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 !










3 comments:

Singapore Man of Leisure said...

Chris,

Your link to CW's post is missing:

http://createwealth8888.blogspot.sg/2017/06/leverage-with-margin-account-2.html?showComment=1497059969825


It does not take a week to setup a margin account... This is Singapore hello!

Of course you are not "wrong" as you are sharing your own experience - data point of one.

You may want to explore other brokerages where today you deposit money into a margin account, tomorrow you can start trading!

Provided of course you already passed the pesky CAR and CKA questionaires ;)



Youth, you strenght is you do not know what cannot be done!

Don't worry. Go forth and have fun!

Crash got sound one :)

That's the best way to learn!


Singapore Man of Leisure said...

Oh! Forgot to share that yes, a good broker platform has an online form where you can transfer funds from cash to margin to CFD to futures/forex accounts or vice versa - gasp, all in 1 day ;)

Yes, I'm an ominivore. I trade everything and anything!

Christopher Ng Wai Chung said...

The key question for me is not so much how advanced or fast these platforms are but whether can they provide share financing at an amount less than 2.88%.

It is these rates that make Maybank attractive to me because I do not really trade.