Is English Literature a conspiracy to keep non-elites poor in Singapore ?

While it seems that this blog is veering off topic again, I want to emphasize that a good investor is a fox rather than a hedgehog. Good investors employs multiple modes of thinking to extract extraordinary profit from the financial markets.

Keeping off the employment grid and being focused on the markets has somewhat changed me to date. I'm less inclined to adopt exclusively formal models and mathematics to manage my portfolio. A few very good bets of late have been largely driven by my view on political elections, which also led me to care a lot more about culture -  My bet on Germany for this year's World Cup as evidence by a few article ago ( although I'm nowhere as sharp as Andy's dad ), is a result of finding out that Germany is the most linear-active of cultures around the world and conclude that the combination of Gesundlichkeit (thoroughness), statistics and software will allow them to trump any multi-active team like Argentina or Brazil. 

Impending law school also made me interested in local history the first time in my life. I think that you cannot divorce the analysis and interpretation of laws from historical context.

This sea-change in my personality and approach to making money has also made me more bothered about things which may not have anything to do with finance. 

Right now, I'm bothered by English Literature and the Literati in Singapore. Of course, being a writer myself, these guys are folks I really respect privately and count all of them as good friends. My grouse is the general of a class of people - not individuals. 

It started  with an appeal from a newspaper reader  to introduce Higher English into the syllabus which mirrors the Higher Chinese syllabus taught in SAP schools. On my Facebook, the prominent Literati never really gave this idea much thought. Intellectual arrogance was rife and the Literati, in an orgy of mutual back-patting and intellectual masturbation, declared that Higher English is not necessary because English Literature plays that role within our education today. For the first time in my life, I realized that English Literature was not just a subject taught in schools, but a religion and one with plenty of fundamentalist adherents. 

This intellectual arrogance and dismissive attitude can be forgiven if it was merely  confined to an ivory tower, but recent events involving NLB has shown that writers and Literati have cultural and political clout. In a rare public scuffle, NLB was beaten to a pulp and forced to back-peddle from pulping a few children's books. In the end, the outcome was not any better - the loudest guys won. 

The moral of the story is that advantage went to those who are better with words.

Coming back to English Literature, I always thought that we were deliberately taught badly in a Government school so that we will develop a hatred for the humanities and take up technocratic careers. In Secondary 1, Swiss Cottage had Great Expectations by Charles Dickens. Was Great Expectations strategically chosen to keep us Government kids from living out our potential ?

Poor Pip, the protagonist was about our age, when we read the story. When he develops a crush on Estella, he gets friend-zoned because she is actually some emotional weapon wielded by Miss Havisham who has a grouse against men because she was dumped on the altar. When Pip finally gets financial support (Yes ! A scholarship ! ), it had to come from a criminal element in society like Magwitch. 

Because of English Literature, we kids of Swiss Cottage can never realize our ambitions, the poverty mindset on non-elite kids must be ingrained so that we will not rise to take on the status quo. All MacBeth wanted was to be king, but it was prophesied that he will suffer a horrible fate, telling us that ambition leads to tragedy (and don't even listen to that horrible wife of yours). Even reaching the pinnacle of one's career could mean being assassinated, just like Julius Caesar. Don't even think of rebellion - you do not wish to suffer the fate of Brutus !

If English Literature was right, we of Swiss Cottage - government schools with no distinction in the late 1980s, should just accept our lot as ordinary citizens !

Anyway, rant aside, I belong firmly in the school of Higher English as a replacement for English Literature. Engineering and Computer Science colleges completely reinvent themselves every few years to stay relevant, it is unjust and not mention a waste of tax-payer's money to maintain English Literature in its current state for 9% of the exam-taking student population.

A Higher English subject should ideally, be a full H2 A level subject. It should be more technical and cover the latest use of media like blogging and employ modern word processing tools. Project-wise, we should creation more content like write works of flash fiction, op-eds. There should be more emphasis on the ancient art of Rhetoric and assessment should have a public speaking component. Instead of reading a few great books, Higher English should read snippets of good examples of classic and modern fiction. Why read a select number of works from Shakespeare when you can read smaller snippets from Austen, Balzac or George R R Martin ?

[ A friend mentioned a return to grammar - I think this needs to be resurrected in Basic Vanilla  English. ]

In conclusion, Words are Power. 

In my next life journey, I will be trying to unlock the full potential of words. Condemning our kids to outmoded forms of instruction without teaching them how to unleash the full power of the written word is not sustainable for our culture and economy. 

Policy makers and government, in building a technocracy, have made the power of words out of reach from the general population. If we relinquish the power of words to just a handful of Religious Zealots, Writers or Literati, we have only ourselves to blame they start proselytizing for an extremist cause in the cultural wars of Singapore.

We the silent majority would become impotent against their persuasive talents.

Then, the Tail will truly Wag the Dog, in Singapore.

Tackling the root cause of the Cultural Wars in Singapore does not lie in categorizing books or yet more protests in Hong Lim Park.

It is equipping everyone with the power of words and denying exclusive access to the powers of persuasion, rhetoric and demagoguery to a select few liberal elites.

Start with English Literature.

End with Higher English.

  

Hedgehog or the Fox ?

If you are a hedgehog, you know one thing really well. If you are a fox, you know many little things.

This question has many many applications in the area of career management, after you stabilize career, do you take steps to specialize in something or do you pick up more skills as a generalist ?

I asked this question on FB and  observed that most tech professionals would rather be a hedgehogs. This makes sense since hedgehogs who specialize in one platform can make a lot of money out of it. The 1990s and 2000s IT landscape belonged to SAP consultants who were specialists. They were known to be able to bill for time and materials and led lives with a high standard of living. Data Science is the current flavor of the month.

Most guys who are into investments prefer to be foxes. Assessing the viability of an investment goes way beyond applying financial models. Many investments come with political risks and a person who has many models and perspectives tend to do better in managing money than someone armed with a single equation.

The dichotomy between being a fox or a hedgehog is represented by two conflicting models.

In Six Sigma, the biggest rewards goes to processes with a smallest amount of variation. The biggest rewards got to people produce something with the least amount of defects.This model is opposed by Fisher's theorem, where it was theorized that higher variance leads to faster adaptation ( As in evolution ). If you adopt this theorem then you will introduce as much variance as possible so that adaptation to the environment can be done in the shortest time possible. 

I think the insight on one's choice of models has implications on career management. 

If the environment is static and unchanging, then Six Sigma would be a useful model. If you work in an industry which is static where folks are stubborn to change, it makes sense to specialize and find a niche which you know would be rewarded in your environment. In the public sector, I noticed that the folks who get promoted are mostly predictable hedgehogs. You can also have lifelong employment if you are a master of an arcane process like procurement. 

If the environment is dynamic and fast-changing like Tech, it may be wiser to be a fox and introduce variation in your skills. In the past, software engineers face a lot of paradigm shifts. There's currently one going on involving functional programming. The Microsoft lay-offs has also made people question the value of putting your entire career into one .NET platform. 

So in summary, I think there is an objective answer to this question of whether to be a hedgehog or a fox. 

It depends on the degree by which how dynamic your work environment is. 

People in tech may have chosen wrongly when they become hedgehogs, they are better off being foxes. Combining some technical skills with domain knowledge, but maintaining writing skills and maintaining curiosity in strange new platforms is vital to maintaining their currency in a ridiculous crazy industry. 

Just remember, we aare now in a world where Microsoft is laying off thousands of people - no one is safe.

Using models to explain life, success and the assholes around you.

This article might be a little "cheem" since I have just completed all 20 lectures of the Model Thinking course conducted by the University of Michigan, I think that of all the courses taught, this is probably the best one so far.

The central thesis of this lesson is that when it comes to prediction, we are much better having more models so that we have more tools to explain a certain phenomenon.

This article demonstrates a model  known as Colonel Blotto. This simple model had a deep impact on the way I think.

Imagine you have 100 unit of soldiers and plan to deploy them across three fronts. To win a war, you pit yourself against an opponent who also have 100 units of soldiers to be deployed against you. The winner of this game is the player who can deploy more soldiers than the enemy on 2 out of 3 fronts.

Some findings Colonel Blotto are as follows :

a) If you have advanced knowledge on how your opponent deploys, you can always deploy your soldiers to win 2 in out of 3 fronts ( Your opponent deploys 34/33/33. You can react by deploying 0/50/50.)
b) If no advanced information can be gained, your best strategy is to be as random and unpredictable as possible so that your opponent can't guess your next move.
c) If you can get advanced information, you can have a smaller army and still win 2/3 fronts.
d) If you have a numerical advantage against your opponent, you should try to limit the total number of fronts as much as possible to secure a majority victory.
e) Against an opponent with a stronger army, you need to fight a war on multiple fronts so that you can blunt his numerical advantage.

Of all the models taught to me, this one really blew my mind. It almost explains all the phenomenon which I have experienced in my study and working life. ( Note : I am an eccentric. It does not take a genius to figure out that I'm by nature, bizarrely competitive and approach my work and studies as a gamer and strategist. )

Here's how this model explains what I observed in my life:

a) Top-JC party animal stereotype

When us B-Grade Singaporeans meet up for drinks we always talk about campus life which involve a certain amount of hostel stay, many of us meet a particular hostelite which I would term the Top JC party animal.

Some folks will claim that this guy is from my JC. In my case, i always claim that the dude is from RJC or HCJC. It does'nt really matter, as the faces, JCs and names change, but the stories are the same.

This dude's hostel strategy is to get you to drink and party with him until late at night, then using some combination of  Red Bull and Coffee, he stays up late and studies until the next morning. After the exam, if he gets into the Dean's List, he will act as if he put in little effort ( a power move called sprezzatura ), if he fails, he's a party animal anyway so no loss of face there.

I was warned that I would meet friends like this in campus, so I devised a counter-strategy against them. I refused to party and did consistent work, so even though I was dumber than these guys, I would retain more information for the exams. I don't really care about being labelled a mugger-toad because if I really had any natural intelligence, I would have been in the gifted program and would probably be in MIT anyway.

This is Classic Blotto in action, expanding the new front on Partying to get you into investing your troops while keeping strong troop detachment on Academic performance.

Well played !

b) Latently Competitive Family Man

I really hate the LCFM, the engineering faculty is full of these fuckers and I don't seem to be able to develop a counter strategy until much later in my life when I became much more mellow and mature. The LCFM had shit grades and shit ECA, he can't even do engineering work, so he goes to a secondary school to teach Physics ( or E Math if he's truly hopeless ). He marries his University sweetheart 1 year after graduation and invites you his housewarming party, then he smugly plays a family card against the hard-charging yuppy, spouting Chinese philosophy on work-life balance and mocking you with his balanced approach to life.

Well, Confucius hates you and so do I !

Another Classic Blotto, opening a new front on Family while the rest of the world is focused on Making Money to win one front first, then applying psychological pressure to get you to reduce your initial deployment.

c) Involuntary Dilettante

I would like to propose that there is a third stereotype I would term the Involuntary Dilettante. You may meet a lot of folks like this at work or in school, but in my opinion, this stereotype is to be pitied.

Imagine a successful woman who has it all - work, family, children and a good marriage. Most real woman are not Marissa Mayer and have to compete on more fronts against each other, as they are judged on many more dimensions than men (If you're a guy with gold coming out of your arse, only Thomas Piketty will judge you).

If you are normal career woman with average looks and average qualifications, trying trying to juggle everything and losing out on every front is a possible reality. The Colonel Blotto game predicts that you will try to attack every front at the same time so that you can luck out on your career or your husband. As in all things in life, very few actually "make it".

While it's only a mental construct, Colonel Blotto has given me some insights on life :

a) Society values some things more than others. It's your choice to determine how to deploy your troops. My deployment is Financial Independence and not Material Pleasures. I also have a large deployment in Inter-disciplinary Knowledge. I'm betting that society rewards both.
b) If you choose a front not valued by society, then enjoy your private victory and don't gripe about being under-appreciated. Singapore is not very open-minded to alternative forms of success anyway.
c) If you are competitive by nature and want to kick ass. Then you need to have a large deployment in as few fronts as possible. This a classic Alpha Male maneuver. Focus on the shit you are good at but having something around so you can pivot.
d) If you feel disadvantaged because of your own circumstances, then have many varying fronts and hope to luck out. ( Multiple hobbies and interests may lead to serendipitous financial rewards or prestige.)

I think I'm going to toy with the models from the Coursera class to predict the behavior of the people I meet.

Having this toolbox really has the ability to predict and explain the behaviour of the folks around you.

Who knows, maybe one day, I can even apply this into investing.

When Insurance Agents attack...

Sometimes, when I get a great day, a friend who believes in insurance writes a passionate message to me to take issue with my ideas on insurance planning. This inevitably strengthens my position, since insurance agents seldom want to talk to me anymore, it updates me on their various tactics which I share with there readers.

Let me summarize my idea on insurance.

I believe in "Buy term and Invest the Rest". This means not only maxing up your term life insurance, it means saving up what you would have spent on insurance on an investment portfolio of your choice. My personal choice of investments are high yielding stocks, REITs and business trusts. Some folks told me that insurance companies invest in the same things to meet their liabilities.

Here are some of the resistances to my idea :

a) Term Life does not last forever. 

We all know that term life does not last forever. Term life insurance like NTUC i-Term covers you until age 84. SAF Group Life only covers up till age 65. In fact, I want to say that all of us prefer not to get a pay-out on term life, we want to live long prosperous lives.

The aim of term life is to transfer risk of early death to protect your human capital or future cash flow. If I die early, my family will not have benefit from my income, the term life insurance provides a cash outlay so that my family would not have to suffer. Beyond age 65, I have no more income anyway, so there is nothing to protect.

Using this similar argument, your child is a dependent and if you are not relying on your child's future cash flow, it is not necessary to buy term life for you child, but your child can sign up for a term life insurance to protect you when your child finds work after graduation.

b) What about hospitalization and critical illness ?

In all of my previous books, I recommend H&S insurance. Personally, I don't have any because I was diagnosed with thyroid and diabetes early in my life and I was rejected by NTUC before when I made my application.

These days, I am mixed about H&S plans. Recently in Business Times, journalists have shed light on the pricing of these policies. H&S insurance plans are cheap in your 20s and 30s - this is an active strategy to gain market share, after which H&S expenses ramp up drastically.

Agents are also notoriously silent on how much Integrated Shield Plans protect above and beyond the latest changes to the mandatory Medishield plans. We are all already effectively insured by the government, the insurance agent needs to convince me as to why government protection is insufficient and why I need a room which is better than B2 wards.

For folks who cannot get a hospitalization plan like me, my portfolio covers the shortfall. I have many layers of protection, Medishield, my maxed-out Medisave account, dividends from my stocks to pay if medisave overruns, capital gains and finally my savings.

c) My cousin contracted Ebola from his goldfish ! My father-in-law has hair cancer ! You need protection from such situations, right ?

This is a poorly constructed argument designed to spread fear.

The "Invest the Rest" component protects your family from these situations and covers other situations like job loss, having a new kid, home renovations, getting sued by neighbours, etc which no insurance agent can cover. My portfolio can even pay for my daughter's plastic surgery if she wants to start a K-POP band.

Your agent needs to paint the scenario whereby someone relies on Medishield versus someone who relies on the IP policy and what the different in costs will be. If your portfolio can handle the difference, it still means that the risk does not need to be transferred.

c) What if the customer is an average investor ?

This line of argument genuinely makes me mad.

People are bad investors because money management is not taught in schools. Instead, the government allows an 'O' level graduate to qualify to sell insurance. These people then go on to call themselves financial planners. Now the industry argues that most people are dumb and should listen to them instead. Many insurance agents also do not know how to invest and are largely responsible for the ignorance in the first place.

I am willing to concede that if you are an average investor, you are better off listening to a financial planner. The same argument can be used to convince someone to buy 4D, if you keep losing money on investments, maybe buying 4D can give you better odds.

But I'm going to offer you an alternative - why not listen to a fee-only advisor ?

This advisor will not have an incentive to push products down your throat and may be able to structure a decent portfolio based on ETF to ensure sufficient diversification.  Many fee-only advisors have come out to support a variant of my "Buy Term and Invest the rest" scheme.

The whole point of this blog is cater to folk who want to be above average when managing their finances. This means that you need to optimize your costs.

And taking a second look at how much you are subsidizing the lifestyle of your agent is a great way to be more frugal with your finances.

Not everyone can win in Singapore society - if you do not educate yourself in the ways of money management, there are a lot of predators out there who would want a chunk of your savings.

Some change in my thoughts regarding the $100,000 challenge.

There has been some calls to poll my opinion on what should someone do with $100,000. There has also been queries as to whether some of the things I wrote on Growing Your Tree of Prosperity is still valid with the market today.

Growing Your Tree of Prosperity is a lot more than just about investing in unit trusts, it puts readers in their first attempt to pony up $100,000 - something which is attainable by almost anyone. It's special to me as it also captured some issues which bothered me 9 years ago. These days, I find that cynical tone in my first book quite amusing even though it shaped my behavior as an investor.

I will first address some of the changes in my mindset here :

a) These days, ETFs may indeed be superior to unit trusts.

Close to a decade ago, ETFs were not as ubiquitous as they are today.

In my first book, I placed a lot of emphasis in selecting unit trusts which are global in scope with a low expense ratio for higher long term returns. These days SGX is full of ETFs which have a much lower expense ratio, negligible sales charges and gives you access to a range of global investments at your fingertips, so if you have a brokerage account, you may want to go through the ETFs page in the SGX website to build your portfolio. I think $15,000 - $30,000 is enough to get you started as you will need several ETFs to build a diversified global portfolio of different asset classes.

If you have barely have less than $15,000, it may still be prudent to find a unit trust dollar cost averaging scheme to build your capital up to $30,000, but in this case, you might as well use this as a cash reserve before jumping into ETFs directly.

b) If I had the knowledge I had today, I'd jump straight into investing for dividends.

Most of us who were investing since our 20s had to pay our tuition fees the hard way. When I graduated, there were not REITs in the stockmarket. A fresh graduate is very well read these days, many already know value investing and understand how to filter stocks based on dividend yields. If I had all this information, I would jump into building a portfolio of dividend stocks immediately using manufacturing and telco blue chips at about 5% yield a year before starting to push my yields upwards with REITs and business trusts.

This approach will allow me to start supplementing my transport expenses and meals perhaps upon my 3rd or 4th year of work.

The second part of this post is a section which I would not really like to provide easy answers. A lot folks ask me what to do if they have such-and-such amount of money. The answer to such a question is closer to a legal problem than an engineering problem. The best answer depends very much on your personal context.

Instead, I will try to give you some points for your consideration :

a) Have you covered all your emergency situations ?

Before the discussion takes place, you should have 3-6 months in emergency expenses. This should preferably be in cash. You should also have a maxed out term life insurance to protect your loved ones in case anything should happen to you.

b) Have you enhanced your human capital yet ?

Contrary to what a lot of people say, you get rich from working. Working provides the earnings you save which is then farmed into your investments.

Unlike financial assets, human capital can be enhanced at a significantly low investment. My Masters in Applied Finance which was offered in NUS 11 years ago only cost me $11,000, that was where I learnt about investing my money. These days you can enroll in SMU by paying 5-6x the amount, I think it's worth every cent. Some engineers can jump into the business development line with a good MBA from INSEAD.

This is an important consideration as the enhancement to your income was exceeds the cost. ROI can well exceed that of equity counters. The downside is that it's better to do this before you are 35 as you still have your best career days ahead of you.

Of course, there are more tactical ways to grow your human capital. A short course on computer software ( If you can get certified on Internet of Things ) can make a significant difference in your career.

c) Invest only after earlier points have been considered.

Investing should only be considered after (a) and (b) have been taken into consideration. Once you arrive at this point, many other financial bloggers can give you better advice than I do, here are your possible options available for someone with $100,000 to invest :

i) Permanent Portfolio 

An ETF which covers all asset classes with regular re-balancing can achieve decent results with minimal draw down. This is probable the best option for a beginner.

ii) Yields Portfolio 

This is what I do personally, hunt for yield stocks to offset my living expenses. I generally ignore capital gains or losses and avoid portfolio turnover.

iii) Value Investing 

Look for low Price to Book value stock bargains and focus on total returns and minimizing your downside. Benjamin Graham focuses on this approach and some folks make a lot of money with this method.

No need to be suicidal if your girlfriend is materialistic !

Sometime ago, the trolls in TheRealSingapore put up this hilarious post :

http://therealsingapore.com/content/young-sporean-suicidal-because-all-girls-he-loved-are-too-materialistic

The writer has become depressed because his girlfriends keep leaving him for richer guys. As a result of this, he has asked the folks of TRS on whether he should end his life. 

Let me share a personal story.

Before I met my wife, my parents were worried that I was single. Worried that I might not be able to perpetuate my genetic material, they conspired with my neighbors to match-make me. Those days, I had only one condition, that condition is that she must be really hot for me to be interested. In the past, my aunt has made attempts to introduce me to girls when I was in KL, but they are always overweight and over-educated. ( Actually, I shouldn't even mention that they are over-educated because if they were hot, I wouldn't be complaining on this blog. )

Ok, back to my matchmaking...

Turns out that this girl my family found was really hot. She is tall, tan and comes straight from some Citibank advertisement. She serves institutional clients in a bank.

 So, what more can a dude want right ? 

I quickly arranged for a meet-up then tried to line up for a few dates. 

Then I notice strange things about my date.

She brought her girlfriend to my neighbors house to ogle at their fleet of Ferraris. 

She's always playing golf in Bintan so some dates need to be rescheduled.

We were both doing the CFA II exams. She didn't show up a the exam hall. ( Low conscientiousness )

On my second date, she was late and she was in a horrible mood, complaining that her futures were out of the money. I missed the first 20 minutes of Matrix because of her, I even offered to buy tickets for a later show. 

I guess the lesson I learned from this episode is that looks can only take you that far. 

Just like a bad futures investment which hit stop loss, I quickly cut my losses and ran for the exit.

Of course my dating luck turned positive after this event. 

At the end of the day, single guys need to understand the term "milieu" or environment when they are hunting for a spouse or even a great investment. 

If you hunt for a spouse in a singles bar, you get young girls who want to have fun, are open to new experiences, you might need to check if you are the real father of your child in the future - this comes with the dating territory. The singles bar or disco basically filters the serious and good girls who can make good spouses. Setting up a filter for growth stock practically guarantees a portfolio with a higher volatility. ( Generally speaking, of course, there are exceptions to the rule. Kingsmen Creative is a growth stock with great value. Some readers would have met their wives in Zouk would hate me if I didn't put in this disclaimer )

So my advice is that  this young man needs to take up activities where materialistic girls do not hang out. I suggest several good avenues which almost guarantee good wife material, one is to participate in a church, temple, Charity or NGO movement, you are almost guaranteed to find someone decent and non-materialistic there.

Of course, in such case, the guy needs to solve the other problem. 

Someone who writes such a stupid post in TRS would need to find a girl equally stupid to want to date him ! 

While she may not reject him because she's out for someone richer, she might dump him because he is an idiot !

Should I invest in my excess cash into my start-up or use it build up my stock portfolio ?

A friend who attended my talk was having a discussion with me yesterday, he mentioned in passing that one of the Zopim founders actually attended my session and actually interacted with me on my talk. And I was going WOW ! It was such a great honour that someone who is part of an exit of such historical scale would be able to attend my session.

Anyway, my friend also expressed disappointment that in the Temple of Startup Capitalism, no one asked me a challenging question which we sort of "prepared" in case someone were to raise it during my talk.

And the question is : If I had money, should I invest in my start-up to make it grow or should I invest it into a portfolio different asset classes ?

I'm going to present, in my view, an answer to this question. 

To answer this question, we will need to look at the notion of human capital as proposed by Economics Nobel Prize winner Gary Becker. Human capital can be seen as a sum total of your unearned income. This is contrasted with your financial capital, capital which has already been earned, which is an asset in your bank, real estate or CDP account.  

Human capital is a vital part of your wealth. It explains why venture capitalists have faith in you - they see you as a potential future profit. Your total wealth is, therefore, a sum total of your human capital and financial capital.

In light of this insight, we also realise that your human capital also has characteristics similar to stocks, bonds and commodities. A salesman or marketing professional with a salary tied to company performance can be said to have human capital which behaves like stock equity. It goes up and down based on company profits. A civil servant has a salary very much like a bond. It is predictable with not much upside or downside.

So let's examine what happens when you found a start-up company. Assuming it has only had seed funding, your start-up has yet to produce any profit. Your profits are in the far future, it has to receive more funding and complete product development before profits will only start rolling. i.e. The closest asset class your human capital will look like is an equity option ! Your human capital provides you a minimal profit but can potentially give you a huge upside. 

Now let's move on to another insight this time from Moshe Milevsky. Moshe proposes that diversification of assets should also account for human capital. Another words, a salesman with human capital which behaves like an equity should look to a higher proportion of bonds in his financial portfolio. A civil servant can buy more equities to improve his upside.

So let's get back to our founder who wants to determine where he should invest his money. 

If your human capital acts as a derivative instrument like a stock option, the answer is clear, the prudent option would be to invest your money in a more conservative asset like bonds or various income yielding instruments. 

Of course, a host of non-finance related concerns if you accept my suggestions without question. If a founder refuses to invest their cash in their own businesses, would it signal the lack of commitment to their ideas ? Would their motivation be reduced if that occurs ? What if the funding is crucial for the company to complete their first product just to start turning into a profit ?

I don't have an answer to these concerns. 

The existence of VCs in an ecosystem is to rally high net worth investors to take on such risks. Private equity has historically performed well for investors even though many business fail on an individual basis. 

A savvy founder should trust the VC to fund his business to make it work. If it means loss of some equity, so be it. Therefore, I still think it prudent to look after own welfare by prudent diversification of human and financial capital assets. 

What games can tell us about success ?

Recently, psychologists have dealt a resounding blow against Malcolm Gladwell's idea that in order to succeed in a field, you will need 10,000 hours of deliberate practice. Of course, the scientific evidence cannot deal a killing blow to the theory because it's very hard to suss out practice that is actually deliberate in nature. Practice that is deliberate means that its difficulty is designed to always match the capability of the person, something which is harder to establish in a research experiment. All Malcolm Gladwell has to do is to say that most practice is not deliberate in nature, then his theory still holds, I bet it wasn't really meant to be falsifiable anyway.

We are always trying to explain how and why we are successful. Prior to WWII, success was largely due to genetic factors. The US Army designed IQ tests to determine which citizens make the best soldiers. Recently the pendulum has shifted to success being part of environment and practice, I've always felt that this was more like wishful thinking on Humanity's part. If success is correlated to hard-work and depended less on things beyond one's control, people would feel comfortable enough to work harder.

The flaw in the idea of deliberate practice is that it seems more like wishful thinking rather than one grounded in cold, hard facts. The second flaw that we are trying to put a narrative around success without acknowledging that luck often plays an overly large role in our lives. The third flaw is that we really don't know what was sacrificed to attain public success - Steve Jobs was celebrated publicly but privately was a huge asshole based on the folks who used to work with him.

One thing which cannot be denied - domains with strict rules like Chess are domains where deliberate practice can have an impact on success. Similar to chess are games like Magic:The Gathering and Legend of 5 Rings, where a fixed set of rules and card base allow players with more exposure and time to triumph of players with less practice.

Very different from chess are games like Tabletop RPGs and investing. There are no fixed rules, conflict in a region like Ukraine can affect markets in Singapore. CEOs can suddenly signal a downturn by selling their stock.  In D&D, Players can find obscure use for magical items to mess up the best laid plans of the Dungeon Master, or simply behave irrationally because they think that it reflects the behaviour of their PCs better. Sometimes, one is simply better off with no plans and instead have a series of contingencies to deal with black swan incidents.

This insight may be useful in answering a question which has been bugging me for more than decade :

Why do the best gamers fail to apply their strategies in real life and lead a mediocre existence ?

Initially my thoughts that is the best strategy gamers tend to think in concrete terms and stick to the victory conditions that are published within the ruleset, this required that many gamers have a Sensing thinking mode rather than a Intuition mode. Then, I became obsessed with the idea of the growth mindset, I observed giftedness as a common trait of the top gamers and concluded that they stuck to games with rules because they are afraid of living a life where there are often no rules of engagement  ( many gifted children are cursed with a fixed mindset. ) Now the third of piece of the puzzle is in place - card games and chess games allow practice to be instantly rewarded with improve performance.

Anyway, I don't have a conclusive answer to what leads to success or the final word on why top gamers do not outperform at the game of real life.

Of interest to gamers is the evolution of RPGs which reflect the popular opinion of what constitutes success.

In the 3rd Edition of D&D, unbounded modifiers were crafted such that most of your bonuses are due to your level and the magical items which you have on you. In such games, experience and equipment largely determine success in any endeavour. Epic characters had better attack rolls, saving throws and hit points. In such games, success is long term gameplay and careful management of resources.

In Diablo III, experience matters less, all epic characters above Level 70 with hundreds of paragon points rely primarily on loot. Players with better equipment gets to get more equipment by going into the higher Torment levels. Cooperating in groups exponentially rewards players with more loot. That's almost like a world which the Wolf Of Wall-street belongs to.

Striking a careful balance is the recent 5th Edition D&D game. Nature plays a major role in the game with attributes accounting for a third of bonuses ( A strength of 20 grants a +5 bonus ) . Your experience now only plays another third of the dice roll modifier ( +2 at level 1 and caps at +6 at level 20 ). A major component which determines your bonus is how you role-play. Points of inspiration grant an additional dice-roll which is the equivalent to a +5 bonus within the game.

Maybe 5th Edition gets it closer to the real deal in life, your success is largely :

a) What you are born with.  
b) How much hard work you put into achieving your goals.
c) Your personality, attitude and character.

Dungeons and Dragons 5th Edition Rocks !

First of all, this blog has been given a new template. Many friends and readers have commented on how horrible the old design was, so I thought I'd apply a new template to see if you readers prefer this new look.

Of course, mirroring the change in my blog was no accident.

I made the changes to celebrate the launch of a new edition of Dungeons & Dragons.

This game, already on it's 5th Edition, can be downloaded here for free :

http://wizards.com/DnD/Article.aspx?x=dnd%2Fbasicrules

New generation of gamers will need to know this is not a computer game, but an old school paper and pencil RPG which I have been playing since I was 10 years old.

As there are at least 2 other financial bloggers who are old school RPGers, I will not explain how much D&D shaped my life and personal philosophy, the fact that a few fairly popular bloggers had a background playing D&D speaks volumes of its ability to spark a person's imagination and analytical ability.

Today we have just concluded my first game of D&D since quitting over the poorly designed and fairly mechanical 4th Edition rules.  Here are my findings :

a) The game is super simple and elegant.

Paper and Pencil RPGs are notorious hard to setup. This time, we could create a fresh new character within 15 minutes and start running the game. The Fighter and Rogue were relatively easier to create. The wizard and cleric took about 30 minutes as players wanted to select a list of spells to prepare for the adventure.

b) The game really encourages role-playing

TRPGs were hurt quite badly by the success of games like World of Warcraft. Designers first thought that RPGs should emulate their electronic cousins so made gameplay very mechanistic. They forgot that TRPGers are the folks who game to avoid the limited options of computer RPG gaming.

D&D5E resolves the issue by employing a mechanic called Inspiration, The Dungeon Master (DM) awards inspiration points when players allow their personality to determine their actions within the game. Inspiration points are mechanically powerful and allows players to roll two dice and take the better value in their dice-rolls, drastically increasing the odds of getting something done.

In my game today, a player who seldom role-plays took on a role of a war veteran with PTSD once he discovered that I will give a point whenever someone made their characters more believable. He "loses it" when he hears the cries of a small child and charged towards an ambush set up by a monster to get that inspiration point.

In another situation, the rogue who had a background of a folk hero, wanted to lay a murdered farmer and his family to rest by charging the farmers-turned-zombies to play up his feelings for his commoners were also awarded a point of inspiration.    

c) The game is challenging and can be quite lethal.

I sent four skeletons to attack a party of four. The fighter went down in 3 rounds and we could almost had a TPK situation. This will never happen in a 4th Edition game ( or Diablo III for that matter )

This was very similar to older editions. At lower levels, you can die from a tactical mistake or an unlucky dice roll.

d) Leveling up takes 5 minutes

The game has been very much simplified, to level up a fighter, I added 11 hit points and gave him a new Action Surge ability which allows him an additional action once every fight.

e) Playing D&D as someone preparing to go into Law School is very interesting

As I am the only guy who is crazy enough to DM an incomplete game, I can see that some of my early law school preparation has impacted the way I look at adjudicating an RPG game. In many situations, the gaming rules did not cover the situation which occurs on a gaming table.

A wizards familiar was escaping with someone's amulet. The wizard used a Mage Hand spell to grab the amulet back. I had to rule that it's an Intelligence check versus a Strength check.  It was an a situation which opposed spell-power versus muscle-power which also has to account for the weight of the amulet and the fair power for a cantrip spell - this is very similar to a legal concept like ratio decidendi which I read about a few weeks ago. This ruling would have an impact in future gaming sessions until the publication of the Player's handbook (Which reads almost like a set if statutes).

Some other rulings are not so straight-forward, the PTSD great-weapon fighter guy wanted to trigger a war flashback in every battle to get Inspiration points ( He thinks he's Rambo ). I ruled that every award of Inspiration has to entertain everyone and is given on a case by case basis. If you get Inspiration once, it does not mean that a similar situation would warrant another reward. This is eerily similar to a ruling that is orbiter dictum, does not bind the DM in future situations even if they are similar.

So I guess even if I don't get a job after graduation, the stuff I pick in Law School would make me a better DM !

Sadly, the Basic game is incomplete. I had to source for free adventures on the web and have about 4 kinds of monsters to deploy on my game next week.

On to the Level 2 game where I had to build  a manor by scratch and populate it with only 4 monsters published for the game...

Term Life Insurance and the Brutal Realities of Modern Living.

While I do not buy the argument that concludes that Singapore is a winner-takes-all or a No-U-turn society, many of you may have met someone who experienced the following :

a) Someone does not perform well enough to get into a local University. This person has to pay a lot more to attend a private university. Making matters worse,  this person runs a risk of studying for a degree from a shady degree supplier who may close shop and cannot use his parent's CPF money for assistance. The degree, when finally awarded, is also not accorded the same treatment as a local graduate degree so this person must work twice as hard to prove himself in the workplace.

b) Someone does not perform well enough or refuses to join an MNC/Consulting firm/Bank. For the same pay, he works twice as hard for a SME or start-up which has a serious probability of going belly up or not being able to pay staff on time. Even if he does get paid, he gets a poorer increment at year-end. If he is loyal to his small firm and stays longer than 2 years, he ends up accumulating less wealth than his peers.

In both of these stories, everyone has an easier way out if only they exercised more willpower to show up earlier in the rat-race or took the competition more seriously.

If they make a slip up or tactical error, it takes far more effort and willpower to become on par with their luckier or more careful peers.

This brutal reality of modern living also exists in insurance planning.

My suggestion to "Buy Term and Invest the Rest" always attract a lot of questions when I give my talks. People, indoctrinated by commissioned based financial planners, are concerned at the large amount of risk which was not transferred to an insurance company and wonder how someone like me can sleep at night.

I have a simplistic approach towards insurance planning, I see insurance planning as two options :

a) Listen to your insurance agent.

This is the most comfortable route. The agent presents a risk or fear to you, you react by buying an insurance product. The insurance agent self-righteously tell everyone else that his clients sleep well at night. Before too long, your agent attains financial independence while you struggle with your premium payments.

You can barely save your income as so much of it goes to pay off these premiums.

b) Buy term and invest the rest.

This is the hard route. You research your own term life product since no one will sell it to you. You buy it direct from the insurance firm or a DIY website. There are no returns if you do not die, you live with the fact that if you are successful, you will not get your premiums back. But your next of kin get $1,000,000 should anything happen to you. You pay only $128 a month. Some years you get back 5 months of premium as rebates. ( Like AVIVA SAF Group Life returned 5 months of premiums to me this month. )

After buying term life, you still can't sleep well at night.

What about the critical illness and hospitalisation ? You research CPF and find that you do have limited form of protection in the form of Medishield. The insurance agent can only play up the inadequacies of your plans but you are already insured by the Government !

But at the back of your head, you still feel insecure.

The only way to manage this insecurity is to take on the challenge to invest your money.

You read up and build your investment knowledge, you put your money in a diversified portfolio of stocks, bonds and commodities. You figure out how to tilt your investments towards yields and value-based metrics. You get a comfortable return on your portfolio.

Your portfolio returns start to snow-ball, soon you have a regular cash flow which can cover the emergencies that your insurance can't help you with. Dividends are paid whether you are sick or in good health. Dividends can cover expenses when you are out of job or simply need to study.

As your portfolio reaches $300,000 and above, it pays your living expenses and buffers against hospitalisation expenses. As it reaches $1,000,000, your family gets covered to a certain extent.

But still, at the back of your head, you are worried that something will really screw you over and you will lose out to that guy who spends 40% of his income on insurance products.

Buying term life is easy. Investing the rest is crucial but only slightly harder. The hardest component of Buy Term and Investing the Rest is living a life of relative low risk since you are the guy managing your risk.

Another words, every area of your life needs to be disciplined. You need regular check-ups to look after your health, you need diet and exercise. When you travel, you avoid dangerous places and skip activities bungee jumping. You manage your stress at work and track your blood pressure.

The insurance industry thrives on fear and lack of discipline. They know that somewhere out there are are thousands of folks who won't study investments and are happy to live irresponsibly, they will take on your risk for a ridiculous fee.

Many Singaporeans will continue to buy these tales of woe and in the process attain financial independence for these agents.

( Recently, a third option has become available - pay a professional upfront for insurance advice. This is the best option for folks who rather be writing a novel than reading The Intelligent Investor. The fees are expensive but small compared to the commission you will pay to an agent. I do not consult one so cannot describe in detail what happens if you do this. )

Six months without work ! Whoa !

Today has been quite a fine day. It's my wife's birthday and my seventh wedding anniversary. We spent the day just hanging out with my daughter after bringing her back from school.

Otherwise, I've reached the sixth month of my retirement. If I did not have Law School lined up in August, I might possibly be insane by now for not being productively making any money for 6 months in a row. 

Anyway, here's an update :

a) Portfolio experienced my first downturn in finances.

Predictably, as soccer season begins, I begin to experience my first month on month loss in portfolio. As I was up by quite a but since taking on my last pay-check, I take it in stride. My portfolio size will grow smaller as I need to make room for a year of fees and start  to buy the furniture and appliances for my new condominium. So I should not expect good news from my finances anymore - the best I can hope for is that my net worth stays constant throughout my days as an SMU student.

Nevertheless, I expect liquidity to return once Brazil/Germany lifts the World Cup trophy...

b) Completed my first Specialization track on Data Science !

Otherwise on the personal learning front, I've completed my first data science specialization track, that's nine Coursera classes in 3 months. I've not only learn some R programming, I can now deploy HTML 5 presentations on the web ( Slidify ) and launch my first web app ( Shiny ). So far only 6 courses were marked and I got 5/6 distinctions. I did not manage a royal flush all thanks to the Statistics module. 

My journey continues and I am currently doing a course on British Common Law - should be able to land in SMU with at least one case summary under my belt if everything goes well. 

I doubt I will ever stop having a class in Coursera, unlike our local universities, Law modules taught online can cover other jurisdictions and may come in useful as I study Conflict of Laws locally in the near future. Just need to make sure I don't 走火入魔.

c) Attended a value investing class, gave a talk and met awesome folks.

It was a great honor to meet BigFatPurse and 15WW in his value investing class. In CNAV, I picked up a new form of investing which complements my yield methodology perfectly.  I also followed up quickly by giving a talk for Hackers on attaining financial independence. 

As I always loved public speaking, having spent over a decade with the Toastmasters. Sadly, I eventually stopped after all the speeches started sounded the same and became too motherhood for me - there is only so much room in my head for speeches which talk about conquering fear and living a life of passion. 

Since leaving Toastmasters, I yearned to speak on things which really mattered to people and solved problems that they face. Speaking in public on personal finance gave me the self-actualization which eluded me during those bad old days. 

I will continue to find avenues to talk about leaving the rat-race. You can consider me the Anti-Roy Ngerng, someone who will show the way for people to meet their financial goals without putting the blame on authorities. 

d) Books to be read

I am currently reading The Good Psychopath's Guide to Success by Kevin Dutton and Andy Mcnab, Rock Break Scissors by William Poundstone and Make it Stick by Peter Brown. 

All three books are interesting. The first is actually just some self help which emphasizes assertiveness and self-confidence, the second is on winning games of chance and the last is an update on how to study given all the latest research findings in Psychology. 

e) Dungeons & Dragons returns with 5th Edition !

The news every geek is waiting for is that Dungeons and Dragons will be back in 3 days time ! The Basic Set will be launched for free and I have already gathered my old group for a game this weekend. 

In addition to my interests in IT, Finance and Law, I will have to add RPGs back into the mix. It has been too long since I played D&D since I stopped playing the horribly mechanistic 4th Edition, I expect to not only play but to DM at least one campaign. I am also looking forward to get back to creating RPG supplements once the new OGL is launched. 

My best work, which sells regularly in Amazon, is a role-playing game I wrote a couple of years ago. Cracks me up every-time I make $0.30 on a sale. 

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.