Tuesday, February 18, 2020

MBA in a Nutshell #25 - Accounting and Finance : Internal Controls

To safeguard assets, every organization needs to establish internal controls.

Here is the list of widely-accepted forms of financial control:

a) Be clear about roles and responsibilities. One person to be made responsible for losses in the cash register as and when they occur. In IT we use a RACI chart to do this and its a nifty tool for this purpose.

b) Where there is a potential of interest, create two or more roles. The person who controls cash cannot double-hat as the book-keeper. In a previous job, my role as IT governance reported within the IT department. I actually got into some trouble suggesting that I report to internal audit instead.

c) There has to be a system of checks and balances like two signatures on checks or access to lock boxes.

d) Hire reliable personnel. A nice acid test was suggested by the book is to ask a previous employer whether they would rehire the worker if he were available.

e) Document control procedures wherever possible. A simple example is an incentive given to every customer to report incidents where a receipt was not given to them.

f) Create duty rotation. Banks do this a lot to see whether some problems stop when an employee goes on vacation.

g) Utilize independent checks like auditors and CPAs.

h) Supervise closely to monitor performance.

As you can see, this is a lot of work. If I ever set up a company to do all this, I won't be able to focus on providing training and research on financial markets. Imagine having to create these internal processes for marketing and finance at the same time.

This is why MBAs still matter. You need good administrators with book smarts to keep a business running.

Visionaries can't do much without able lieutenants.

Sunday, February 16, 2020

What can we learn from Oscar winning movie Parasite ?

Image result for parasite movie

English Literature in lower secondary school would be more interesting to me if my Literature teacher were to spend more time talking about how to make money and attract chicks.

There's actually plenty of financial inspiration from literary works - In Jane Austen's Pride and Prejudice, Mr. Darcy value as a mate was tied to his $2000 GBP income from Pembroke estate. If students are taught that $160,000 USD in passive income would make them as eligible as Mr. Darcy, the value of English Literature lessons in Singapore would be much higher today.

I'm not sure what deserves more scorn - English Literature classes in lower secondary school, or the Oscars ? In my entire life, the Oscars has never chosen a respectable Best Picture, skipping movie greats like Inception to classics like Empire Strikes Back or Superman v Batman.

But this year, things are different. The Oscars actually picked a decent movie for Best Picture. 

Parasite is a wonderful riff off Ursula Le Guin's The Ones who Walk Away from Omelas and brutally explores the differences between the rich and the poor in Korean society. To really appreciate this piece, you need to understand the idea from Ursula's work that in every Utopia every  household has a child locked in the home basement and kept miserable so that the household and society can remain prosperous. If somehow this child were to escape, calamity ensues.

Parasite takes it one step further, proposing the idea that there is a basement within a basement and the movie climaxes by showcasing what happens if someone from this deep basement actually escapes. The movie leads to a satisfying conclusion that does not attempt to molly-coddle the audience with a good ending.

As my own literary criticism skills are stuck in Secondary 2 because my teacher could not teach me about making money or hitting on chicks, I am unable to provide that analysis that most RGS-Literature-Goths chicks can give. Reading that may cost your a significant portion of your life-force, instead this is what watching Parasite means to me :

a) The Rich will always attract Parasites

I think the things that freaked me out the most watching the movie is how easily the Rich attract Parasites. In the movie, a parasitical family eventually replaces all the staff supporting the wealthy. This is the same in real life - the middle-class are constantly harassed by commissioned financial advisors and real estate agents. As you climb up the ladder, the parasites change - they get replaced with private bankers and personal shoppers. It also recurses downwards as personal bankers also attract parasites of their own.

( Note : The idea that investment trainers can be considered parasites if they keep finding ways to monetise their students community is not lost on me. I think the movie's greatest weakness is that it did not portray the rich family also as parasites of something even bigger than themselves ! )

b) Tragedy comes from misunderstanding

Another thing that makes me glad is the the rich family was not portrayed as being callous or cruel. This is much unliked the viral Prince Ea videos that always had to portray the evil system as an old, white guy.  The rich in the movie behaved in a human manner, but questioned the lifestyle of the poor and criticised their smell only when they believed that the poor are not listening. In essence, they were less blameworthy than the poor family who had to scheme to be able to leech off their resources.

The real evil was the misunderstanding that comes from class differences. This is the beauty of the movie as even the instant noodles eaten by the rich has to be infused with top class steaks. My own take is that a person's wealth does not have to come with isolation. A millionaire can take public transport and fly coach. I think  with more exposure to ordinary people, it is easier to avoid situations like that in the movie. Conserve the money to solve real emergencies.

c) Compassion is a weakness poor people cannot afford to have

This is the kind of answer that will make the English Literature teacher hate my guts and why one principle I follow is to always avoid being examined on humanities subjects.

An important moral people may refuse to acknowledge is that for the lower classes, they simply cannot afford to be compassionate to others. The tragedy in the movie can be avoided if the parasite family did not grant access to a previous parasite access to the home basement premises.

If you want to displace others in the hierarchy, you need to be totally cruel and block access to the people you have just displaced.

Compassion is something only the wealthy can afford.

Anyway, I hope that some of you would be willing to brave COVID-19 to watch this movie that is still showing in some cinemas.

I will be replicating the Ram-Don instant noodles tonight. Hope I don't end up with Lao Sai instead !




Friday, February 14, 2020

Happy Valentine's Day - On assortative mating and hypergamy

I try to write something every Valentine's Day to update my understanding of the dating world. By now I am a dinosaur and have been out of the dating game for over a decade and things have changed quite a bit from the last time I dated.

Recently someone asked FB what is the probability of a JC-Poly union blossoming into an actual marriage. The trolls immediately activated and said that the chances of dying from COVID-19 is higher than such a relationship succeeding. The good news arising from this thread is that I participated by asking for instances of RGS-ITE relationships and was told that a Govt scholar married her ITE sweet heart who works at the front desk in the same government ministry. It's a nice tale that deserves a Jack Neo movie adaptation but I rather not verify it because we are all entitled to our own fantasies of modern living.

Assortative mating is now in mainstream policy making. This was mentioned by Tharman Shanmugaratnam as a major source of inequality in modern society. People are now attracted to others who fall within the same social economic status likely arising from more more women getting into the workplace. Consequences for society are dire as rich couples then transmit a much larger social advantage to their children. I am glad that assortative mating is there to take the heat off rent-seekers like us dividends investors - when some woke person bitches about inequality, I get to ask them why they married a degree holder like themselves.

The other issue is that even though assortative mating takes place, female hypergamy is still rampant. Asian women still do not like marrying down socio-economically. Even CNA Luxury is featuring a new dating app that has an acceptance rate of only 14% that allows only elite men to participate.

Government has not started introducing hypergamy into mainstream discussion even though I think they should. I think it keeps too many women on the shelves. In a meet-up with financial bloggers, many female bloggers alluded to me that they are prepared to decouple salary metrics from a potential mate's masculinity but female bloggers are a small constituency in the female population. It is up to a new generation of Singaporeans to decide how to redefine masculinity. I think the situation is still quite bad - stay at home dads get micro-aggressions in daily life. I take my son to school sometimes and I feel it too - five-digit monthly dividends portfolios are invisible and people will look at you funny anyway.

The response from males in the face of both assortative mating and hypergamy is very straight-forward -They withdraw from mate competition.

In every major recession, males who drop out from the job market experience a boost to their life satisfaction. This is because there is a universe of computer games and streaming videos waiting to entertain them for $20 a month.

We've done this mental exercise before. A $100,000 portfolio can generate $500 a month at 6% yields. More if you are willing to employ leverage. $500 a month can support a BBFA that just streams and eat instant mee. If the portfolio fails due to some reason, just get a gig economy job to top up. This is slowly becoming a acceptable lifestyle for males.

If you take this BBFA route, you will not have a lot of hair left by the time you hit your 50s, but there is no woman to judge you on Valentine's Day.






Wednesday, February 12, 2020

What can Private degree holders learn from Money Launderers

Throughout my working life, I worked with private degree holders of all stripes, some good and some bad. There are bad local degree holders as much as there are bad private degree holders but the good ones I am exposed to are often unfairly tarred by their qualifications. This is largely because educational qualifications in Singapore are signalling instruments rather than skills certificates. Our HR departments want a to use a shortcut to reduce the number of applications to a reasonable number so a local degree provides a convenient tool to make life easier.

So, I probably do not need to need to remind everyone that if a local degree holder play the Game of Life at Normal mode, a private degree holder plays it at Hard or Inferno mode. The salary gap between the local degree holder is over $1,000 a month bench-marked against a private degree counterpart with a much higher employment rate six months after graduation.

When I suggested to a colleague to launder his private degree ( because I think he's a great worker ), he couldn't stop laughing.

This is probably a good reason to do more research towards a blog article.

As it turns out, money launderers can teach private degree holders quite a bit. In fact, if you have a  third class or second lower local degree, the same lesson applies to you here as well. It's not that your degree is crappy - grade inflation just makes things so bad that an Honors degree is just not what it used to be.

As it turns out, money laundering is divided into three phases, all of which can point to useful and practical steps a private degree can do to improve his station in life. This article does not cover the situation whereby a private degree holder gets into a sales role or starts a business because these are options that are least dependent on educational qualifications.

a) Placement

The first step is moving money from the source of its ill gotten gains. In this step, money launderers typically find a way to smuggle the money out of a country. Imagine someone crossing national boundaries with a sack of gold.

When analogizing this process for private degree holders, the national boundary is the boundary between school and the workplace. Needless to say a private degree holder can face a lot of discrimination in a job interview. Here are some suggestions in the placement stage :

  • Do a lot of internships so the employer can witness your actual work ethic. This makes the job interview unnecessary.
  • Pull strings to get a job. Use your family connections to get something. Be shameless at it because us local degree guys will not fight fair anyway.
  • Join the tech industry. Tech discriminates the least because the demand for IT support will always be there and skills matter more. Why so many private degree holders study shit subjects like business management baffles me when Tech is one industry that will hire anyone that can code or do system admin.
  • If all else fails, lower your starting pay to get anything that pays the bills.
During the placement stage, avoid joining the gig economy unless you can developing deep tech skills. You don't want to be stuck as a Grab driver for an extra $800 a month even though that may be tempting.

b) Layering


When layering, a money launderer makes it harder to detect and uncover money laundering activity. One way to do this is to buy a material asset with your cash and then sell it away to make the money more legitimate. In the 1990s, I heard that some folks are offering cash to buy up winning lottery tickets at a face value higher than the winning value.

Layering is critical to a private degree holder. Once you have a steady job to pay the bills, you need have a plan to make your private degree stick out much less in your resume. This phase is not easy, some ideas I have include the following :

  • Produce results that are so stellar that it overwhelms all your previous educational history. This is hard because a lot of job roles may not have clearly defined results.
  • Get a masters degree from NUS or NTU. This works but local universities may also discriminate against private degree holders. 
  • Get into a good MNC via a contract role and then work like a bitch to turn it into a permanent role.
  • Create a stellar record of community service outside the workplace. Joining grassroots or Toastmasters may create something to talk about to an employer beyond work. 
  • Earn a string of industrial qualifications that are recognized in your industry such as the CFA, CPA, CISA or even PMP qualifications.

Remember that you need to be a realist when you commit yourself to layering. I am fully cognizant that private degree holders actually pay more for their degrees and the temptation to emphasize it more will be there, but everything you need to do once you get a job is to take steps to overwhelm it with something better in your resume.

And for God's sake, do not use your hard-earn money to get another advanced qualification from a private university. If you do need skills, use a MOOC or get a graduate diploma from a local university.

c) Integration

The final stage of money laundering is integration where the money, once laundered get reintegrated into the legal economy. Launderers often employ shell money to buy properties where proceeds from these sales would then be 'legitimate'.

With a good resume and a job, it is now time for a private degree holder to improve his station in life. Getting to this stage probably means that this person may have done more career planning than the normal local degree holder so I expect this guy to be tough cookie. At this stage, the usual career advice matters but some common patterns exist :

  • Develop a niche in your company to make it hard to retrench you. When I was in HP, the first managers to be retrenched are non-degree holders. Pink slips came so fast, a work record could not even be established. Doing something no one else wants to do is vital. During my time knowing how to operate a mid-range or mainframe server leads to years of job security.
  • Build networks with other private degree holders to cover each other's backs. In my time in the legal industry, I know that the University of Tasmania lawyers cover each other's backs much better than local degree holders. They go back a long way when they were students in Temasek Polytechnic.
  • Of course it goes without saying that this is the time to start building an investment portfolio.
Also, don't fall for the big lie that soft skills matter. People get better people skills as they get older. To think of soft skills as a competitive advantage is balderdash. Where two executives are equal in tech skills, of course soft skills become a tie breaker. Deliberately building up soft skills beyond just OJT thinking that they will boost your salary is hogwash designed to keep humanities professors employed. I work with a lot of low-EQ troglodytes because they have a mysterious power to keep things going. May of these trogs come from the legal department.

I think while private degree holders in Singapore do find life much harder than local degree holders, developing a stoic and realistic attitude can make a big difference in balancing out life outcomes at a later stage in life. 

While it may be unpleasant for some readers to review the approach used by money launderers to wash money from ill gotten gains, it forms a reasonable analogy to show us how to develop an action plan forward.






Monday, February 10, 2020

MBA in a Nutshell #24 - Accounting and Finance : Creative Accounting

This article highlights various approaches to accounting that can possibly lead to civil and criminal penalties. Because financial statements allow a degree of flexibility and discretion, highly skilled accountants with the right lawyer can this game while avoiding more serious consequences.

It is therefore up to the investor to be wary of creative accounting techniques :

a) Growth in accounts receivables exceed growth in sales 

This happens if you sell a sell a lot of products but keep extending credit terms so you never collect on the debts owed to you. This technique can boost revenue but minimize actual incoming cash flow. The final outcome is that the company eventually runs out of cash while looking profitable throughout this period.

b) Growth of inventories exceed growth of sale

This suggests that the company's products are crap and they are losing market share.

c) Ordinary expenses are included in restructuring charges and restructuring happens frequently

This can overstate future profits. As I am not an accountant, I'm not even sure how to detect this. I am guessing that reading footnotes on the restructuring is required to see this. This gets worse if the company is serially writing off something. In the book, Kodak tried to restructure in 6 out of 7 years.

Having worked for HP and facing restructuring throughout my entire stay there, this should be more common than expected. In fact, I can argue that in old HP, restructuring charges ought to be ordinary expenses.

d) In-process R&D charges are written off by the purchaser at the time of acquisition

As I am not an accountant, I thought this was fine. How much of R&D even results in a product that can be monetized by a company ? Why not just write it off so that investors will not have false hopes about the future. But this idea is also wrong, most decent companies have intangible assets and this has to be R&D spending that will be amortized over time.

As an investor, it is very tempting to build a checklist from the above-mentioned points to qualitatively suss out the weaker counters. Unfortunately, they hardly matter in REITs because there is little by way of product sales and R&D.

The problem in investing is that even if you can build a detailed checklist of accounting watch-outs, you will merely be left with a few obvious stocks to buy that every retail investor is hoarding like toilet paper right now. The outcome of rigorous screening is often the same as intuition.

As such, you need to be be careful of investment experts who talk about screen filters and qualitative checks but end up with a list of strong-sponsor REITs that yield less than 5%. Any uncle with some investing experience can create this list for you without a model or a checklist. 

Saturday, February 08, 2020

Can you support a sugar baby using CPF payouts ?

In Financial Blogger's Cinematic Universe, the topic that always sparks a reader's interest is CPF.

Another topic that readers like to read about is sugar babies.

In times like the Corona virus infection, it may not be too feasible for some of my friends who are life-long investors in the Geylang region to continue to visit their regulars haunts because there may be a chance of infection. In fact, the 12th Corona victim is likely to be a freelance sex worker. The person who reminded me of this fact is strangely enough, my mum, who was so concerned about my friends, she asked me to remind them to stop visiting Geylang this new year season.

But I am a realist.

If I can't sell my investments in anticipation of the situation getting worse, I am pretty sure my pals would still need to have their needs met. With this realization, why not combine these two topics into one and let's see whether it is possible to support a sugar baby. Sugar babies probably see fewer clients so I expect them to be a safer choice in times like this.

Fortunately, we now have data on how much a sugar baby costs. It takes about $3,000 a month to support one. In fact, A friend gave me another data point of $2,500, but he gave the caveat that at this price point, the sugar babies are kind of plain and not really worth the trouble.

Armed with this data, let's go to the CPF Life estimator website to see whether someone born at the same time as me can support a Sugar Baby.

a) Current FRS sum of $181,000

The first simulation is for the sum of $181,000 for a males with around the same birthday as I do.

The output looks like this :


As you can observe, the standard plan is your best best as it has the highest proportion invested in annuities. The Escalating plan increases at 2% every year but you might be too old to enjoy your sugar baby by the time that reaches $3,000 a month.

Ok, so I estimate in most cases attaining FRS is insufficient to support a sugar baby.

b) ERS sum of $271,500

A CPF member can keep an enhanced retirement sum of up to $271,500. If you are really committed to getting a sugar baby at age 65, you can commit more money in your CPF. Based on the calculator you get the following payout :


You get better numbers at around $2,000 under the standard plan. At this stage, it should be pretty obvious that sustaining a sugar baby with CPF is going to be quite hard.

c) CPF Life supplemented with dividends 

I think by now, you should be convinced that CPF Life can, at best, supplement the sugar baby lifestyle and cannot stand on it's own. Suppose you already have FRS, you can expect a pay out of $2,000 a month, you will need a dividend portfolio to do so.

Suppose you blend a REIT portfolio with some blue chip equities, you should be able to attain a 5%.

To generate an extra $1,000 a month, you will need $12,000 / 0.05, you still need an extra $240,000 to cover your short-fall.

d) Share a sugar baby with friends

With a full FRS sum, you will still need $240,000 to life your sugar daddy lifestyle. This can be  insuperable.

Fortunately I know an old friend who was able support a sugar baby while working as a technician in his 40s with an income below $4,000 - He got a few colleagues to share one.

I don't really recommend that readers do this because it's almost tantamount to sleeping with your colleagues and you might be cultivating a super-infector.

Anyway, I hope that you have learnt something from this article and can experiment with the CPF life estimator.







Wednesday, February 05, 2020

Why are there so many jerks outside the private sector ?

Image result for power of bad"

[ Update : The preview tonight is on and most tickets have already been taken. You can review the new format for my preview "Roads to Riches" this evening. Click on this link for further information. ]

When I unsuccessfully transitioned out of the private sector. I was shocked by the number of jerks I had to contend with in my new workplace that eventually led to the demise of my regular salaried career. I fully admit my failure, but it is only recently that I managed to get a glimpse of an idea as to what went wrong.

There is an academic term for a jerk in the workplace. A jerk is an "interpersonal deviant". The typical jerk will say things like "what kind of school did you come from" when they detect weakness in their colleagues.

At a more personal level, I have two experiences to share on this blog :

  • A superior called me into room and hectored me over some "improvements" I made to a table column on a Power-point slide. Her focus was not the merits of amendment, but how my amendment proved that I looked down on her because she does not have a First Class Honours for her first degree. She spent the rest of the time reminding me of her advanced degree qualifications. 
  • Another superior, after the Little India riots, asked an Indian IT vendor whether they participated in the riots the day before. 
  • This behavior was not new to this superior - she even told another superior to be careful when admitting a potential new team member because she was newly married and may create a manpower vacuum if she got pregnant.
In my decade in the private sector, I made my share of mistakes but I never encountered this kind of egregious behavior in the workplace in an MNC.

I finally managed to get some insight from The Economist's Bartleby article this week that explains the difference between the private and government sectors.

Imagine putting a private sector CEO or 6 Sigma expert to screen travelers who were hit by the corona virus. As the numbers infected are low, perhaps there will be cost savings if we just sampled a few passengers from a plane and reject the entire load if one test turns out positive. That would save costs for the taxpayer.

But this would be ridiculous behavior in the government sector. Problems faced by the government cannot be reduced into bottom line. Every action has to consider optics, multiple stakeholders and a lot of different KPIs exist.

Studies in the private sector show that removing a high-performing jerk from the office will mean that the team may lose it's best performer, but the rest of the team will eventually improve their performance, calculated by bottom line, by around 30%.

The government cannot flush out their deadwood and jerks from the organization. 

They don't even know what resources and hidden domain knowledge these folks have. They can't measure what are the improvements when a jerk gets removed from an organization. So they live with it, and eventually the entire organization normalizes jerk-like behavior.

There is a lesson to learn from all this. 

The best way to transition out of the private sector is to target agencies that are very close to the private sector, where there is a semblance of  a bottom line. MAS and EDB comes into mind but these agencies will be highly selective. 

If you are one of those older workers forced to leave the private sector, then good luck to you. Endurance and resilience are more important than actual competence.

Or you can be like me, transition with dividend income more than take home pay.