Monday, June 26, 2017

The importance of Cultural Capital when changing careers

Image result for doji hotaru

This blog has in the past discussed two forms of capital. Financial Capital represents whatever wealth you have in your personal balance sheet and represents what most of us are comfortable with. Human capital is the net present value of our unearned income. We are less familiar with this concept because it corresponds to what professions we have chosen  and it can also increase in value with more investment into lifelong learning.

While financial and human capital are two sides of the same coin. Cultural capital comes from a different coin entirely. The idea of cultural capital came from a sociologist called as Pierre Bourdieu. Bourdieu defines cultural capital as one that is derived from skills, tastes, posture, clothing, mannerisms, material belongings and credentials. For example, fans of high-end audio can use their financial capital to get the latest and greatest audio devices from Adelphi plaza, but it take cultural capital to develop an interest and speak convincingly about Classical music and know the difference between Debussy and Bach.

As I'm in the middle of a massive career shift myself, I have on recently started to understand how powerful cultural capital can be and this is often ignored by the readers of this blog who probable spends a lot more time working on their other forms of capital, it may be wise to occasionally try to understand the "feel for the game" as you net worth goes higher. Beyond a particular point, your wealth will not be able to grant you access to certain pockets of power but beyond a certain point, you may find it easier to proceed with Cultural capital.

In modern society, there are many situations where either you get it or you don't. Bourdieu coins this term habitus or "feel for the game". Transitioning from IT to the Law, you notice pretty dramatic changes in the "feel for the game".

Previously in IT, there was a hollowing out of engineering talent to the field of banking and whoever is left normally came from polytechnics and private universities, to have a "feel for the game", you need to practical and problem oriented to earn the respect of operational staff, hence the best IT managers start at the bottom, or at the data centers. At the entry level, you need to be resilient, a little rough on the edge and speak Singlish as it facilitates quick problem solving  and intimate working relationships which are built on trust.

This worked at the bottom tier of IT support where problems are solved on a daily basis but can fail at the upper tiers where problems normally involve contract law and some financial mathematics. The "feel of the game" and mannerisms change as you go up the IT ladder.

As you climb up the ladder, you have to start developing some proper IT project management skills which means talking to business people. At the mid-level IT investments must be aligned with business objectives and skill-sets typically become more finance-like with an emphasis on budgetary controls and internal rate of return calculations.

At this stage the "feel of the game" changes. Your mannerism become more formal. Language patterns become based on simple plain English. At the stage some IT Project managers also change their appearance because they start to wear more expensive watches to try to match their business counterparts. At this stage, if you are stuck at the NCC Diploma level, taking project management training only gives you the skills to do the work but not the mannerisms required to get a "feel of the game", which is why project management remains predominantly a game for University degree holders.

( But do not be dismayed, as cultural capital can be earned over time )

As I transition into a legal career, the "feel of the game" changes even further. While SMU has equipped me with the skills of being lawyer, I have to develop new forms of cultural capital to navigate this Brave New World which Law School has not prepared me for.

Hanging around in family court, perhaps I am a little over sensitive when I noticed a subtle war going on between different counsel. The women are trying to outdo each other with their handbags. For the men, perhaps the weapons of war are their watches, which is the only politically correct jewellery that men are allowed to wear.

Even more fascinating is the use of language. I doubt you can taken seriously even if you employ the simple English taught in schools. I observe some occasional Shakespeare thrown in to written documents (But always in a subtle manner). The manner of speech in legal work is elegant and rich with metaphors. It's no accident as lawyers typically from the Arts stream in Junior College and many have Drama and Debating experience.

While most engineers would not even have the time to build up the cultural capital to enter a new industry sector, I was fortunate in that I spent 3 decades of my life playing  Dungeons & Dragons which never allowed us to create artificial barriers between the Arts and the Sciences. You need to understand the the statistical properties of a fireball spell but you also need to have a firm grasp of how matriarchal society like the Drow would function in Menzoberranzan to have a great gaming session.

A few weeks ago, a very senior old lawyer used the word "Amanuensis" in an email, it was hilariously intimidating. This would drive most of us, including lawyers, to look it up in a dictionary. I was exposed to the word because Amanuensis in D&D was a Wizard spell to summon a disembodied scribe to copy a scroll or spellbook into another document. So I was able to guess that the word meant some kind of scribe.

Sadly, cultural capital cannot be earned overnight. There is no cryptocurrency which can speculate to up your stash for Bourdieu-coins.

But if you wanna mine for Cultural Capital, playing D&D might help.

Friday, June 23, 2017

Equity Management #17 : More random thoughts on margin investing.

Here's an update.

This week on Wednesday the kind folks of Maybank Kim Eng bought me and two other finance bloggers to lunch to apologise for the margin call made on my account.

( As I was the only guy who got margin called, I accused the other bloggers of getting a free meal out of my misery ! )

The lunch was somewhat hipsterish -  we ate octopus at this place called Venue by Sebastian. The highlight of the session if not so much the free food but just how surprisingly insightful the folks of Maybank are.

I always thought that most of the finance folks you meet in the industry are the run of the mill guys who can spout finance after passing a few CMFAS exams.  It takes personal effort to read finance literature and even very "smart" guys who claim to be in the know will just talk about about becoming the next Warren Buffett. It was a really enlightening meal.

This article shares some random thoughts about margin investing :

a) Brokerage firms can't promote margin investing as much as they'd like.

I learnt that actually our local regulators are quite wise and proactive in preventing the promoting of margin trading because it induces folks buy stocks that they can't afford. We agreed that this point that this is a good idea because the traditional idea behind margin investing is to buy penny stocks and magnify capital gains.

Only a small minority will use margin trading to magnify yields and minimise trades. It's almost up to us financial bloggers to talk about responsible leverage investing without any inducement from corporate firms.

b) Lifecycle Investing by Ian Ayres and Barry Nalebuff

This was the clincher that convinced me that there are seriously smart folks in Maybank Kim Eng.

Their staff mentioned this book which I read quite a while ago about why, for younger folks, it may be wiser to use some amount of leverage to magnify stock market returns. The book is mathematically rigourous in their approach but it was unable to induce me into action then because I still felt that it was safer to reach financial independence first before even thinking about looking at margins.

I strongly suggest that readers consider reading this book before even getting into margin trading to understand that a more deliberate approach to magnifying gains can be designed to speed up your journey into financial freedom. I'm going to see if there is a way to squeeze this book into my next talk in July.

c) Some preliminary numbers on the risk of default.

I was digging up some of my previous backtest results from the talks I gave last year and found that for most of my dividend screens, whether they are for dividend stocks or REITs, I am looking at a standard deviation of around 12% after a decade long backtest (I use the square root of semivariance). So if you project a return of 9%, a 2-standard deviation event will set you back around -15% and this has a probability of around 2.5% of happening. My backtest for dividend stocks in 2016 had annual returns of 17%.

So this is a strong case for my margin ratio of 200% as I will need a massive drop of 30% to trigger a margin call, this is mathematically expected to occur in less than 1 out of 40 years.

Of course, I just need to beware of the fat tails that I've not been able to mathematically model. Unless you are Nicholas Taleb and have your own prime broker, you are not likely to survive a Black Swan event anyway.

d) Mental accounting and margin trading account.

Investment Moats asked me why don't I just have a unified trading account with a margin facility. I replied that its because I have a mental accounting bias.

In this case, it is justified because Maybank can offer 2.88% interest on 200% leverage so I have to go through the process of opening a new account. I just met an old friend today who claimed that if I go with him on DBS Treasures, I might be able to get financing at merely 1.6% but I can only leverage up to an additional 50%-70%. I guess different providers will come up with a different scheme to attract investors.

At the end of the day, a margin trading account is aspirational and you should not be trying to pay off your basic expenses using leverage. A portfolio that pays the bills should not employ leverage.

For now, I doubt I would recommend that anyone start margin trading without a portfolio backing them up that is ten times the size of the margin account.

Tuesday, June 20, 2017

Investors Exchange 2017 : 50 Shades of Dividends Investing !

Investor-ExchangeImage result for 50 shades handcuffs

I'm really excited to talk about our next event which will feature 7 speakers and last one entire Saturday afternoon on 29 July 2017. This event will be the first time BigScribe would be selling tickets for 250+ seats.  You can place your order through this link.

This time round, I'm really excited to be on the same panel as Teh Hooi Ling, who is currently the President of Aware and my super-senior in the NUS Masters of Applied Finance programme. I have to admit that I am the fan boy this time and I have all of Teh Hooi Ling's books.

For this upcoming talk, I probably am the most light-weight among the speakers because I do not come from the finance industry and do not manage money professionally.I will try to balance my talk between two extremes : One one hand, I will talk about financial independence and my personal investing journey but I expect the folks want to show up for the hardcore investing bits so on that aspect I hope not to disappoint the audience.

As of today, I have only started building the outline of my talk and you should expect the same intellectual rigor that I apply to all my presentations.

For the hardcore aspects of my talk. We should be covering the fundamentals of dividends investing, key asset classes that deserve consideration if you are interested in investing for dividends. I will also cover in detail of the more interesting statistical properties of dividend stocks and, depending on what my findings are from my next appointment with a Bloomberg terminal, how you can super-charge a dividends investing portfolio with leverage.  ( Because now I know ! )

For the softcore aspect of my talk, I will try to weave a story about how consumption is evolving and how you may be able to achieve your savings goals with much more class than perhaps during my time when I was trying to save for my financial future.

The unifying theme for my entire presentation is, of course, based on 50 Shades of Grey and how to break free from a brutally savage corporate master.

The most light-weight speaker must overcompensate with the most alluring and seductive theme for this upcoming event. 

Sunday, June 18, 2017

Spending that counts - What we know from the latest surveys on the rich.

I am currently reading The Sum of Small Things : A Theory of the Aspirational Class by Elizabeth Currid-Halkett and it looks like I would have to update some of my thoughts on saving and spending to the latest findings of social science research.

Apparently, it is no longer cool to get into conspicuous consumption. Rich people no longer show off their expensive fashion and toys. Because the middle-class can consistently use credit to purchase the trappings of material wealth, the rich in the US are moving onto other things to maintain their social and cultural distance from the hoi-polloi. This trend has gotten the progressives particularly worried because the rich are no longer spending in a stupid and flashy manner and almost every dollar now is being put to increase income inequality in Western societies.

I will just share three things the aspiration class are spending on these days to maintain their social economic status. If you are observant enough, you will be able to find that financial bloggers also tend to spend very tactically within these three categories :

a) Labor-Intensive expenditure

The first category care utility driven rather than status driven. The new rich prefers to spend on things to give them more time.

The rich has maids to assist them in house-work and childrearing. Some even pay to have people do the gardening for them or to walk their dogs. The aggregate effect of buying time with money means that they have more time to spend either making more money or quality time with their kids. Social scientists are now detecting ( to their dismay ! ) more quality time wealthy individuals are spending with their children.

Even in Singapore, sociologists are detecting that richer families tend to believe in more filial piety.

b) Experience-driven expenditure

The second category are non-utility driven but also non-status driven expenses. Travel comes into this category but I can imagine many kinds of expenditure of this category which does not result in much travel. Some blogger friends have been very public about the staycations they pay for. Even I would be going on a staycation after my internship in early July.

I do not really agree with the author that travel and experiential goods are non-utility driven. Doing charity work in Lhasa may be something nice to put in a resume to distinguish yourself from other candidates. In the age of Instagram, being able to relax next to the beach is no longer something you get to keep to yourself.

But you can't deny that money being spent on experiences is going up over the next few years.

c) Consumption that counts

The third form of consumption which scares the living crap out of liberals is that the rich is starting to buy things that really count. From time spend attending seminars to subscriptions of the New Yorker and The Economist. Wealthy women, already very well read compared to their less-educated peers, are spending more effort breastfeeding their children ensuring that their children gets a huge jump over their peers.

This blog supports category (C) the most because, individually, investments that really count cost very little money but may require years of education and study to exploit fully and will pay dividends over hundreds of years as your children gain a permanent heads up over their peers.

What does this mean for the big picture ?

Rich people will stop acting rich. They will retain ways to signal to each other their social economic status but they will stop inflicting psychic damage to attract the envy of the middle class.

But income inequality and social mobility will suffer even more once the rich learn to invest their time and money properly.

Friday, June 16, 2017

One thing modern workers need to do to stop digging their graves.

This is going to be a short article as I look forward to paying off some sleep debt.

Once of our upcoming talks in August was supposed to be lifelong learning but for very valid reasons, it did not pan out, so we will probably be going ahead with something else later this year.

I've done some preliminary readings on lifelong learning for my own benefit and discovered this insight about lifelong learning which is not shared public about - you need some degree of career mobility to benefit from lifelong learning.

For lifelong learning to really benefit a worker, he needs to be able to effect a change in his/her work environment to exploit his new  skills. At the personal level, I was somewhat a negative example of this insight. After getting a Masters in Applied Finance and passing all my CFA exams, my IT career was doing rather well and I never really did make the switch into a finance role. I do not have much regrets because I was able to derive an alternative income by building my own portfolio.

A lot of other workers are not so lucky. If you are over your 40s and struggling to pick up some new qualifications note that the research shows that the odds of you being able to exploit your newfound learning is limited. To test out your new skills, you might have to jump ship but the career mobility of a 40-something worker is somewhat limited so the odds of increasing your income from lifelong learning is also limited. The research paper has recommended that the government make it their role to provide career mobility for middle-aged lifelong learners.

So the modern worker must begin lifelong learning at a younger age and not wait for too long to begin developing cutting edge skills which are suited for tomorrow's corporate environment.

Which leads to another problem - You need to make time to pick up new skills !

Workers of the future may need to look for corporate cultures which release them from work on time so that they can invest in their own human capital by picking up new skills and keeping up with the industry. Otherwise, workers will become sitting ducks while being employed and may even  waste too much of their own time developing non-transferable skills that can only be used in one corporate setting.  It only takes the next technological change to render them obsolete.

In this aspect, multinationals continue to be attractive relative to SMEs.

Multinationals are also more exclusive and can afford to be selective based on paper qualifications.

At the end of the day, you can't really blame local graduates for only wanting to work for the biggest and most elite international firms.

Its a valid survival strategy.


Wednesday, June 14, 2017

Equity Management #16 : Troll Portfolio.

It is interesting that some folks who I did not expect to follow my blog are observing this margin trading experiment so here's another update :

Apparently the good folks of Maybank Kim Eng do read my blog and called me up to apologize for the "mistaken" margin call. They also told me that they were not sharing email accounts and my broker did make a mistake and triggered the margin call on Saturday.

I took their word for it because my problem is solved and the system is reflecting my margin numbers correctly. I'm also very forgiving because I am borrowing at only 2.88%, smart readers might wanna hop in after I help these guys even out their operational kinks but the choice is yours.

So let's  recap what a margin ratio is :

Margin Ratio = ( Value of shares pledged + Value of shares bought using margin financing ) / ( Amount of financing - Cash collatateral pledged )

In my case, I bought about $20,000 of shares and put in $10,000 of collateral.

Starting Margin ratio = ( $20,000 )  / ( $20,000 - $10,000 ) x 100% = 200%

Suppose I lose 30% of my REIT portfolio a few weeks later  and the value of my stocks dip to $14,000.

Margin ratio = ( 14,000 ) / ( $20,000 - $10,000 ) x 100% = 140%

This is the exact amount that triggers a margin call from Maybank and they will write to me to ask for a cash top-up or they will sell off my portfolio.

As such, your margin ratio is somewhat like the number of hit points like in an RPG game. If it dips below 140%, you suffer a margin call which is the equivalent to making a death save in D&D.

Because every quarter my portfolio will generate some dividends into my account, I hope that this would gradually increase my margin ratio over time.

For RPG players, this portfolio behaves like a D&D troll without a maximum hit point cap. Ignore it for a while and it will recover lost hit-points over time. But I guess we'll find out about that aspect of margin trading soon enough as I might face even more operational issues by then.

Sunday, June 11, 2017

It gets worse - I got margin called after one day of trading !

This is so hilarious, I must share what happened to me yesterday for everyone to read.

Yesterday at around 1pm, I received an email from Maybank-Kim Eng telling me that I got a margin call. In that email, I was told that can either pony up $7k or they will sell off $22k of my shares.

I've only traded for a day. With a cash collateral of $10,000, I bought about $22k of REITs and even made $60 on the first day and I received a margin call a day after that ?!?!?

The news almost gave me a heart attack.

At around 3pm yesterday, my broker wrote me back telling me that it was a mistake and nothing needs to be done on my side. Apparently, a colleague was allowed to use the broker's name ( I'm not even sure this is ok from a compliance perspective ! )  to write to me telling me that I got a margin call even though there wasn't one.

You can imagine how disastrous this operational issue is if my broker decided to take a holiday on Monday instead and someone else decided to sell my shares - I might have lost around hundred bucks as the broker sold off my shares. Worse, my margin trading experience would have only last one day and we would never figure out what happens when dividends get declared.

I bet by now, a lot of you might think that I might be better off with another broker but I'll be sticking around at least to document my experience for your benefit. But more importantly I would still hope to achieve 2.88% for my financing costs.

I have no idea what's going to happen on Monday, but I'm tracking every communication with my brokers moving forward just in case I need to say hi to the regulators next week.

Do share a comment or two if you are a Maybank Kim Eng customer.

Saturday, June 10, 2017

Inconspicuous consumption and the theory of platforms.

I felt that a recent article on AEON sums up my approach to life for the past 2 decades.

Today I'd just like to talk about platforms, why they matter in a world of inconspicuous consumption and follow up on margin trading which is causing a small stir on other financial blogs.

a) Platforms matter 

The article on inconspicuous consumption discusses new ways by which people signal social economic status. All of these approaches are fairly cheap in terms of money but can be horrendously costly in terms of time. I use a more general term of platforms when thinking about modes of inconspicuous consumption. In IT a platform can mean a class of operating systems like Windows or UNIX, on it's own it does nothing much but with applications it can power the biggest MNCs on planet earth.

Breastfeeding in the modern era is a truly super-expensive platform. The mother needs to be highly educated to understand the benefits of breastfeeding a child for a prolonged period of time ( such as  a year ) and the father needs to earn enough to cover the mother to breastfeed her child. It is way cheaper than milk formula but the time costs are super prohibitive. The benefits last a lifetime.

b) The right magazine as a platform

The Economist costs on $13.50 an issue and I buy it every other week. It's not expensive. What's expensive are the years of education required to appreciate and apply what's on the Schumpeter and Free Exchange columns. I only started reading the Economist because legal cases were dry and I needed something to relax when I was a law student. Now after having done some heavy-duty research in real life cases and starting to see repeat patterns in judgments, some Economist articles are starting to look heavy in comparison.

Reading the Economist is super rewarding. It occasionally goes beyond analysis, attempts to predict political results and they are intellectually honest when they fail. And there is the benefit of signalling to other readers of the Economist that you mean business.

Now compare this to Harvard Business Review which costs three times as much with reductionistic articles that make management leadership look like a cake walk.

c) Margin trading as a trading platform

I was alerted by fellow bloggers that a small discussion cropped up at CW8888 over my attempts to pick up margin trading. You can access the link here. As I am more of a student than a master, I prefer to just read the thread and adjust accordingly if my own investment thesis is wrong.

Margin trading is also a platform. You can open an account and not put up a margin position at all. I've demonstrated that getting a trade started can take a full week. We have yet to explore how dividends get credited into the margin and whether there are hidden charges. Even if you do not support my investment thesis, having an account on standby would be useful in another recession where you can leverage yields of up to 15+% to exploit a market recovery.

I've only has one trading day in my margin account. By any standard, I am a beginner. But what I am doing has never been recorded in any book or taught in any seminar. You need to imagine that this is not a small margin account to make coffee money, it is 1% of a fairly substantial core portfolio which can recover the full investment in dividends over 2-3 months, after which another $10,000 gets leveraged by 200% into the margin account system. No hard-earned money goes into this account. The hard-earned money from legal work goes into the core portfolio which is unleveraged.

There is also no exit over the short term from the margin account, dividends are removed after the portfolio hits a critical mass to pay off my mortgage payments so that I can relieve my CPF-OA account of monthly deductions. This will happen much later, but the dividends are fed back into home equity.

The prediction that the market will turn against me in 2018 has been well noted. I backtested a REIT portfolio and it has an approximate standard deviation of about 12-13%. A 30% drop is a two standard deviation event, I project a less than 2.5% chance of that prediction coming true.

( Please correct me if my math is wrong. )

Ok, gotta go for a wedding. Catch you guys tomorrow !

Thursday, June 08, 2017

Equity Management #15 : Finally managed to start margin trading today !

Once again, my Equity Management textbook is stuck in my condo but I'm staying at my parent's place tonight so I don't have any advanced equity investing ideas to share with everyone. Right now it seems that everyone has been very excited about the Sanli IPO that made some other financial bloggers very happy today.

I missed out the fun because I saved two quarters of dividend residuals to get my margin account started.

I sure hope that the most challenging part of the process is over.

As there is a decent chance that I would have to start all over again as a rookie in a new industry, I thought perhaps I need a new platform to take on some calculated bets on the stock-market. This time, I am trying to start a small hedge-fund like operation at home.

My first step upon rejoining a new workforce is this :

Build a separate portfolio that yields around $2200 per month at 10-14% yield after leveraging by 100%. This way I would only need a satellite $240,000 portfolio to offset a $500k plus mortgage. My core portfolio can generate around $2k excess savings a month and my new (and very low) paycheck can cover the rest. Because I have access to leverage, I am no longer under much pressure to hunt for yields above 8% which can be very risky. I can now include some 7% yielding REITS which have some amount of growth potential.

So, as of today, my first $10,000 has been committed to this margin portfolio - $230,000 left to go.

Here are the steps I took to get to this stage :

a) First I signed up with Maybank Kim Eng who sponsored my last talk.
b) As the accounts were set-up, I get my ID and pin from them after around 3-5 working days.
c) I figured out how to transfer money from my DBS account into my trading account and do just that.
d) The painful parts come at this stage, the money take days to clear and then lands in my cash account rather than my margin account. I contact the broker to ask him how to move the money into a margin account and act as a collateral. Without doing this, I have 0 limit to my margin trade.
e) It takes a further few days for the money to shift to the margin account. I had to contact the broker today after it has been delayed a couple of times.
f) The broker did something at his backend and I started trading at 4pm today.
g) Right now, I still can't see what's my margin because it will only update tomorrow at 9.30am.

I pushed my money into my account on 31st May 2017 and I made my first trade only on 8th June 2017. I still have some questions in my head :

a) Why can't I have a button to push my cash account into my margin account ?
b) Does the money from the bank always default to the cash account and I will need to call my broker to transfer it ?

( My margin account does have a different number so maybe I have to change the parameters to transfer the money. )

If some folks have gone through this process, please share your experiences and hacks in the comments section.

I will update everyone again next week on how things would have gone.

Sunday, June 04, 2017

Some insights from "Rich People Problems"

This is not a book review and I am not going to spoil this story as I think that if a Singaporean wants to read a piece of fiction, he should look no further than "Crazy Rich Asian" trilogy by Kevin Kwan that's going to be made into a movie soon.  

Instead, I'm going to put my my very imaginary and non-existent "English Literature hat" and flesh out an interesting feature of Kevin Kwan's writing throughout this novel.

Kevin Kwan name-drops a lot in his works. 

Whether you think of Kevin's name dropping of world class brands and designers as a feature or a bug of his work of fiction, his description of the brands worn by characters in the story intensifies when he is describing the antagonists of the story. For example, primary villain and fashion victim Eddie Cheng wears a bespoke Sartoria Ripense suit, Corthay squirrel suede chukkas and A Lange & Sohne Richard Lange "Pour le Merite" watch ( I can't even ). 

You can actually tell when the author decides to become a lot more merciful with name-dropping when it comes to describing the protagonists of the story. Nicky Young, when referring to his cousin's wealth, jokingly asked her for a David Bowie CD compilation worth $89.99 from Amazon. Throughout the novel, the good guys brands demonstrated either some understated style or was a beneficiary of something experiential rather than material. 

Here is an example of something that many financial bloggers talk about - When a choice presents itself when spending money, always choose an experience rather than a material good. Another words, between a round the world trip and a car, choose the round the world trip. This is the new orthodoxy amongst the new generation of consumers. 

Actually, I've been quite bothered by this rule of thumb for quite a while. If you observe the Instagram postings of your millennial friends, how many sunsets or unicorn rainbow shake pictures does it take to drive an average person into depression ? Furthermore, computer games are probably one of the more addictive forms of experiential goods. 

In this case, a good piece of fiction might contain novel solutions which have yet to be found in social science journals. As it happens, some of the most precious objects given to the protagonists of the story contain an interesting back story. In this particular story, a pair of earrings given to Rachel Chu hinted at a very interesting story of her grandmother in law during World War II which was pivotal to the resolution of the entire story arc.

So perhaps the material-experiential spending model is incomplete. 

Advising folks to spend money on experiences may end up encouraging hours spent on World on Warcraft or cracking the next boss on Dark Souls III. Computer games are a class of experiences which are capable of allowing a person to achieve a state of flow for a modest subscription fee.

I think a better model would be material-experiential-existential.  Next time ask yourself :

  • What is the meaning of this purchase ? 
  • Does buying this product or service say anything about your personal identity and what you stand for ? 
  • Does it give you a meaningful level or achievement or allow you to leave a legacy for others ?

At this point, it is entirely possible that computer games are still a worthy investment because it gives people a level of achievement and meaning that real life simply cannot allow some people to attain. 

Once we get to the point where people prefer to find meaning in the virtual rather than the real, we will be in serious trouble. 

Friday, June 02, 2017

What can we learn from Male Gaming Hermits ?

This is probably the only local financial blog which talks about the latest phenomenon in the US that may already be a mainstream lifestyle in Singapore.

Young males, especially those without tertiary qualifications, are not just refusing to settle down and have families; they are withdrawing from society, living with their parents and trying to spend as much time playing computer games as possible. The current crop of computer games are highly immersive and addictive. One example is Horizon Zero Dawn with cybernetic dinosaurs and another is the Zelda game on the Nintendo Switch platform.

Academics are working furiously to study this phenomenon. When lowly educated males become unemployed in the US, a large proportion of their time gets re-allocated to playing computer games whereas women would simply devote more time for their families. Labour participation amongst these class of blue-collar males have to recover from the GFC.

More interestingly is that economists now consider gaming to be leisure luxuries. Consider a product like pornography - the more time you spend watching it, the less you want to continue to watch it, so it generates diminishing returns when you exchange your time to watch it. ( Interest wanes typically after ejaculation. )  

Games are the opposite of porn. As it turns out, playing games like Skyrim and Horizon Zero Dawn makes you want to play more games. As computer games become more sand-box driven like Skyrim and addictive, virtual reality will be more rewarding than reality. I can imagine the next Opium War being fought over computer games in the next 20-30 years.

The academic writing on this can be found on a Google search but I did not seek permission to cite their writing.

What I did immediately after these series of article is that I stopped PC gaming altogether.

Eric Barker's Barking up the Wrong Tree is so good, I am contemplating doing up a series on it after I am done with Equity investing. We can turn gaming to our advantage by gamifying our real lives.

WNGF is a framework designed by gamification guru Jane McGonigal. I am now trying to incorporate the WNGF framework for my upcoming talks.

  • An initiative must be Winnable. At least for the rest of 2017, until I start my training contract, I want to give financial talks in every BIGS event.  That's if the directors will continue to lt me do it. I win if I get to give a talk. 
  • The initiative must be Novel. Each talk I give will be unique, thoroughly researched, and one of it's kind in this commercial space. I have refrained from recycling my slides so far.
  • There has to be Goals. I will target every talk that I have been invited to speak for, my goal is a sold out crowd which have so far been met because we are reasonably priced and have small venues. I'm not sure whether we can sell out our next talk because it will be BIG.
  • There has to be Feedback. We now have a feedback forms for all our events, I also make it a point to answer questions which we did not fare so well in during Q&A.
So there you have it. 

I've practically quit PC gaming and made BIGS my next gaming platform.

Our next talk is in July, marketing will begin later so I hope to catch you then !

Wednesday, May 31, 2017

Equity Management #14 : Starting positions of my leveraged account.

This is going to be a short post.

Following up on my previous post, I have managed to set up a margin trading account with Maybank Kim Eng and used $10,000 from May's dividends pay-out to get started on a portfolio with leveraged yield.

I chose four starting positions which has the following criteria - Must yield at least 7% and has to contain stocks which I do not currently own in my main portfolio. With the exception of Manulife, the financial costs of the leverage is about 2.88% with Manulife going at 3.5%.

[ I really hope no one tries to replicate my four stock choices, for one thing, they do not exist in my main portfolio and are chosen to diversify my holdings further.  This blog does not make stock recommendations or give financial advice. ]

My "suicide squad" of four stocks are : Frasers L&I, Manulife REIT, EC World REIT and Far East Hospitality Trust.

For now I'm only applying 100% leverage so I should end up holding around $20,000 in stocks. In three months, I would try to top up my account and try to maintain it at 200% margin so that I will not end up with a nasty margin call when markets turn south. If everything works out, I should be looking at a portfolio which gives me about 10% yield on my $10,000 "tuition fee".

That's if it does not die a horrible death.

( You'll never know whether Trump will end up getting impeached or if UK decides to vote Labour. )

Tuesday, May 30, 2017

Discourse on Avocado sandwiches betrays Gen-X's own financial insecurity.

Every generation likes to poke fun at the generation which succeeds them.  Baby Boomers were particularly cruel to Gen-X when we were growing up and made fun of the shows we watched ( Friends ) and the music we listened to ( Nirvana ).

As Generation X got older, they started to take on Millennials or Gen-Y and recently came out with a distracting argument proclaiming that Millenials will never retire because they ate hipster food like Avocado Sandwiches. The article was particularly damning last week and featured one special snow flake whose life can only be complete all thanks to a $50 bowl of Negitoro don.

I am less inclined to bash Millenials, having work with them rather closely as peers in the last 3 years and I personally never saw anyone from SMU eat an avocado sandwich. I don't really appreciate folks labelling my classmates as avocado eating hipsters ( although there is a persistent problem with the $7 kebab because the SMU foodcourt has to pay fairly high rents and wages to the disagreeable aunties who work there. )

It's strange to claim that Millenials cannot retire given that they have all that time before retirement age shows up on their doorstep. Even retirement is evolving - I can imagine my friends retiring as a single hermit gamer - forever alone but forever satisfied with imaginary achievements in a virtual world. Furthermore, Gen-X guys are not doing this retirement planning thing particularly well.

I'm going to teach Millenials how to fight back when Gen-X and Boomers start shaming them. Gen-X can also use this framework to audit their own personal finances, it's less distracting than talking about hipster food.

When it comes to an audit, fixating at a person's small expenses is a cheap shot. Retirement viability largely depends on how you manage your large expenses because eat expense item can be worth quite a number of avocado sandwiches.

Start from big to small :

a) Did this Gen-X buy a house which is too large for themselves ?

If your head is not large enough, don't try to wear a large hat.

A general rule of thumb is that a median income person ( Household income of $9,600 per month ) would be able to replace 61% of his earned income if he opts for a low cost 4-room BTO ( Simulation by academics Chia and Tsui 2012 ). A large house means for retirement. For CPF use, it's a trade-off - house or retirement.

Most Gen-X guys tend to over-invest in real estate because of that belief that they can emulate the financial success of the Boomer generation. But we live in different times, real estate prices are determined largely by how much foreign talent we accept and the government does not really want to pay the political price of immigration anymore.

If they are wrong about real estate prices, putting in too much real estate will be the single dumbest move they have ever made in their life.

b) Does Gen-X have a car ?

A car can cost $2,000 per month which, in avocado sandwich terms, could mean serious diarrhea after an avocado sandwich overdose.. Folks with a car have no business really kicking the ass of a hipster.

c) Does Gen-X have recurring expenses which are too large to handle ?

Next a great place to audit is this person's insurance. How much savings in annual premiums can a persona save shifting his protection from whole life to term life ? Does he really need an integrated health plan for a Plan A ward ?

Does he over-invest in his child's enrichment education ? Maybe his child will only provide less than 4% return on human capital and it is better to invest at 8% then give it to the child at a later time than yet another stint in some special tuition agency. ( This is a nice move because it always riles parents when you say that investing in the stock market may be better than investing in their children. )

After that, you can review his telecommunication expenses. Why does he need cable TV when all he needs is broad band plus maybe a Netflix subscription ?

Does he spend time in Geylang with prostitutes, one shot at $150 a week with a PRC freelancer is $600 a month. This is an avocado sandwich every day.

Does he smoke ? Does he drink ?

d) Does this guy have a watch or something he indulges in ? He must have a sin. 

My indulgence is RPG books. I pay for almost every new RPG book which gets out in PDF format. I also hunt ruthlessly for vintage gaming books for nostalgia's sake.

Guys generally do not have permission to indulge in themselves with the exception of a luxury watch. A luxury watch is the Birkin for men, some way of telling himself that he's arrived when an Ah Beng can just get the same thing with the right kind of credit.

Does he really see his watch as an investment ? To look after it for the next generation ? Go to Carousell or Ebay to confirm whether his claims of his watch preserving its value is true.

e) Now look at his daily expenses

It is only at this large stage when we look at his daily expenses. At this step, David Bach's latte factor come into play and you can see if he is spending over-lavishly on Starbucks or expensive meals.

Gen-X should not distract themselves by poking fun and shaming Gen-Y.

Their biggest threat towards their own retirement and financial independence is themselves.

Many of us will spend the rest of our lives working not because we want to but because we have to.

Friday, May 26, 2017

On scarcity, $10,000-a-month internships and capping graduates to 30% of the Singapore population.

Given that I turned down five-figure a month job to carry on with my $500 a month internship, I thought I should share my perspective on $10,000 a month internships article that recently appeared in the Business Times. Statistically speaking, $10,000 internships are special with the average salaries for permanent workers being around the region of $4,000 a month.

It's easy to fall into the trap of becoming envious of folks who get such lucrative internship stints but I expect only a few such positions to be so financially rewarding. Even if there are $10,000 a month internship, they are usually reserved for the smartest, most well-balanced, and possibly the most well-connected graduates from top universities around the world.

The root of this phenomenon is scarcity.

This is the same thing which drives the controversy over Singapore's policy to cap graduates at 30% the cohort population. A lot of unhappy Singaporeans, are angry that the government wants to limits degrees for only 30% of the population.

Here are some ugly truths which I'd like to share on this blog.

a) Captain Obvious : Degrees are more valuable when they are limited to a few.

Degrees are not for everyone because the value of a degree is tied to signalling rather than skills development. To put it in a nasty way, a graduate is not hired based on his ability to do complex tasks in the workplace. He is valued for his general intelligence relative to his cohorts. This is why a Medieval History major from Oxford can command a bigger pay-check than a Masters in Engineering from local university.

This is the reason why JC and universities are such perverse places which seem more obsessed with evaluating someone rather than training them. For example, in both law schools, students would rather study the notes left behind by our seniors rather than the slides presented by our professors.

( I actually think that my daughter's jotter book is better organised than the notes from some professors I encountered in University. )

The best jobs in a capitalistic economy do not require any skills but prefer to select a person based on his ability to pick up new concepts and present it to others in a coherent way. MNCs want smart people who can be moulded to fit their company culture through a rigorous management associate training program. Skills can be easily taught once you have the right recruits.

Otherwise our top companies would just recruit from our polytechnics instead and save a lot more money for their shareholders.

b) Limiting degrees protect the interests of capable non-degree holders.

Less obvious is how this benefits the non-degree holders.

The first benefit is that for non-degree holders is that they are not pushed to over-invest their time for just another piece of paper with low signalling value anyway. Why pay $70k-$80k and 3 years of your life to study a local private degree just to get by with a $2700 starting pay ? A degree will not magically catapult you to a comfortable middle class lifestyle. A diploma holder may start with a lower pay but they also start earning money at a younger age which also gives them more time to compound their investment portfolios.

The second reason is that it improves the signalling value of non-degree holders. If only 30% have degrees and you do not have a degree, it can mean that you could be in the (top) 31st percentile which is still not too bad in the grander scheme of things. Good SMEs may treat their best workers like gods and may still groom you for the C-suite because no sane company would discriminate against 70% of the population.

However, if 90% of the population have degrees, no one would happily employ a non-degree holder without a nasty chat their HR manager. The big firms would simply recruit candidates with a strong honours classification. The population would then start to demand for for more distinctions to be granted to graduates.

So we don't really need more degrees than the jobs that MNCs and a large part of the public sector provides. A better question would be how to promote a comfortable middle-class lifestyle for folks with a diploma ( Maybe we can talk about this in a later article or a talk ).

c) There is a solution out of this obsession with signalling for degrees - Engineering school !

After reading this, a lot of folks who get shafted by the education system will then bitch and whine about its obsession with signalling and why higher academic institutions simply don't focus on developing skills instead and have companies hire for folks who can do their jobs.

There is a class of degrees which has more skill than signalling value. In surveys done in the US, the branding of engineering degrees matter the least in labour statistics.  Because folks who want to be engineers are so rare, most engineers will face little discrimination from branding of their degrees if they can graduate with an engineering degree and are willing to do technical work.

But how many Engineering degrees are actually being offered in private local campuses ? You can google that yourself but I expect the supply to match the demand.

d) Lifelong learning will trump IQ, EQ and our obsession with degrees.

If you accept my argument about signalling of degrees, you might become even angrier at the government for pushing for more skills development. Is this drive for life-long learning a scam?

Life-long learning is not a scam. It's a only way forward for survival.

Degrees have signalling value but the depreciation of a paper qualification is getting faster with more technological disruption. For degree holders, the value of their paper will be much lower in a few years time and have to spend the rest of their time picking up new skills and following industrial trends.

Because quite a number of degree holders will be unable to maintain the value of their professional credentials, the employment market will be a hot place for a non-degree holder to compete by a committing to a lifelong learning regime. The dropout rate for a Coursera course is 90+%, finish one data science specialisation and you are signalling your value to a potential employer.

Last words : It's about the middle-class lifestyle, what it takes to get there and few will succeed in the end.

You know what the Hard Truth is ? The middle-class lifestyle will remain elusive regardless of your efforts to get a degree.

The final problem for a lot of folks I met ( many who do come from local private schools ) is this paradox which, I think, will doom them to a mediocre lifestyle forever.

On one hand, they demand that some kind of free access should be given to them to get a degree which I think is understandable.  But on the other hand, they see it just as a piece of paper with no intrinsic value. A degree is just a paper to set them free. They are being held back for the lack of one paper. Otherwise, they would already be as rich as Warren Buffett.

What about knowledge ? What about cultivating an open mind ? What about seeing connections between different disciplines ?

Without that innate curiosity and an open mind, I observe that many fellow Singaporeans will just regress to the most heavily marketed lifestyle choice on social media which is based on credit and conspicuous consumption.

But a life of the material is a lot harder to sustain than the life of the mind.

For these people, a degree is just a route to a nicer handbag and better car.

They don't get it,

They won't make it.

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.