Buay Kan Buay Tua Han as a methodology for success.

Translated from Hokkien to English "Buay Kan Buay Tua Han" means that you can't grow up unless you get fucked first. It alludes to phenomenon that many of us do not experience growth without going through a period of pain first.

I think that there is a sufficient evidence that this is a very credible success methodology. Most folks simply do not have the willpower or conscientiousness to perform feats like lose weight or to save money. Pain can thus become a useful ally in such endeavours.

Personally, I experienced successful weight loss when I used a blood test to keep me from taking foods with too much sugar. Society is full of similar success stories, the gangster becomes a great cop after the government put in place a career with a proper structure to enforce conscientiousness.

Here's some useful application of this principle :

a) Improve Weight loss using a system of donations to Roy Ngerng.

Make a bet with a friend by giving him $50. If you do not lose weight over the next 3 months, your friend can donate money to a cause you absolutely hate. ( In my case, it will be toward's Roy Ngerng's legal defense fund )

b) Place monthly expenses budget into an envelope. Then freeze your credit and ATM cards.

One brutal approach to forced savings is to place your budgeted expenses into an envelope and keep the credit and ATM card in the drawer ( or freeze it in ice ). If you spend it all before your next pay-check. You have to tough it out for the rest of the month or thaw your cards.

Just some watch-outs - Do not apply this to investment returns. It's not fair to penalize yourself over events that you do not control.

Applying this principle to society in general, it means that governments need to create and maintain a career track for non-conscientious citizens. Traditionally this should be uniformed services where workers will have a stable structure to support them if they do not have the willpower to help themselves. The government should also create an alternative remuneration program which pays less over the short-term but pays a pension after they leave this service.

I bet most of you have heard of many ex-SAF staff who blew their gratuity into some crazy F&B setup.

We need a pension system to preserve a warrior culture which has been eroded by capitalist and scholar virtues.

Some thoughts after today's talk...

I felt that the talk that was given today in Block 71 was great because of the audience who was very interactive and kept me on my toes. Money can sometimes be an emotional subject, so interaction can be very engaging and lively for everyone involved. 

Here are some random points which I thought would be interesting for the regulars here who could not attend my talk at Block 71 just now :

a) Projection of 8% yield can be controversial idea for most audiences.

I think the biggest elephant in the room for my presentation is the idea that it is possible to create a portfolio of stocks which yield 8%. Because I am about to matriculate into Law School, I took some pains to ensure that my talk did not violate the Securities and Futures Act, so I can only claim that this is possible, and I did not actually list out any stocks which I have in my portfolio.

As we speak, only one REIT exceeds 8% in yield. This is risky as it also comes with some income support so may not be sustainable. There are several business trusts which yield more than 8%, all of them have idiosyncrasies of their own. Your best bet is to look for equities in the markets - some manufacturing firms do give 8% yields but they are small cap or mid cap stocks which most Singaporeans have never heard of.

My portfolio consists of 26 stocks which yield between 6.5% to about 13.5%. Average yield is about 8.1%. It is fairly risky and I think it's better for the public that this list is not shared with everyone as some stocks need to be actively monitored.

On hindsight, it may be more conservative to target 6% for ordinary investors, this widens the universe to cover more stocks, many which have fairly good potential for growth. 

b) Channeling the "Field Marshal" with the MBTI personality test.

This was the first time I'm sharing the idea of using personality tests for career success. 

The basic idea is to consider the MBTI personality result of "ENTJ" as the highest financially rewarding personality trait and encouraging other people to temporarily take on the "Field Marshal" personality trait to obtain more success in their day jobs.

This means taking on a new persona which is more outgoing, more visionary, more logical/ruthless with a greater sense of urgency in the workplace. 

I expected this idea to be controversial, there are really no self-help precedence but strangely enough the audience did not resist this suggestion.

c) Non-linearity in income characteristics

This is one of the reasons why I like addressing hackers. They bring a lot of value to the table. One attendee spoke of what I felt about the idea that a person's income is non-linear. 

I told the attendee that the most conservative way to look at an engineer's pay is to consider the inverse parabola.

Another words, most of your salary increments will occur in the first 10-15 years of your career. Beyond that time-frame, paradigm shifts in programming and engineering will render your experience worthless and you will spend your 40s being retrenched multiple times, experiencing long period of unemployment and you should expect a decrease in your remuneration. 

The .NET guys in the 1990s will never dream of languages like Ruby on Rails, Platform as a Service and Scala taking the start-up world by storm. They will need to retain themselves, provided that HR departments do not practice ageism. 

d) Never take up a career that is too eagerly pushed by policy makers.

The discussion touched on emerging fields like Data Science. I recommended that the hackers consider the difference between a cluster which has truly emerged from the Singapore private-sector economy like law and finance versus careers which result from Government intervention like Biotech and Data Science. 

Industrial demand for lawyers and investment bankers arose out of the true needs of the private sector. The government did not need to start a campaign to push for more lawyers and investment bankers from NUS. The money was good, and the better students responded to industrial demand. As a consequence, the financial rewards of these professions are very much sustainable, sometimes by economic moats and entry barriers imposed on new entrants.

If a career depends on government support or intervention, you will depend very much on the government sustaining that interest within the economy. Case in point, it may be instructive to look at semiconductor engineers to see how are they really faring these days. In the 1990s, there were many attempts to encourage engineers to join the semiconductor firms. 

Never take up a career that is too eagerly pushed by policy makers. 

I can go on and on, over the  next few days I will talk about each interesting point in further detail. 

In conclusion, talking to Hackers is fun. When I do this I am engaging my own "kind". 

Hackers are certainly not shy people, some asked very mathematically probing questions on my graphs. ( Did you apply a logarithm to your numbers ? )

I will be looking for more speaking engagements over the medium term before entering Law School. This has been a very fruitful engaging of minds. 

 

Back-testing a CNAV-like portfolio using local stocks.

As a continuation to my Value Investing Master Class given to me free of charge by BigFatPurse, I spent some time in the National Library Bloomberg Terminals yesterday to see if a similar strategy may yield superior returns when applied to the local stock-market over the past 10 years.

As I'm a beneficiary of a good deed, I have to find a roundabout way to return the favor to BigFatPurse but would still benefit my readers, so I won't replicate the exact strategy shared as it would affect their business negatively, I think readers who are impressed can invest a price equal to restaurant meal for two by signing up for their course. Instead I took the broad concept to create a filter which employs a strategy similar in spirit to BigFatPurse to see market out-performance takes place.

The back-test was done over the 10 years. ( 2004 - 2014 )
The portfolio is equal-weighted.
Rebalancing of the portfolio takes place annually to reduce the impact of brokerage fees.
All companies are domiciled in Singapore to get rid of S-Chips.

My filters are as follows :

a) P/B ratio < 1
b) P/E ratio < 15
c) FCF yield > 0%
d) Debt to Equity ratio < 100%

The resulting performance was superb. About 40-50 stocks were shortlisted under this criteria.

Mean return = 26.98%
Standard Deviation = 13.53%
Sharpe Ratio = 1.29 ( Above 1 is fairly decent )

If we assume normality of returns, having a bad year with 2 standard deviations down would still return slightly below 0% so it's a pretty defensive combination of stocks.

Relative to this performance, the performance of the STI over the past 10 years was barely 7%.

Suppose when you start instituting this Graham-like strategy and it returns an extra 3% a year, with a portfolio size of $100,000, it's an extra $3,000. The model predicts an out-performance of almost 20%, making the strategy worth $20,000 a year.

This is my objective evidence to conclude that the value of the course pays itself several times over.

Disclaimer : One observation from traders is that back-tests can be overly optimistic. The likely performance of a trading strategy in practice would be below back-tested numbers but still above average market returns. If you wish to employ my screen on Bloomberg, I advise starting with a portfolio of at least $100,000 and buying at least 25 stocks to achieve diversification.

Talk this week : Escape the Rat-race - Hacker's edition.

The Hacker and Painter's movement has expressed an interest in my approach towards attaining financial independence, as such, I will be giving a free talk at the following time and venue this coming Friday, 27th June 2014 :

Time : 12pm - 1pm.
Venue : Plugin@Blk71 - Blk 71, Ayer Rajah Crescent, #02-18, S(139951)

It will be a very simple 45-minute talk on attaining financial independence with some discussion on how I figured out a way to retire before age 40.

The IT guys might be in on a special treat as I will be showcasing some of the results of my dabbling into statistical programming.

For the rest, I should be giving out free copies of my third book Sowing the Seeds of Prosperity to the first three folks who ask great questions during the Q&A section.

Attended my first investment seminar on Value Investing.

Yesterday, I was invited to attend BigFatPurse's Value Investing Mastery Course along with 15WW. It was a great course. 

I would like to encourage readers to give this course a try for the following reasons :

a) It's a great way to learn about investing for beginners.

When I first started out, I really did not know what I was doing with my money. I made myself go through about 3 years of intense study to get a Masters in Applied Finance and pass 3 levels of the CFA. My logic then was that I was'nt allowed to drive without a license, why invest without the requisite knowledge ? 

The tuition was very expensive and I burnt a large part of my youth to learn about money.  

For beginners, you can pick up the basics of value investing in just one day. Alvin of BigFatPurse took great pains to customize a local flavor of the Benjamin Graham style of value investing which can be taught to an investing newbie without nothing but a calculator.

b) The course has substance.

BigFatPurse's magic lies in their ability to make a complicated concepts simple enough for anyone. Attendees are not taught basics and then left to flounder in the markets. They are given a fairly substantial walk-through of a company's accounts so after that course they can go through a financial report and make a judgement call on whether a company is worth a buy. 

A much more difficult variant was shared in Benjamin Graham's Security Analysis which many CFA candidates struggle to understand even today.

c) BigFatPurse even had a 3 year stock simulation game.

The highlight of the class was the investment game where we employed concepts learnt to make bets on anonymous stocks in the stock market. The market returns in this exercise was taken at a specific point of time in the local markets. 

It is this segment which makes the entire day worthwhile and demonstrates the honesty and integrity of Alvin's team. Following the investment rules will not necessary bring in the best returns, a lot of stocks go up for no reason other than luck. Team which followed the methodology did not necessary win the investment game. 

Myself and 15WW, both with substantial personal portfolios, drastically under-performed the class, many full of beginners.  It was humbling experience. 

d) The course complements Dividend investing methodology

A lot of investors like myself are stuck in the dividend yields framework. This class employs classic value investing, buying dollars for pennies. Many of these stocks would not qualify as dividend yield stocks, so having this technique under your belt will allow you to diversify your portfolio. 

e) Value investment course providers are the good guys in the investing world

Throughout the course, I did not experience any nonsense which inflates investment returns to get everyone excited about investing. Alvin only started selling his membership program only after everybody learnt all the basics and completed the investment game, he did not show off his wealth and emphasized that training was provided so that he could earn more capital to build on his portfolio. 

There are some parts of the course which I felt could be improved. One aspect is that dividends would need to be accounted for even during the simulation exercise. Dividends are an important part of an investment process and dividend stocks which are also deep value stocks do exist in the market. If dividends were reported every year, it will change the behavior of course participants.

The other aspect of the course which merit a spirited debate online is that it gives a special emphasis on the value of property over other assets like plant equipment. The question is whether property would be consider a productive asset if property prices become bearish over the long term in the future. Plant equipment sometimes are directly responsible for the generation of free-cash flow so I'm not so certain that the technique should consider it an "inferior" asset to property.  

Anyway, I think that overall, a beginner should attend this class. 

If you are one of those folks who asked me to help manage your money, why not attend this course and seriously consider their membership tier ( which would be quite useful if your portfolio size exceeds $250,000 ). There is some personalized coaching that will help you help yourselves.  

This is a hallmark of a good course provider, I expect anyone who gains insight on value investing would probably want to keep it a secret. BigFatPurse is taking a big gamble on the Singapore consumer that it will be more profitable to share this knowledge. I wish them luck !

( Disclaimer : BigFatPurse invited me to attend the class for free. In return, I gave them two of my books. BigFatPurse was also very kind to share with me their in-house customized database which was created manually using data direct from financial reports - this is hundreds of man-hours of effort ! My motivation right now is to employ this data-set and do some of my magic in R and share them with Alvin. Over the next few weeks I will also proxy their methodology and back-test the results on this blog. )

If you want to rich, be a bigger asshole !

Here's a conversation I had with a colleague some time ago :

Me : If are walking along Orchard Road, an insurance agent and a snake approaches you. You have a gun with two bullets, what do you do ?
Friend : I shoot the snake and the insurance agent.
Me : Wrong, you should shoot the insurance agent twice, just to make sure he's dead.
Friend : Actually, I disagree, if you're lucky the snake will bite the agent and kill him for you. So you save two bullets.
Me : Nah, if the snake bites the agent, it will die a slow and horrible death from drinking poison from his blood. No innocent snake should suffer this fate.

A lot of success literature is, in my humble opinion, written by hypocrites.

Almost all popular books on success talk about giving and charity. There's enough bullshit on giving so that it can expand you capability to earn more because of some stupid Law of Attraction. Motivation books talk about giving primarily because of fear - fear that the 99% will just get fed-up with trickle down economics and start waging economic warfare against the 1%.

The scientific evidence is a lot more damning on capitalism and modern society. The richest members of the population almost invariably measured more conscientious and less agreeable than people of normal socio-economic status. In psychological experiments which prime people about money, they become more selfish. This is now an empirical fact.

My article does not intend to turn you into sociopaths. Instead, I think in some cases, becoming an asshole is necessary for survival in Singapore.

Take the case of insurance...

Wilfred Ling is a Financial Adviser I thoroughly respect ( along with other folks like Christopher Tan of Providend ) and he wrote this recently :

http://www.ifa.sg/aviva-saf-group-insurance/

His thesis is that basically, insurance agents have little incentive to sell you the insurance plan you need and are instead incentivized to sell you expensive plans like ILPs. ( I think maybe its so that they can reach financial independence much earlier than you ).

I think this is where being agreeable becomes a serious liability in Singapore. The people who are eager to sell you something, probably are interested in their commissions than your protection. You might also want to preserve harmony with your family and friends, so you buy a policy to appease the other party.

This is how most insurance is sold. Buying insurance is almost like giving someone a pity fuck to improve his self-esteem. You don't want to be seen as the asshole in the family who refuses to give support.

Turns out the consequences are horrible :

In Wilfred's sample, his client spends close to $10,000 on insurance premiums a year. If this money were directed into a portfolio of high yield assets at 8%, that's a passive income increase of $800 every year. In twenty years, this portfolio would be yielding at least $16,000 a year even if you had spent the dividends on yourself. That will pay for most  meals and utility expenses.

This is where sometimes, in order to be rich, you should consider the following :

a) Be an asshole

If a "friend" wants to sell you insurance, land banking, timeshare, borrow money or get you into MLM, a loser would give in to preserve harmony. You should happily lose a friend. I think if a relative does the same, lose the relative. I have great relatives who are agents but they don't sell to me - so we remain related to each other.

b) Cultivate a "CB-Face"

I dress shabbily like most unemployed uncles and shave about once a week. I also cultivate what people call a "CB-Face" when I am in town.

The upseide I experience is that now insurance folks avoid me because I look very poor and disagreeable. My wife comments that I am so ugly insurance agents and people selling Singtel Mio plans look away when I walk towards them.

That's a feature, not a bug.

c) Go online to buy insurance.

This is probably the biggest game changer in the insurance industry.

http://www.diyinsurance.com.sg/portal/home/index.jsp

This website will educate you on buying an insurance, so no more pesky commissioned salesman. This will cut commissions by 30%. It is also a place where you cna pick up some term life without being dissuaded from doing so.

Hope that in time to come, that irritating salesman will wish that he remained an engineer !

d) Take personal responsibility

From an insurance agent's perspective, they want to protect you from everything possible because it is just so profitable to do so. Their job is to create fear by telling you horrible stories of the uninsured.

Of course, if you  refuse to listen to them, you need to start taking personal responsibility for your own life.

This can be quite a tall order...

You need to learn to invest your own portfolio. You need to know your family history of illnesses and figure out how much to put aside. You need to have regular medical checkups, eat a healthy diet and maintain a healthy exercise regime. Most importantly, some risks like eating cockles and bungee jumping should be avoided. Any residual risk, you can buy a term life and transfer it to an insurance company for less than $150 a month.

One of societies biggest problems today is that we expect so much protection, that we will lose out on the upside ( insurance earns all the commissions which could have been invested ) and we start taking on more risks because we know something that will kick in to protect us from harm ( moral hazard ).

The sad thing, of course, is that most people cannot take that amount of personal responsibility and so cannot afford to be assholes to financial advisers, which is why the insurance industry will always have its share of success stories.

Some random updates.

I do not have a major insight to share this week as I have been hard at work writing programming code in R and also preparing to be Emcee for a friend's wedding tomorrow.

Here's what's been happening in my life :

a) A nice book review from BigFatPurse.

You can find a review of my book here :

http://www.bigfatpurse.com/

The reviewers have been very kind to provide quite a favorable review of my first book.which was the only piece of work which broke even financially after accounting for my costs. It is also a book which I was very self-conscious about because I did not hire an editor to review my work which is still riddled with grammatical mistakes.

Nevertheless, Growing Your Tree of Prosperity was a bestseller in Singapore for a week and I still get orders for it today on this website. Maybe it's because the book contains my original voice which was not altered by any proof-reader.

Although I make it a point to distribute my third book Sowing the Seed of Prosperity as I felt that it was work which was truly aimed at beginners and had much better editing, people were just more interested in my first piece of work.

b) Completed the Data Science Specialization in Coursera

It's been a very rewarding journey with Coursera for the past 3 months. I count Coursera as the best thing which happened to me after I retired from the work force. I was able to continue to pursue my interest in Software Engineering beyond my previous career.

Within the past three months, I was able to :

i) Perform regression on scientific data.
ii) Use machine learning ( random forests ) to predict someone's movement given his fitbit data set at a 95% accuracy.
iii) Start creating web apps that work on financial data from Yahoo. You can see a simple prototype here which uses local ETFs to simulate the behavior of a portfolio of ETFs. ( The Permanent Portfolio )

https://invictus666.shinyapps.io/Portfolio/

This was created using R and deployed on a Shiny server.

I think this is the beginning of my data science journey, I expect to keep coding even as a law student, there are too many things I want to investigate, like how much correlation exists between local stocks and ETFs and how we can use R to generate an asset allocation which maximizes the information ratio ( Markowitz Efficient Frontier  in actual practice).

c) Preparation for Law School

Preparation for Law School will likely go full steam ahead in the coming weeks. I have almost completed a fairly long reading list on how to survive Law School. As an adult learner, I will be employing some of the latest findings in Psychology to plan my approach to study and retain the relevant materials.

Expect this blog to take on a bigger role which will discuss strategies and tactics on how to study so investors who are also life-long learners will find some interesting ideas on how to tackle their next upgrade.

To succeed - Do more of this, do less of that.

To accumulate wealth and attain financial independence, the most important thing you need to do is to earn more and spend less. This will increase your savings so that your portfolio can grow as large as possible. A lot of people make the mistake of thinking that it all boils down into investment ability, but squeezing 1% out of a small $10,000 portfolio can only take you this far.

In a similar vein, if your objective is to lose weight and lower your blood sugar, you would have to eat less and exercise more. My friends have a lot of theories about weight loss, many involve either exercising more or eating less, but the guarantee of success is to do a little bit of both at the same time so that your body sheds off some of that weight to reach a new equilibrium.

A third example is if you want better grades in school and attain a better Honours degree, you will need to study more and play a lot less. The folks who talk about studying smart so not get the point, it's very often about employing focused time to ensure that you can retain and apply the subject matter.

These three examples shed light on why success is so difficult for everyone.

The first point is that we normally have to do more of stuff which we may not like and give up the stuff that we enjoy doing. For many people, life loses it's meaning once a sacrifice is made. My philosophy is that you have to learn to enjoy the stuff which you may not like at first. For example, exercise releases endorphin which can result in a runner's high, mastering a subject matter can provide a sense of satisfaction and having a larger bank account, well, puts you in a position of better security.

The second point is that your control of the variable is still subject to a curve. You need to master the subject better than your peers to get a better grade. Competition ensures that you need to sacrifice more than your peers to attain success in a field.

This leads to a final point is focus. As every endeavor requires a degree of control, you should not have too many goals. Your willpower is finite. Focus on being a mother/career woman/acrobat/social worker/artist is something only amazing people can do well in, most of the time, you end up sucking at being all of that.

It's useful to ask yourselves if you have an audacious goal the following :

a) What unpleasant task do I need to do more of to succeed ?
b) What pleasantness do I need to give up ?
c) How can I enjoy doing more of (a) and less of (b) ?
d) Is this the most important thing which I should be focused on right now ?
e) Am I doing too many things because I am afraid of commitment I have to give for that one goal.

The last point is an important one. A common method of self-sabotage is to do something with lukewarm effort so that you will not have to confront your lack of talent or ability.

This is what I observe with folks who do a lot of things so that they can seem magical, multitalented or cool.

Doing a lot forms the excuse that you can suck at the most important thing that matters to most people.

Don't fall for that trap.

Thoughts after 5 months of retirement.

Time really flies.

It's been 5 months since my mini-retirement and now given that I've got a seat in the SMU JD program, there is at least some finality to my life plans. There is now some hope for an interesting career beyond financial independence.

Here are some of my current thoughts :

a) Portfolio financial performance has been very strong for the past 5 months.

Most investors will no doubt have enjoyed the upturn in the markets lately. The market for yield counters have been really spectacular. Capital gains and income gains, even after my living expenses exceeded 15 months of my previous earned income - pretty amazing given that this was done in 5 months.

Of course, I was not as passive with my investments as I was when I was working full-time. These days, I have written some spreadsheets which can inform me when a yield stock is being mispriced by Mr. Market, and I can just sell the over-priced ones and buy the under-priced ones. This way I am able to push my annual forward yields to a nice 8.2%.

As with all good times, investors see bad times in the horizon. Every World Cup I experienced in the past has resulted in a nasty downturn in the local stock-market as punters sell equities to bet on soccer teams. I also expect nasty surprises next week from CFA candidates who close their positions to prepare for the exams.

For every perturbation in the markets, I get to move money slowly out of real estate into high-yield equity counters to have a balanced portfolio and raise my yields at the same time. So my portfolio is no longer passive, some active trading takes place now about once every 2 weeks.

Remember this as a dividend investor : It's not enough for some counters to go up, some counters need to be cheaper so that you can adjust your portfolio to ratchet up your income gains. You also need to know to what extent to do this because, ultimately,  there is no free lunch - your risk will almost always increase.

b) Really working hard on my health

Law school means competing with younger, smarter and faster opponents. There are only so many Second Uppers which will be given out for my cohort, I was told that any grade below this would mean issues with getting a decent pupillage. My status as a diabetic concerns me as I will have problems concentrating in my cases  if I lose control of my blood sugar. My latest results have been unpleasant with a HBA1c of 9. I have since bought myself glucometer.

Which brings me to my latest lifestyle design strategy : Compliance through pain.

I have only about a few safe foods : Fish soup, Yong Tao Fu and wholemeal pasta. I can eat anything I want - the only price I have to pay for that is to test my blood sugar after 2 hours. A score of 10 or below after 2 hours means that I have a new safe food to eat. Otherwise, I stick to the safe foods.

This strategy is showing some promise. I continue to lose weight as I have added night swims into my weekly exercise routine.

Some people on FB remark that my appearance has changed. Of course, given that my low GI foods keep me hungry all the time !

c) Seven courses down on Coursera !

This month I complete courses on Statistical Inference, Reproducible Research and Exploratory Data Analysis. By tomorrow I should have completed 7 courses with 5 distinction grades. This month, I will take on three data science courses to complete the entire specialization track.

This continues my unique strategy to take on law school as a candidate with strong technical and financial know-how.

d) Books I am reading

Beyond all the preparatory texts for law school, I am currently still on this epic book called Strategy : A History by Lawrence Freedman. It's a huge volume on strategy which covers war tactics, political stratagems and management theory. A thorough piece of work.

This book is so huge that I have to read books in between sections to keep my interest in it. I have completed Think like a Freak  by Levitt and Dubner of the Freakonomics fame.

I have also read Benjamin Graham on Value Investing : Lessons from the Dean of Wallstreet by Janet Lowe. It's not so much a book on investing but a biography on Benjamin Graham's life. It's shockingly sad that the father of the CFA program can have such a dramatically horrible personal life. 

For leisure, I bought the latest edition of the miniatures war-game Warhammer 40k. It's a good time to get acquainted with the Dark World of Space Marines.

For the Emperor !!!

e) Figuring out your life without a day job is a good problem to have

All in all, even before moving on to resurrect my career, designing a life around not having a day job is a good problem to have.

Otherwise, there's always enough friends and activities to keep yourself occupied - I spent a day at the Arts Museum and learnt that I have no patience for art. You start to work around your friend's schedules during the day and retreat for a good read whenever you can.

The funny thing about all this is the absence of travel. I have to raise $18k for school fees every 6 months starting in August and I felt that it would not be prudent to travel unless a friend were to invite me to do this and I can cut some costs by slugging it out in a hostel. but otherwise, exploring my inner world can be equally rewarding since I no longer need to relieve myself from burn out.

Here's hoping for the chance for one semester overseas in the future.

The April Fool's Portfolio : The End.

I'm stopping the April's Fool portfolio. All stocks were liquidated last Friday.

There are two issues with a Current Net Assets Value portfolio :

a) It has a "J-curve" characteristic.

The experience from folks who employ this strategy often experience a slight dip before it starts rocketing ahead. I felt that the wait will be substantial and have to prepare my funds for law school, so it does not make sense to continue with this portfolio.

b) You need more stocks for this to work.

I would expect a 20 stock portfolio to be more successful. This strategy is actually waiting game and we're waiting for investors to start being interested in these counters again. More stocks would increase the probability of hitting a jack-pot.

c) There's something to be said about investing purely in a quantitative manner.

I thought I should add this point. When i started working on the Bloomberg terminal on back-testing this portfolio, I made a decision not to consider the narrative for these stocks. This is probably a mistake. Investing is a science and an art. After considering a portfolio of stocks, it may be useful to some qualitative research. Perhaps these stocks are bargains because somehow value was being destroyed.

ISIN CODE	NAME	PRICE	SHARES	Total Value	Price Paid	Original Value
E18	ECS Holdings	0.64	2000	1280	0.65	1300
ON7	Weiye	0.067	14000	938	0.07	980
H64	HTL	0.295	3000	885	0.29	870
KI3	Hu An Cable	0.08	10000	800	0.102	1020
U01	Unifoods	0.068	13000	884	0.073	949
Dividends				44
Total				4831		5119

Fortunately, this is not the end of the CNAV strategy. Other financial bloggers do experience success with this investment startegy.

I recommend that you visit BigFatPurse if you would like to watch a similar portfolio in action :

http://www.bigfatpurse.com/2014/05/cnav-portfolio-update-as-at-23-may-14/

The root cause of social stratification is ** drum-roll ** Singapore women !

Like every parent, I want my daughter to be happy. Unlike some folks in Singapore, I think my daughter will grow up with a judgement criteria which would be very different than if I were to have a son. A woman is ultimately less lauded for her financial success, but more on a holistic set of criteria which includes the formation of a happy family.

The agreement with my wife is that we'll let Clio decide what she's good at and pursue it without putting too much pressure on her. I see myself as a parent who will invest a lot less in tuition and enrichment activities. My daughter will have to tell me what she wants to do before I will invest in that activity. No attempt will be made to extrinsically motivate her, she has to demonstrate interest and passion on her own....

...but within limits.

As traditionalists, me and my wife want my only daughter to marry well. This makes the situation challenging because she first has to marry, but she also has to marry a great guy. Another words,  I can't choose my daughter, but me and my missus will damn well choose our son-in-law. We'd rather she remain single than to marry a flaky jerk. ( The worse combination possible is a disagreeable guy who is not conscientious - and the world is full of such assholes. They need to be spayed)

Now, my daughter is likely to get into a viciously brutal mating market in about 25 years time. I predict that a lot of guys will then be wired to some virtual sex-fantasy world and only a few would emerge from this virtual reality to settle down with someone. The one place where there's going to be some guys who have been filtered based on conscientiousness and economic power are places of higher learning - local universities or top foreign universities.

Let's face it. Top universities will remain temples of conscientiousness and openness to new experiences. Application for a seat will require years of study and passing will require nights doing tutorials and tuning out distractions like console games, etc....

So our current education system has a secondary role of elevating conscientious guys to be picked up by eligible bachelorettes.

Now, here's the deal.

Statistics also show that the way people mate are changing.

In the past, we expect the best looking women to be paired with the highest earning men. Now, the new numbers point to men and women pairing with each other based on similar educational backgrounds. This is called assortative mating.

So the whole world has decided to become more like a Heather Chua fantasy. University graduates marry graduates. A-Grader marry A-Grader, B-Grader marry B-Grader, etc... Marrying outside your education qualifications will become increasing rarer.

So every parent concerned about their daughter's marriage prospects can no longer ignore her educational prospects. The best bet for me to get an awesome son in law, is to put my daughter in an institution of higher learning, a top university gives her the best chances of success.

So we're back to square one.

Parents will wage against each other to put their kids in the best schools. Yes, even those who do not care for academic performance will have to take it seriously if they want to maximize their children's happiness.

Now what is the combined effect of mating within the same educational background ?

Kids will have a pair of parents of similar qualifications.

In Steven Levitt's Think like a Freak, it was proposed that educational outcomes are determined largely by the home environment rather than the school environment. Kid's academic performance is largely determined by the environment created by the parents. Making matters worse, in my previous post, I proposed that conscientious is genetic. Kids inherit their parent's conscientiousness which determines their grit, determination and ability to delay gratification - traits required for scholastic achievement.

Therefore, it is better parents, and not better schools, that create better academic outcomes for children. 

If you accept this conclusion, then social strata will form as better parents generate more genetic and financial advantages for their children. A-grade, B-grade and C-grade families will start to form in Singapore society. We will become a caste system.

This ultimately leads to the title of the article.

If mating trends lead to social stratification, then rightfully it is the choosier gender which is the root cause of this phenomenon. In evolutionary psychology,we know that mammalian women have to be choosier than men as they invest more parental effort in their children. Ergo, Singapore women are the root cause of social stratification !

But my reason for writing this article is not to troll Singapore women ( my daughter will grow up to be one. )

The current political trend in Singapore is to talk about social stratification is being caused by the educational system.

I humbly disagree.

I propose that it's better to look at the root cause and examine the structure of the Singapore family, what happens when undergrads ask each other out on a date, and how couples are being formed in various campuses. Kids spend only 1/3 of their time in school but 2/3 of their time at home. Parents play a a big role in academic outcomes.

This leads to shift I propose in the political discussion. Stop looking at class sizes and teacher qualifications which can hurt the tax payer. Stop talking about dismantling the RI brand ( I got good buddies from RI, they are erudite, not elitist ! ). It's a grave mistake to take out RI, parents will invent a new RI in it's place and if the private sector takes over elite education, we'll have worse inequality !

I propose two ideas which we can refine together :

a) Conduct social events between students of different institutions to meet each other.

Heather Chua would be flabbergasted if the next Mobile Apps Development contest pairs RGS students with ITE guys in pair-programming teams ! Universities and polytechnics and have joint Jam and Hops - bright lights, techno music and alcohol... best way to have more couplings.

b) Inheritance tax for rich families which have less than 3 kids.

I call this the Phantom Child taxation. Beyond $2 million Singapore dollars, inheritance taxation will be 66% if the dead family member has one child, 33% if he has 2 kids, and tax-free if he has at least 3 kids. Rich families can adopt kids from poor families to avoid the Phantom Child Tax. This either forces wealth to be spread across generations and places the burden on breeding to the Elites, which I think is cool because they'll be too busy breast-feeding their babies than to plan their next en-bloc sale.


















 

The Obligatory CPF post.

I'm really upset with Roy Ngerng.

We could spend time have a constructive discussion about creating a career path for Poly and ITE students in the public sector, but instead, the entire discussion bandwidth was hijacked by everyone trying to say something about the CPF program.

So to just go with the flow, here are some of my thoughts on the system.

Before I raise my points on CPF, I need to qualify myself - If my CPF is  returned to me, my financial position would become much stronger. I have the willingness and capability to take bigger financial risks so I can achieve better returns. On my last calculation, a return of my funds would allow me to reach 5 digits a month in dividend income - more than enough to achieve my legal and start-up ambitions.

I would like to argue in this post that Singapore is better off having a CPF program.

a) Arguments need to account for the matching from tax payers.

There is a ridiculous argument that simply because the government can invest our CPF and achieve double digit returns, they can afford to do better  than the 2.5% in CPF-OA and 4% in CPF-SA. Assuming this were even true, these folks forget that the government matches your contribution when you make your monthly income deduction, this goes beyond the 2.5% and 4% returns and is a substantial transfer of taxpayer funds to Singapore workers.

[ All : A friend just told me that this argument is invalid. CPF matching is solely done by employers. I'm keeping this around for you guys to appreciating that blogging in anger does not lead to great argument ! ]

This matching is substantial, how many Singaporeans can claim to more financial assets than their CPF account ?

b) Public goods cost money too.

At the end of the day, what is even wrong with the government making an investment profit on your CPF?

I acknowledge that this argument is unique as it holds only in very few countries. Our government is relatively good at investing taxpayer money relative to the average citizen.

Some things just can't be handled well by the private sector, military and civil defense, maintenance of the courts to protect your property rights, construction of roads and schools. Excess in investment may not flow into your CPF account, but to stay in power, governments will have to maintain your infrastructure and invest these funds well. This means giving soldiers and firemen a decent livelihood.

Our government has enough for a surplus almost every year, so this means that we're not leaving a pile of debts for our kids.

c) You sacrifice your freedom to use CPF to gain the freedom of not being burdened by the  stupidity of others.

Another argument is that the CPF is your money, you want the right to use it anyway you want. For me, that would be awesome, I will buy more income generating assets. For some uncle, it would be even more awesome - more money to buy cigarettes, call chicken and drink more beer. Problem arises when uncle call chicken too many times, get HIV and can't pay his medical bills, then you, the tax-payer, will bear the burden.

So we don't live in an ideal world. People will call chicken and buy Toto with their spare cash, they will not plan for the future and they will inflict a cost on all taxpayers. Your taxes and GST will rise proportionately to the number of folks who will make the decision to let themselves go and have too much fun.

The burden to the taxpayer is non-trivial. Social workers need to be hired to provide help to those who drop out of the system. These social workers need to be managed - more scholars ! Call centers need to be set up. You have to pay for an entire agency to make things happen. Someone has to foot the bill. The result of this is government gets bigger, require more funds to maintain, our children become burdened by our excesses !

So for lack of a better term, CPF is protection money. Tax payers participate and give up some freedom. In return, they are protected from the flakes and losers that, unfortunately, exist in all societies. The damage these flakes inflict upon themselves is taken from their CPF first before you even get taxed ! ( How cool a system is that ? The assholes end up screwing themselves first before they get to screw you ! )

Now that being said, I do have some pet peeves with CPF - it's a system that can be fine-tuned :

a) Why separate contribution from monthly income and bonus ?

This rule baffles me, why not just allow CPF contributions to take place for $90,000 a year and not separate the bonus and monthly income pools ? An Accenture consultant who has a 12 month salary scheme contributes less than a public servant who has a 15 month scheme even though they may have the same income.

b) Do we really need a savings plan for home ownership ?

We can definitely rethink this sacred cow that Singaporeans must own their homes. In effect, we are forcing Singaporeans to save for home ownership except that with a 99-year lease, we don't really own our HDBs homes anyway. The CPF can potentially shrink if we decide to slay this sacred cow. I can definitely imagine myself buying a portfolio of stocks and REITs and using my dividends to pay my rent. I will enjoy the greater mobility and shift my family nearer to my daughter's school if I can afford to do so. I can also rent out a home in AMK to a more dynamic yuppie couple when I get older and rent a Semi-D in a rural area.

People who reach different stages in their lives may be better off living in different areas. Decoupling ownership with domicile may be good for Singaporeans.

c) Exposing Singaporeans to more market forces can make them tougher.

Singaporeans tend to be a little naive compared to Hong Kongers when it comes to investing. Yes, allowing folks to invest more of their CPF will result in more losses for many, but investing is a game where tuition fees would sometimes need to be paid. I thinking raising the CPF-IS to 50% will allow us to have more skin in the game. Having more citizens exercise their rights as capitalists will also make them more sympathetic to the efforts of the Government to manage their funds well.

It will also arrest the falling liquidity in the local stock market.

In conclusion, I think that many issues merit a more urgent debate than the CPF program. The CPF program can be improved, but it is generally sound and has served us for many years. It's purpose is not just to give us retirement income, a home or a means to send our kids to the University, it also protects us from the behavior of stupid and in incompetent people by limiting the economic burden they place on all tax payers.

Of course the intent of  this article is not to let the Government off the hook.

A good citizen should always challenge the investment choices made by the custodians of tax payer money. eg. Perhaps more money can be channeled to better Poly and ITE apprenticeship programs instead of building a new University. These are all worthy points of discussion which and can be done without committing libel against anyone.

Anotherwords, many political issues are actually investment problems in disguise.

Choose Yourself !

It started with my conclusion that conscientiousness is largely determined genetically so the following conversation started with the maxim that a man would need to choose a wife properly. If anything, a flaky wife, if Minister Mentor might be correct, will give you flaky kids.

I took the conversation one step further and proposed that instead of finding a better wife, why not choose a better self !

This idea seems absurd at first - my friends protest that they can't choose which family to be born to. In my opinion, I do not think that it is much more absurd than following the maxim to choose a wife properly. At the end of the day, women are choosier creatures than men. Before you can choose someone to become your wife, she probably already has an idea of why you would not make husband material.

So to all the man-children out there, good luck with a second date !

I think there is merit in the idea of "Choosing a better self" rather than "Choosing a better wife."

Let me try to construct a working action plan to accompany this philosophical idea with two other big ideas from economics and psychology :

a) Capital in the 21st Century say that (r >g)

In this reality/dimension, the return on investment will always exceed GDP growth. Folks who accumulate wealth will always grow richer than folks who rely solely on their earned income. This is a fundamental reason for wealth inequality.

b) Our willpower is a finite resource and can be depleted

Psychological tests show that people who strain themselves mentally will have trouble resisting later. Very much like Diablo III, your Willpower is like your Mana, Fury or Wrath - it is a resource that can be depleted every-time you are made to exercise it. Make a diabetic do two programming assignments, and he will succumb to a Magnum moments later.

If you can accept the previous two points, you should be able to accept some of my conclusions :

a) You need to allocate your Willpower or attention properly as it is a scarce resource

To choose yourself, you will need to decide what you want to focus on. People who like money can focus on tasks which make money. People who want happiness will have to choose concerns which make them happy. Conscientiousness may determine the amount of Willpower you have, but allocating it well to activities and hobbies which promote your personal agenda belongs to the province of personal wisdom and common sense. Have too many sports and hobbies and you will find that you will do badly in many of them. Have one or two interests and you will be able to cultivate depth even if you might not be endowed with a lot of conscientiousness or Willpower.

b) If you want money than you overwhelmingly need to grow financial capital

How do you allocate your Willpower if you want to maximize your wealth ? If (r>g), an ordinary employee will find that their salaries will approximate GDP growth or g over the long term, but if he can start to own financial assets in his early twenties, his wealth will grow at a rate of r which is larger than g.

The action is plan is thus, as simple as Ohm's Law.

If you work in an MNC and see your colleagues get 10-15% increments every year, then spending time at work and putting effort to be a good employee makes sense ( Your personal g > r ). In such a case, the MBAs which focus on management and administration are logical areas to focus your effort. You can also go karaoke with your bosses and colleagues as there is a positive long term impact in your wealth generation.

However if you work in a place where a 5% increment is an event which should be celebrated or are sufficiently senior in your job role where your increments match GDP growth, then an MBA to improve your productivity is not as good an investment as the CFA which will teach you about managing wealth. Similarly for your hobbies, you can now stop brown-nosing your bosses and instead spend your evenings reading financial blogs. Your money is coming from your financial wealth instead of paid labor.

If you work in an industry which is facing decline and see your pay getting lower for each contract renewal, then transcend money and and focus on your personal happiness. Spend as little time at work and think about what makes you happy and fulfilled. Be gen-Y, go for work-life balance.  This is not a trivial exercise because if you have done well, you would have no regrets on your deathbed unlike other people. There's even a qualification you can get for that called an MFA. For some, this option is best choice.

So to end, let me talk about my experiences playing Diablo III.

I play a Lvl 70 Crusader with 45 paragon points, I joined a friend who has a  Lvl 70 Witchdoctor with 150+ paragon points and decked from head to toe in legendary items. I barely struggle at Torment 1 and my friend is slowly getting comfortable at Torment 4. I undertook took one quest and got slaughtered by a pygmy in a Nephilim Quest.

It was an eminently humbling experience to party with people with better loot and better stats.

I think it's a teachable moment for real life. In that sense the Witchdoctor chose himself, he went on quests with other supremely Uber Diablo characters, accumulated paragon points, looted more gold and had more legendary drops.

Similarly in real life, some folks struggle like my Crusader in Torment 1, always working too hard for too little. Others are cruising Torment 4 like my friend's Witchdoctor, taking up more difficult assignments for bigger and better rewards.

So this is the moral of the story.

Choose yourself better.

Choose the right things to focus on.

This way the better wife will choose you !






 

How can we intrinsically motivate our kids ?

Some of my friends think I might have some magical powers to answer some of life's most perplexing problems.

Today they asked me a question about how to intrinsically motivate their kids.

While I have neither the qualifications nor the knowledge to answer such a question, I think that it may be interesting to blog about this anyway since many readers may be parents and some of you guys may have gifted kids and can share some of your insights with us.

While I am not a magical shaman who can teach you how to raise your kids or increase your penis size, I have a magical tool called Google and given my amateur interest in psychology, I might be able to get some reasonable answers for kiasu parents.

And my answer, which I will qualify later, is a BIG FAT NO !

I'm going to start with simple reason why you can't intrinsically motivate your kids - The main reason why you can't do it is because if you succeed, then your kid is not motivating himself intrinsically, your kid is being extrinsically motivated. But of course, you don't ask your friendly, neighborhood,  financial blogger to just play word games with you, so here's an answer which is more interesting :

Conscientiousness is largely genetic.

Psychological studies on twins show that conscientiousness, that magical quality that makes kids delay gratification and focus on their studies, is largely based on the genes that are passed onto them from their parents. A sad conclusion from this study is that if you have been a conscientious person yourself, there is a possibility that this can rub off on your kids, but if you are a flake, always late for appointments and sabo-ing your project team, I think a vasectomy might not be a bad idea.

In previous articles, I have alluded to other studies that practicing your willpower will increase your conscientiousness. Science has not determined what kind of exercises these should be to be most effective. You might have to think of designing a life around your kids where they can practice their willpower but I am not too sure how to do that effectively. I do know that conscientious people who do sign up for muscle training and end up being more conscientious with their finances. A lot of enterprising folks have programs for children but I would challenge any provider to document their results scientifically for verification.

Psychological research is not all bad news for parents - One trait which can be affected by environmental factors is Agreeableness. Which means that  raising kids to be competitive, Zerg-rush for early retirement only to get into the gladiatorial arena of law school might not be a terribly workable objective for many parents ( Besides, I would really hate the competition ! ).

It is better to create a loving environment for your kids so that they can become positive people who can make your lives better and happier when you get older.

That is almost the only thing which parents can take credit for.

So have happy kids... Their own ambitions will take care of everything else.

Chaos is a Ladder !

The blogger for SG Wealth Builder, Gerald,  has been very kind to mention me again in a book review :

http://www.sgwealthbuilder.com/2014/05/the-new-retirementality.html

To help supplement his review, I just want to say that I have not read the book The New Retirementality, it's also not very fair for me to claim credit for practicing the 4 pillars mentioned in Gerald's review. I do not know contextually what Vision, Work, Balance or Successful Aging meant from the author's POV, but judging from the dictionary definition, I actually think I practice none of the above !

This is especially so for successful aging, my biggest weakness. As a person who has serious trouble controlling my blood sugar due to my genes, part of the motivation to quit my day job is to see if I can reduce my need for diabetic medication, otherwise I expect most Type II Diabetics to age faster and have a lifespan 15 years shorter than most of you healthy readers. Maybe the right term for me is Accelerated aging - this is something I'm working on aggressively, reducing my food intake and exercising every other day so that I can live to see my daughter get married. ( Penang White Curry mee does not help ! )

But more importantly, I want to share my approach and philosophy towards Balance and Vision.

I don't subscribe to a balanced lifestyle. Never did, never would. I just think that to have audacious goals, you will need to make the right sacrifices. My financial independence could not have been achieved if not for the 4 years where I did the CFA, FRM and CAIA exams while holding a day job and maintaining all my older IT certifications. The key component is while studying I had to put some theories into practice and my dividends investing strategy originated from a Clifford Asness paper on dividend counters having superior growth rates to non-dividends yielding counters in the Financial Analysts Journal ( which you can get as a CFA associate member ). Prior to the article, I was losing from my investments in value stocks and making only a small profit from unit trusts.

Sacrifice is more important than balance. While my peers are travelling or getting distracted by computer games, I was trying to just increase my knowledge in the hopes that I can find a chink in reality's armor that can be exploited - that takes time, effort and, in these days, proficiency in statistics. I doubt very much has changed in my current life as a JD program pre-matriculant. ( I just hope that my ambition does to push me off the edge and I try to to score a CPA and JD simultaneously. ;) )

The last component I want to talk about is Vision. Some people claim I have vision, which I disagree. Instead, I do read  a lot more than other people. My ideas and take on the future is hardly original but it may come from multiple books on history, economics and technology. This is not a deliberate process, all my knowledge just stews in my brain and ideas then start to pop in my mind.

People who like Vision may see Strategy as  deliberate goal setting and then relentlessly attacking the goal by taking aggressive action. This means having a clear idea of what the end-point of their life means and finding ways to make it work - I admire that. I used to take that approach, but it gets tiring as you get older.

Life does not turn out your way all the time : Some people you meet at work will get that promotion that you desire because they deserve it more. The economic situation can change and make that shoe-box unit buy a bad idea.

Change is the only constant in life.

My life strategy these days is more inspired by Petyr Baelish or Tywin Lannister in Game of Thrones.

Petyr Baelish, first made Master of Coin, invested in his network of spies, then created a series of events to bloodlessly capture the Vale of Arryn. Fans who read the book are only guessing what he has planned for Sansa Stark. Tywin Lannister exploited the unravelling of the Stark-Frey alliance to enact the Red Wedding, this is in spite of losing every battle to Robb Stark prior to hatching a plot with the Freys and a the Boltons.

For the folks who read, accumulate capital and network aggressively, you can play by a different set of rules.

Capital creates capital. Perhaps a shift in political situation in Thailand can create a bargain stock in the SGX. Ask yourself how can we exploit a Modi victory in India by making adjustments to your portfolio.

Time is as good as capital. Too much time freed up after leaving the workforce, what if I can invest in gaining legal knowledge to open up new forms of arbitrage involving the prediction of stock price movements on law suit outcomes. Other readers can attempt an MBA. The possibilities are endless.

Life strategy for me today is to sit tight and exploit any situation which arises. Prepare yourself with assets, time and knowledge and some interesting options will unfold itself in time.

After all, chao is a ladder !




 






 

Who should be at the bottom of the barrel ?

Recently there has been a spate of articles criticizing Singapore's brand of meritocracy which has been gaining traction on the Internet. These articles almost always employ the same argument - they either draw an example or create a fictional character who faces many obstacles in life, and then they conclude that there is no way this character can get ahead without some sort of a push from the government or the Singaporean tax payer.

These authors are very conniving, because very often, the argument normally just stops there. The  logic is that basically, that some folks can never make it in Singapore  because not everyone has the same starting point, therefore tax payers are morally obligated to help them throughout their whole journey sometimes to the extent of sacrificing their own personal interest so that "we're all in it together".

Now my position on a meritocratic society is that it is not perfect, society is better served by always seeking to fine-tune the definition on what the meaning of talent is for a system to sustain itself. This is a never-ending process and winners in one generation may be losers in another. So bottom line is that no matter where we are, there will be winners and losers, but unless we take pains to paint a picture on how we want an alternative to look like, it seems to me that the anti-meritocracy camp is just as elitist as the status quo. Do these writers silently wish to create a new order in society where they become one of the privileged in Singapore society today.

What is their real agenda ? I do not know what is the secret agenda of these politically charged articles.

Instead, my post today is to confront the ugly truth by clearly stating who should be at the bottom of the barrel. This is in the hopes that by my admission, I will attempt to provide and answer that is avoided by many of these articles.

We cannot determine a fair pecking in society without coming to a consensus of who should right at the bottom of the pyramid. This is a head-headed process that all of us needs to go through. Someone has to be scrapping at the bottom of the barrel, no matter what happens. We just need to determine philosophically, who are the most appropriate folks to take on these roles.

So in my humble opinion, the stereotypical bottom-scrapper is the Flake.

A flake is a person who is at the bottom of the barrel in terms of the psychological measure of conscientiousness. He lives by the moment, never has a plan for the future. He may not show up on time in most meetings and is a dangerous asset to have in any project team.

Everybody knows who the Flake is, he comes in many names "LJ man", "Jackass". If you think Seth Rogen, the Wayan brothers, Ken Jeong or Johnny Knoxville can convincing play your buddy in a movie, he is a flake.

Flakes cannot be allowed to handle money, they have horrible marriages and drain the medical system as they can't be trusted to look after their own health. They cannot delay gratification and are very prone to addiction. Flakes probably inflict the most damage on their children, who may become subjects of anti-meritocratic articles in the future.

Now suppose, you are with me on this and actually agree that Flakes should be related to the bottom of the league.

Does the Singapore Meritocracy sufficiently address and agree to this division which I have proposed ?

I would say, to large extent, yes. We have a rigorous education which sifts out lazy and unmotivated students. A system of bursaries and scholarships are given to students who have the grit and tenacity to overcome their financial situation. Our baby bonus is a 1-1 matching system after $4,000 and not a pure handout so parents who save will be able to offload more expenses to raise their children.

But even from this point of view, our meritocracy is not perfect. Rich kids can be sent overseas for degrees even if they are useless wastrels. They also inherit 100% of their parent's hard work as there are no inheritance taxes in this country.

So in conclusion, you might be a flake and be offended by this article and disagree with me on who should be a bottom feeder. Come up with a social division of your own and defend it on the Internet. At the very least, by performing this exercise, you have a clearer perspective on what we want our meritocracy to be.

Law school preparation, Thomas Pinketty and Capital in the 21st Century.

To a few friends who know what I've been plotting scheming for the past year, Law School was known as Plan A. Plan A was the best in a series of post-retirement outcomes after I stop work. It was designed to be high-risk, high-reward ( reward being more social status, not necessarily finance-driven )  and will give me something really intellectually challenging  to do until I am very very old. I was'nt relying on Plan A to succeed and actually took a lot of pains to create three other credible alternatives, all less cool, but certainly would allow me to way richer than if Plan A would take place.

So with Plan A, a problem will be created for my financial portfolio.

Law school costs about $3,000 a month for the first two years. My dividends, which will be needed to pay for my family expenses, will now need to cover my expenses upon moving into my new EC and tuition fees. My condominium payments will be covered for the next 3 years by my CPF account, so that leaves barely $1,500 for my personal expenses and conservancy fees.

Making matters are the financial market movements. Mid-2015 interest rates will start rising, which will negatively impact my condominium loans as well the loans of the REITs I invest in. Making matters worse, industrial REITs will start facing oversupply in my first year of school. Needless to say, I've been tilting my portfolio to dividend yielding stocks slowly for the past year to maintain my current yields.  

This means more than 50% probability of eating into my capital which I have been building for decades, which many push me to take a bet on the legal employment scene in 4 years time ( Which admittedly is still a good bet for legal professionals ) 

Of course, upon graduation, things will get better. With a renewed career, I will have options beyond tech and finance and even an entry-level role will provide adequate diversification for my future portfolio.

I'm sharing this to lead into a simple discussion on Capital in the 21st Century. French economist Thomas Pinketty wrote a fine work which rattled economists so badly that it's hard not to get something on your feed which reviews or criticizes his work. 

It's not easy for a amateur to mount a credible offense on Thomas Pinketty's work, which is a difficult read. I leave the heavy lifting to the academics. I will only talk about a small part of his work.

Thomas Pinketty's basic idea is that in most economies, the rate of return of capital is higher than then GDP growth of a country. ( Expressed in equation r > g ) What this means when expressed on the ground is that the return of REITs and dividend yielding stocks (5-7 %) generally exceeds that of your annual increment or the GDP growth of the Singapore economy which is about 2-3%. This has the effect of making income inequality worse as investors make more money from investments while workers can only have a small increment on an annual basis. 

I am only capable of making a small dent in Thomas Pinketty's argument based on my personal experience. And if I made a mistake in my reasoning, do feel free to correct me here for the benefit of all readers.

Everyday, someone like me applies and gets into Law School. In SIM, a polytechnic graduate may get into a private degree program. Some A-grader parent pumps $2,000 to put their kids into Montessori school thinking that it'll provide an edge in the PSLE exams. If Pinketty is right, then we're all better off cornering plots of industrial property. So why do so many Singaporeans invest their life savings into education ?

The answer is that the value of human capital often trumps financial assets :

Very often -> R_capital > r > g

Sure, GDP grows at 2-3%, but getting into the legal or medical profession gets yourself into a career which has regulatory restrictions, building a moat which makes it hard for other people to join the profession. - As is finding a job where you can dominate a small niche regardless of which profession you belong to (i.e. can you program in JCL for the AS/400 ? ). This can be way better than finding a stock with that mythical investment moat around it.

I think a better way to look at modern society from reading Pinketty is as follows :

Sometimes R_capital > r : In such a case, you go back to school, invest in a qualification like the CFA, build domain knowledge to get a better increment, get your ass back to work. Become a Super-manager. This is often the case when you are younger or in your 20s or 30s. 

Sometimes r > R_capital : In such a case, you start building a portfolio of assets or create a business for yourself. Retool your life to that of a Rentier/Rent-seeker. Generally this happens in your 40s. 

In summary, appealing to the authorities to seek redistribution of wealth is futile as you need to wait for consensus for that to happen. 

You are better off putting in effort to benchmark the value of your human capital versus your financial capital and putting in a scheme to manage these two all-important assets. 

April Fool Portfolio : May update.

It was not a particularly good month for the April Fool's portfolio. The portfolio was down slightly while the rest of the market went up.

I think for above-average gains to be made, the portfolio would have to be expanded to be as diverse as the portfolio which I back-tested on my Bloomberg machine. That would require that I pony up enough money to buy about 50+ stocks and take on the liquidity risk associated with such counters.

For now, I would keep the portfolio as it is. If the situation does not improve in three months, I will kill this portfolio and move my money to a better investment.

ISIN CODE	NAME	PRICE	SHARES	Total Value	Price Paid	Original Value
E18	ECS Holdings	0.64	2000	1280	0.65	1300
ON7	Weiye	0.067	14000	938	0.07	980
H64	HTL	0.295	3000	885	0.29	870
KI3	Hu An Cable	0.1	10000	1000	0.102	1020
U01	Unifoods	0.068	13000	884	0.073	949
Total				4987		5119