps the approach where the markets get segmented.

What this means to me is quite simple, wherever possible, try to start with the entire universe of stocks. In my case, I review the 700+ counters available on SGX through my broker when looking for counters with the highest yields.

Stick to table of stocks which typically gives higher yields is self defeating because even Venture does not give 6% yields anymore at its current price. Instead, the table of yield stocks should be updated from the entire universe before I target a set of stocks for analysis.

The chapter also hints that some forms of analysis might be superior depending on the sector you are analysing :

Dividend discount models work better for utilities. ( Which begs the question of whether it would similarly be good enough for REITS. )

For growth industries like  the Tech industry, momentum measures might be a better bet.

The chapter also considers the power of long-short portfolios, something which I was tempted many times to try but have no guts to do so. Basically, you you go long on a set of low P/E stocks and you go short on a set of high P/E stocks. As you may have no market risk, any profits you make is portable and above and beyond index returns and you can then supplement the returns with a position on the STI ETF.

These are all great ideas, but my finance portfolio is not merely a financial strategy, it is also a lifestyle strategy which lets me focus on my legal studies with minimal trades.

So I'll stick to my dividend income portfolio, thank you...

Thursday, March 23, 2017

Personal Update

There has been no article on Equity Management last week because I as getting into the deep end of the book which talks about selecting the right data and tracking errors, items which are dry even for a dedicated finance otaku like me.

Instead, I hope to start talking about the Portfolio Management section of the book over this weekend.

So all I have is a personal update :

a) School has been intense but the worse is over.

This has been the week of major deadlines. I have one more presentation to go next week and then it will onto the exams. But beginning next week, I can start to relax as I only have two papers this semester. If everything works, out my final paper in SMU would be sometime mid-April.

Then its about 3 months of holidays and internships before the bar preparations.

b) Finance and Investments

Markets have been red-hot and most income investors would have had a great time with the markets with a series of large payouts at the end of March. Manufacturing stocks are also doing very well due to the turnaround in the Singapore economy.

The question remains as to whether the turnaround in the economy is real and whether the US may put a dampener on world trade when they kick in protectionist policies. The markets don't seem to care that the Donald is in charge.

I probably made my dumbest investment move this decade in February :

Because I needed some liquidity to tide over the Chinese New Year, I started liquidating my non-yield generating assets and sold off most of my cryptocurrency. Thereafter, Ethereum went from around $10 to $40 !!! It was only a token sum of $1,000 but $3,000 can last me quite a while.

Fortunately, I had secured some mining contracts which still gives me a couple of Ethereum coins in my wallet but this failure is really epic in the midst of other parts of my portfolio doing so spectacularly well.  

c) Books and readings

I am currently reading The Complacent Class by Tyler Cowen. It is an interesting take on how America's loss of physical mobility is slowing down innovation and exacerbates inequality. It is full of insights which can be contextualise to Singapore.

One possible tip is when observing Singaporeans is that when you read about those keyboard warriors who rail at income inequality may be the folks who live in the most segregated housing estates and school in the most racially segregated secondary schools.

There are too many good books out there. Anthony Robbins just published another finance guide called Unshakeable - maybe he just wants us to forget about his old self-help guru days. The Cato Institute finally published a book entitled Anti-Piketty which is compulsory reading for rentier/super-managers aspirants.

d) The Hillion has opened.

For the folks who live in Bukit Panjang, congratulations.

The Hillion has opened so we have another soulless mall within a short commute of where we live. For my family, at least we no longer have to go to Choa Chu Kang when a kid needs to see the pediatrician.

Hope to post at a higher frequency from now on.

Friday, March 17, 2017

You don't get to hack the CPF, the CPF gets you hack you !

Ok, it is time to summarise yesterday's proceedings. In case you guys are wondering, when we conduct our talks, we don't really do rehearsals so some of us speakers are also there to listen to what other bloggers have to say. So things get interesting if there is a disagreement between us, nothing we ever do is scripted.

Here are some comments and things which I learnt from yesterday's session :

a) Budget babe's mention of SRS.

At first the company directors were slightly concerned when they realised that SRS which was covered last night was not actually administered by the CPF Board, but I think we've learnt a lot more as a result of her talk. One way of avoiding taxes is to voluntarily set your money aside into the SRS program where you can then invest in the financial markets. The downside is that withdrawal retirement age will incur a 5% penalty. 50% of all withdrawals are still taxable when you take you money at a later age.

The SRS is a great system to have but I am not currently using it. I would be more interested if withdrawals of dividends can be made tax free.

b) CreateWealth8888's market timing approach.

Jacob's session was a real treat because he shed light on the wisdom of baby boomers on how they invest their money. Jacob has a method which involved drawing money from the markets and placing it in his warchest when times are good and doing the opposite when markets are bearish.

The approach may seem simplistic, but Jacob can get 17.2% CAGR out of his approach to investing which is very impressive indeed.

c) Attendees really really like the CPF-SA 4% interest rate.

A bulk of questions involve the CPF-OA to CPF-SA transfer. I can see that folks really like that scheme and want to find all sorts of way to take advantage of this program. Although I have been a beneficiary of this technique having maxed out my CPF-SA prior to reaching 30, there are some things people need to take note of.

If you can invest 35% of your CPF-OA at 8% and keep 65% at 2.5%, you will earn 4.425% which is higher than what the CPF-SA gives. I also believe that, over the long term, as interest rates rise, the government will set the CPF-SA rate to a government bond rate plus may 1-2% so when interest rates drop again, you will stop getting 4% in the future.

Guaranteeing 4% may not be a sustainable practice.

d) Some attendee wants to hack the CPF-SA system

I think a very small proportion of blog readers are actually too smart for their own good.

One particular person wanted to contribute to his son's CPF to "hack" the CPF system. After conferring to other bloggers, I have to say that this is one of the stupidest ideas I have ever heard in quite a while and sadly my body language may have shown that I was just not too impressed by this suggestion. While I could not answer the question last night, apparently you can perform a voluntary contribution (VC) into your child's CPF which distributes the money even between the CPF-OA, CPF-SA and CPF-MA.

While the CPF program is a good one with a lot of government guarantees locked into it, a 4% interest rate on the CPF-SA is not a Constitutional guarantee. It is also cruel to lock in money for your kids when you can just get them to open a CDP account and give them some preference shares. There are currently 5 preference share counters in the SGX, if you buy each counter in equal proportion, you are likely to beat 4% every year.

The lesson for readers is this : You don't hack the CPF. In Singapore, the CPF hacks you.

Michel Foucault is a philosopher who wrote books on how prisons exert control over inmates. He pioneered the idea that the ability to influence a population's sense of what is normal is a legitimate form of power a government can have. The CPF as a scheme tells you that having a house is good, saving adequately for health is good and supporting your parents, and paying yours kid's tuition is the normal thing to do. Government officials are influenced by Richard Thaler's Nudge and practice a form of liberal paternalism on the population. ( Lucky us right ? )

The more you contribute to your CPF, it is almost always true that you get to better secure your future. But you are also letting the CPF define to you what is normal and what is not normal in your life.

While I agree that many things like home ownership and giving my mum money every month is great, I bet that almost all financial bloggers would agree that we'd prefer to have control over our retirement age.

When it comes to financial independence the CPF Board can keep its tendrils to itself.

Saturday, March 11, 2017

Equity management #5 : The Small Firm Effect

Some investors like investing in small firms because it is an area where the natural strengths of a retail investor can really shine.

Institutional investors can't invest in some counters like Karin Tech and Global Testing because there is so little liquidity in these counters that it would be a struggle to even pick up more than 2000 shares in a single transaction.

The small firm effect is a well known in academic literature. You can earn higher returns if you focus on smaller stocks.

But there are some caveats :

a) Small firms might also be neglected firms

A large component of small firm returns is also attributed to its neglect. You may also have oversized returns if you invest in stocks which are not covered by analysts. I can't seem to get a lot of information on a counter like Figtree, for example.

b) Small firms are illiquid.

There is a high bid-ask rate and low number of bids so it will take a lot more transactions for a position to hit 1% of your portfolio. My dad took weeks to pick up 1,700 shares of Global Testing. I think that is quite enough because of the amount of cash which needs reinvestment every month.

c) Small firms effect can disappear when macroeconomic conditions change.

Small firms are fragile.

When there is increase in BAA corporate bond interest rates or T-bill rates, returns may disappear. Similarly returns may go up when there is an unexpected increase in industrial rates. When there is expected inflation, small firms are also impacted negatively.

Academic research on small firms is not particularly practical for retail investors but one is clear : It might be useful and fun to research and accumulate a small portfolio of 20 local small stocks when you are younger and have smaller portfolio size below $50k.

When you start managing a larger portfolio, you would have to look for other opportunities.

Thursday, March 09, 2017

FInancial Blogger's CPF Talk : Some details.

For this upcoming talk, we employed a very lax marketing schedule so right now we are about one week away and we have only 20% of our tickets left to sell so we should have another sell-out session next week.

Today I’m going to provide more clarity on what I will be talking about.

The problem with the CPF program is that it attempts to do too many things at once. Hence we should emphasize the “personal” in personal finance.

Instead of giving the audience solid answers, I will discuss the feature of CPF in question, followed by how I employ this feature. This is then followed by suggestions how the audience can think about whether this mode of application applies to their personal circumstance.

Don’t expect all the speakers to have any consensus on CPF.

My presentation is organised around 7 arguments or touch points which tends to generate the most debate in the financial blogosphere:

·      Whether to transfer of CPF-OA to CPF-SA ?
·      How much CPF to tap for investment purposes ?
·      How much to allocate to your parents retirement needs ?
·      How much to allocate to your child’s education ?
·      How much CPF should you use to pay for your housing needs ?
·      The controversial question of whether it is better to have an Integrated Health Shield.
·      Which scheme to subscribe to for CPF Life ?

It is quite a lot of material and I will cover much ground in 30 minutes but hopefully once you understand some of the basics of the CPF system, the other bloggers will be able to entertain you with more anecdotes and personal stories on how they manage their CPF money.